Ukraine halves gas imports in 1Q15, Russia offers bargain price for 2Q

Ukraine imported 0.53 bcm of natural gas in March, the UNIAN news agency reported on April 1, citing the press service of gas transit monopoly Ukrtransgaz. This implies Ukraine imported about 2.7 bcm of gas in 1Q16, which is 53% less yoy. No gas from Russia was imported in 1Q16 as all volumes were purchased from the EU.

In other news, Russian Energy Minister Alexander Novak told journalists that price of Russian gas for Ukraine will be “less than USD 180/tcm” in 2Q16, according to an Interfax report on April 1. Novak clarified that this is the price based on the methodology foreseen in the contract between Naftogaz and Gazprom. As soon as this price corresponds to current market levels, Russia won’t provide any discounts in the second quarter, Novak said. The price of Russian gas, including a tiny discount, was USD 212/tcm in 1Q16 and USD 227/tcm in 4Q15.

Alexander Paraschiy: With the falling volumes and prices, Ukraine has reduced gas imports by about 70% yoy in 1Q16, we estimate. This was among the factors that allowed to ease pressure on the local currency. However, we estimate imports in the coming quarters will have to intensify as Ukraine will have to import about 14-15 bcm of gas this year, compared to 16.4 bcm in 2015. At the same time, due to gas price decline, we expect gas imports will not place significant pressure on Ukraine’s current account this year. The Russian price for 2Q16 looks within the market range indeed, but this will not necessarily stimulate Ukraine to resume purchases from Russia, which Ukraine has resisted since Nov. 25, 2015.