Ukraine, Russia near gas trade resumption in 2Q15

The Russian government has extended zero duty for export of Russian natural gas to Ukraine for 2Q15, according to its March 31 decree. The cancellation of the duty, which was 30% of the market price of gas, but not more than USD 100/tcm, makes it possible for Gazprom to sell natural gas to Ukraine with a USD 100/tcm discount to the price based on basic 10-year contract signed in 2009. According to Russian Energy Minister Aleksandr Novak, no other documents need to be signed between the Ukrainian and Russian sides to start supplying Russian gas with the discount, Interfax reported on April 1. The price for Ukraine will be close to USD 248/tcm in the quarter, Novak estimated. He also clarified that a take-or-pay clause, stipulated by the basic gas contract, is valid for 2Q15. This was not the case for the period of Nov. 14 – Mar. 15.

Meanwhile, Ukraine is not hurrying to start buying Russian gas at the new discounted price, even though it is much cheaper than what Ukraine paid for Russian gas in 1Q15 (about USD 329/tcm) and it’s cheaper than the EU gas the Ukraine is importing right now (about USD 280/tcm, based on Energy Ministry estimates). Energy Minister Volodymyr Demchyshyn expressed his hope that new terms of supply of Russian gas to Ukraine will be clarified at a trilateral meeting, with EU intermediation, in mid-April.

Ukraine’s Naftogaz provided a more confusing report on the issue on April 2. According to its press-release, it signed a deal with Gazprom “to extend the effect of key elements of Brussels agreement till the end of 2Q15”, possibly referring to the agreement that was valid in Nov. 14 – Mar. 15. Naftogaz also expressed expectations that a new interim agreement on gas between Ukraine and Russia will be signed. This new deal would be valid until the Stockholm arbitration court concludes on its dispute with Gazprom (the court decision is not expected in at least one year).

Alexander Paraschiy:It seems like there are some other obstacles in the way, aside from the take-or-pay clause, in order for Ukraine to start importing Russian gas. The take-or-pay clause foresees that Ukraine should pay for a minimum amount of gas for the entire year, and we wonder how it can be applied to quarterly gas supplies. Moreover, Ukraine has had no direct consequences for breaching the take-or-pay clause previously. Hopefully, something will be clarified at the new trilateral meeting on gas that may take place in two weeks. Meanwhile, Ukraine has enough time so start building up its gas stockpiles to prepare for the next heating season.