Ukraine adjusts natural gas price for industry by 1.6x m/m

Ukraine’s power sector regulator increased the “marginal” price of natural gas for industrial consumers to UAH 8,900/tcm as of March, a 56% rise from UAH 5,700/tcm in February. The marginal price is the maximum price that a consumer can pay to a gas producer or importer. Ukraine’s gas import monopoly Naftogaz asked for an increase in the marginal price to UAH 11,000/tcm, while the regulator decided on a smaller adjustment, according to the Interfax-Ukraine reported on Feb. 26.

Alexander Paraschiy: The news is slightly encouraging for Ukraine’s gas producers, for whom the marginal price serves as a benchmark for the gas prices they charge at retail. They include the publicly traded companies JKX Oil &Gas (JKX LN), Serinus Energy (SEN PW) and Regal Petroleum (RPT LN).

At the same time, the news is discouraging for the outlook of Naftogaz’s deficit and Ukraine’s budget. While the increase, in itself, is encouraging, the speed of rate adjustment has lagged significantly to devaluation of the local currency. This implies a high risk that Naftogaz will have to sell its imported natural gas at a loss.

In December 2014, the marginal price for gas was UAH 5,900/tcm, or about USD 375/tcm. At that time, it covered Naftogaz’s gas import costs of about USD 370/tcm. A February rate of UAH 5,700/tcm (or about USD 230/tcm, at the mid-month official exchange rate) will create a significant deficit for Naftogaz, whose costs to import gas are not less than USD 330/tcm.

The increase of the marginal price in March won’t be helpful at the current official hryvnia rate (UAH 30/USD) as it translates to just USD 297/tcm, which would be barely enough to cover gas import costs.