Boiko Talks of 4Q Gas Contract, Transport Consortium.

Yuri Boiko, energy minister, said on Friday that he expected to sign an agreement with Gazprom by the end of this week for additional gas to meet the country’s import needs through the end of the year. He said he thought the price would be “the one talked about by the prime minister”, that is, the current price of $95/tcm at the Ukraine-Russia border. He said he was also preparing to visit Turkmenistan for talks, and that he planned to revive the idea of an international gas transportation consortium that would invest in gas pipelines in Ukraine and operate the infrastructure it builds, which he said would be implemented by October. He stressed that the consortium would not operate or get ownership of the existing Ukrainian gas transportation system, but the consortium could operate currently idle routes (Ivatsevichi-Dolina and Torzhok-Dolina) in addition to newly built ones. Although Boiko did not say who would take part in the consortium, his comments came one day after the new head of Naftogaz, Volodymyr Sheludchenko, met a delegation from E.On Ruhrgas (Germany). An existing gas transport consortium involving Naftogaz and Russia’s Gazprom, has not yet finished its first project (the Bohorodchany-Uzhgorod line). Vladimir Nesterenko: Boiko didn’t mention the quantity or the ultimate source of the additional gas he expects to contract, but the obvious most likely source is Turkmenistan. Ukraine has a contract for 34 bcm of gas imports this year from RosUkrEnergo, which in turn has a contract for 30 bcm of gas imports from Turkmenistan, which reportedly is due to be used up around the end of this month. Andry Klyuyev, the deputy prime minister for energy, recently said Ukraine needs only an additional 8 bcm this year, but normally Ukraine imports around 58 bcm a year. The Turkmen president has said he will insist on a $35/tcm gas price increase (from the current $65/tcm to $100/tcm at the Turkmen-Uzbek border) after his current contract runs out, and Boiko will need all the support he can get from Russia if he is to convince the Turkmenbashi to back down. Reviving the transport consortium and bringing in E.On would be one way to sweeten the deal – a German partner would tend to side with Gazprom, this giving the latter effective control. However, the consortium as described by Boiko would probably not be enough to avoid another gas price increase by next year. We expect the gas import price will be increased by January 2007 to $120-140/tcm at the Russia-Ukraine border.