Despite Warm Welcome In Sochi, Gas Prices Still Likely To Increase.

After his meeting with the Russian PM Fradkov, Victor Yanukovich announced that the price of gas for Ukrainian households will remain at $82 (UAH 414) per ths cm until the end of the year. He added that Ukrainian industry can bear paying up to $110/ths cm (at the Ukrainian border)but that his government was working to fix the price of gas at the at $95/ths cm until 2007. The new PM said he is expecting tough negotiations concerning prices for 2007, which he said they would start negotiating before the end of the year. Vladimir Nesterenko: As expected, the arrival of Yanukovich’s government has not caused Russia to change its pricing policy towards Ukraine. The major issues still remaining are the volume and the price of gas which still needs to be supplied (~8bcm, according to Andriy Klyuyev, vice-PM) and the price for the gas RosUkrEnergo supplied in excess of the 32 bcm agreed upon in January this year (part of which was pumped into storage units). Given that the contract between Russia and Turkmenistan expires in September, and the strained ties between Ukraine and Turkmenistan, the former is likely to face higher gas prices in 4Q06, and will certainly see higher prices in 2007. The only possible way to delay the price increase would be by reviving the idea of a gas transportation consortium. However, Gazprom is against the current format of the consortium proposed by Ukraine. It is unclear whether Yanukovich will change his position and offer Gazprom managing control over Ukraine’s pipeline system.