Gazprom Cuts Gas Supplies by Another 25%

Gazprom slashed natural gas supplies to Ukraine by another 25% on Tuesday, the second time in two days. Based on Gazprom’s data, in absolute terms the two consequent cuts amount cumulatively to 69.3 mln m3, or 50% of the planned delivery volume (138.6 mln m3 a day). Gazprom spokesman Sergey Kupriyanov said that Gazprom could make additional cuts, as long as both parties, Gazprom and Naftogaz of Ukraine, were unable to reach a mutual agreement on the terms of gas supplies in 2008. On Monday Gazprom offered a new draft agreement on Russia-Ukraine gas supplies, but Naftogaz responded by saying the agreement was not advantageous to Ukraine. First Vice Prime Minister of Ukraine, Alexander Turchinov said yesterday that Gazprom has not paid transit fees for gas delivered to Europe, while Gazprom claims it has not received the respective invoice. Vladimir Nesterenko: Based on the data disclosed in local media,we see the volume of gas in storages should be sufficient to offset the cut in imports at least until the end of heating season (mid-April), after which consumption by the population will reduce by 40-45 mln m3 a day. If reduction in gas imports lasts longer than 2-3 months, the government is likely to revive gas supply limits to industrial enterprises. The conflict also increases the risk of another increase in the gas price for Ukraine. Both supply limits and price increases could heavily affect fertilizer producers; other industries will see a lesser impact. The news is also negative for Ukrnafta, as it may be unable to sell its gas from storage at a price higher than the current cap, contrary to our forecast. Please look forward to our flash note on the issue later today.