Gazprom sees benchmark gas price for Ukraine at USD 252/tcm in 4Q15

Gazprom CEO Alexey Miller estimates the price of Russian natural gas for Ukraine in 4Q15 will be USD 252/tcm, before the discounts, the Interfax news agency reported on Sept. 1. It’s too early to talk about any discounts to this price, Miller told journalists.

During the last five years, Ukraine has bought Russian gas at a discount of USD 100/tcm, but not more than 30% of the undiscounted price. Based on such an approach, Ukraine could have imported natural gas from Russia at USD 201/tcm (assuming the standard 30% discount), but the Russian side offered on June 29 a USD 247/tcm price for 3Q15 (impluying a 14% discount) that Ukraine refused to take.

Alexander Paraschiy: It’s very likely that Ukraine will have to buy gas from Gazprom at an undiscounted price this winter, for the first time since 2009. Yet even without a discount, this price would be among the lowest in the last five years. In any case, Ukraine will continue to minimize its imports of Russian gas, but it’s very unlikely to avoid such imports altogether in the upcoming heating season.

Besides the possible tough talks on gas pricing for 4Q15 and onward, Russia and Ukraine have on their plate another bone of contention, which is the restructuring of a USD 3.0 bln Eurobond that is held by the Russian state National Welfare Fund. The Ukrainian government will offer to restructure this bond under the conditions of the debt operation concluded in late August with the biggest private holders of its other Eurobonds. Theoretically, the Russian government (which officially determines the gas discount for Ukraine) may try to exchange some discount for more advantageous bond restructuring conditions. Such an exchange won’t be an acceptable scenario for the Ukrainian government, which needs concessions on both fronts.