Naftogaz Asks Cabinet For USD 1 Bln to Buy Reserve Gas.

Naftogaz Ukraine has asked the Cabinet to allot it USD 1 bln to pay off its debts to RosUkrenergo and to buy 16 bcm of gas to be held as reserve in underground storage for the heating season. Naftogaz said on Friday it had agreed to buy the additional 16 bcm from RosUkrEnergo, but didn’t announce the price. Concorde Capital:  Naftogaz is under pressure to buy the reserve gas because Gazprom last year stopped storing gas in Ukraine’s storage system. The lack of reserve gas was one of the main reasons for last winter’s gas shortages and European governments are urging Ukraine to build a reserve. If the reserve gas is priced at the same $95/tcm price that Ukraine received in its January contract with RosUkrEnergo, 16 bcm would cost about $1.5 bln. It’s unclear how much of this 16 bcm would be consumed this year. Before this agreement, Naftogaz needed to contract about 22.5 bcm to cover this year’s consumption (the agreement signed in January with RosUkrEnergo covered only 34 bcm of supplies, and the amount of consumption not covered by domestic production is expected to be about 56.5 bcm). We believe Naftogaz will still have to purchase some extra volumes from RUE or Gazprom, probably at a price premium.