Ukraine may cut domestic gas price, bad for independent producers

Energy Minister Eduard Stavytskiy reflected optimism on Ukraine’s three-year quest to decrease the price of natural gas imported from the Russian Federation. “I think we will reach a consensus this year,” he told journalists on March 13. Moreover, the minister said there are grounds to revise downward domestic gas prices (for industrial consumers) by the start of new heating season (mid-October).

Alexander Paraschiy: This marks the first time a Ukrainian official explicitly said that internal gas prices (for industrial consumers) may decline following an anticipated correction of import prices. The alternative option is to keep “industrial gas” expensive and direct the profit generated from the cheaper imported gas to partially cover the losses the state incurs from supplying extremely cheap gas to households and heating companies.

Recall, government gas price caps for industrial consumers (now being USD 439/tcm net with special charges and transportation mark-ups, and about USD 490/tcm with charges, net of VAT) serve as the price benchmarks for gas that is sold by independent producers, like Regal Petroleum (RPT LN), Kulczyk Oil (KOV PW), Cadogan Petroleum (CAD LN) and JKX Oil & Gas (JKX LN). A price decline for industrial gas is the main risk to their profit.

Indeed, the risk for these gas producers rises with every new rumor and official statement on Ukraine’s improving chances to get a lower gas import price already this year.