Ukraine may get hefty gas discount, let Gazprom manage its pipeline

Ukrainian government and Gazprom officials are in talks to create a bilateral natural gas transit consortium, reported the Kommersant-Ukrayina newspaper on Feb. 11. Previously, consortium proposals involved the European Union (EU). The Ukrainian government has reportedly shelved that idea because the EBRD tightened loan criteria for modernization projects, according to an anonymous source in the Energy and Coal Production Ministry, who also cited difficulties in getting alternative gas supplies from the EU. The Ukrainian side, represented by Vice Prime Minister Yuriy Boyko, proposes that the consortium manage Ukraine’s transit system, with ownership remaining with the Ukrainian government. By letting Gazrpom in, Ukraine could gain a price of USD 280/tcm of gas, compared to USD 430/tcm currently.

Alexander Paraschiy: The possible deal rules out Ukraine importing gas from the EU since it will be the consortium that will determine the pipeline’s direction, which will certainly be westward if Gazprom has any say. The discussed discount for Russian gas looks like a good reward for that, at least at first glance. If the deal is done and Ukraine gains the discount, Ukrainian independent gas producers like Regal (RPT LN), Kulczyk Oil (KOV PW) and JKX (JKX LN) will be the primary victims, since their selling gas prices to Ukrainian buyers are tied by state regulations to Gazprom’s import price.