Ukraine wants gas discount from Gazprom, launches EU imports

Ukraine restarted importing natural gas from Poland on April 15 in accordance with a contract signed with German RWE Supply & Trading, the Interfax-Ukrayina news agency reported the same day, citing the Ukrtransgas pipeline operator. Polish operator Gaz System confirmed this information to the UNIAN news agency, clarifying that the supply volume is 4 mcm per day (about 1.4 bcm annualized), which is the maximum possible amount that can be delivered via the Polish route.

The same day, Naftogaz of Ukraine (NAFTO), the state gas production and transit monopoly, released a statement explaining it is ready to fully repay its debt to Gazprom (about USD 2.2 bln) as soon as the Russian monopoly agrees to provide gas at USD 268.5/tcm (as we understand, for 2Q14). Earlier this month, the Russian side stated that Russian gas will cost Ukraine USD 485.5/tcm in 2Q14, after a one-quarter bargain price of USD 268.5/tcm (as agreed on December 17, 2013 by presidents Vladimir Putin and Viktor Yanukovych).

Alexander Paraschiy: We believe that Naftogaz’s yesterday appeal to Gazprom has no chance to be satisfied: the Dec. 17 agreement, which enabled Ukraine to count on a special price for Russian gas, stipulated that such a special price should be agreed before the seventh day of each quarter, while now we’re approached the sixteenth. Moreover, due to political reasons, we see a low probability that Ukraine will be able to secure the second-best price for Russian gas for 2Q14, which is USD 385.5/tcm (based on the $100/tcm discount secured in the 2010 Kharkiv Accords). Our base-case scenario involves Gazprom insisting on charging USD 485.5/tcm for Ukraine, and Naftogaz will try to seek for alternative sources of gas in the West.

The purchase of natural gas from Poland will enable Ukraine to avoid buying Russian gas till the start of the heating season (mid-October), when gas consumption usually triples in Ukraine. To seriously decrease its dependence on Russia, Ukraine has to urgently solve all technical issues with Slovakia, the only country that can secure sizeable supplies of gas to Ukraine from the west.