Naftogaz gains more gas exclusivity at the expense of private producers

The Cabinet of Ministers of Ukraine adopted a resolution at its Nov. 26 meeting (made public on Nov. 28) that makes the state holding Naftogaz of Ukraine the exclusive supplier of natural gas to the 168 biggest consumers in Ukraine. The companies included in the list are prohibited from buying gas from any other supplier between Dec. 1, 2014 and Feb. 28, 2015. With the same resolution, the Cabinet ordered all the state-controlled consumers to buy gas from Naftogaz and prepay for it.

With the same decree, the government canceled its previous resolution adopted earlier in November that granted exclusivity to Naftogaz in supplying 90 large consumers in Ukraine. The previous decree was challenged in court by private gas producers, the Interfax-Ukrayina news agency reported on Nov. 28.

Alexander Paraschiy: The government is stubbornly eager to support Naftogaz in both granting it privileges to supply gas to the richest consumers and explicitly demanding them to pay for gas in advance. While earlier we were optimistic on the cancelation of such privileges (with the previous resolution being challenged in Ukrainian courts, as well as the European Energy Community), now it’s clear that the government is serious in its intent and will undertake a legal defense to protect this scheme.

Clearly, this is negative development for small private gas producers like JKX Oil & Gas (JKX LN), Serinus Energy (SEN PW) and Regal Petroleum (RPT LN). And this is also negative for DTEK (DTEKUA), which has its own gas production asset but is unable to supply its gas to related consumers since all of them, except Yenakiyeve Steel of Metinvest (related to DTEK), are in the government’s restricted list.