RosUkrEnergo Remains The Main Supplier Of Imported Gas To Ukraine in 2008

According to Alexander Shlapak, deputy head of the Presidential Secretariat, Naftogaz of Ukraine signed a gas contract with RosUkrEnergo (RUE) on supplyies of around 50 bcm of natural gas in 2008 (including the volume already supplied in 1Q08), at USD USD 179.5/tcm, Interfax reports. He noted that Gazprom’s recently established subsidiary replaces Ukrgaz-Energo as a supplier of imported gas to consumers. Vladimir Nesterenko: As we mentioned before, removal of RosUkrEnergo will take time. The information that Naftogaz is going to get only 50 bcm, out of ~55-57 bcm import needs, means that the remainder is likely to be supplied directly by Gazprom/RUE to Gazprom’s subsidiary, Gazprom Sbyt Ukrayina Ltd (GSU). Given that the new contract also assumes that GSU purchases at least 7.5 bcm from Naftogaz, the subsidiary will cover around 20% of Ukraine’s 76 bcm (USD 14 bln @ ’08 prices) gas market. As the contract was signed only for 2008, we believe Gazprom will target improving its share in 2009, to 25-30% (20-25 bcm), which is also likely to be accompanied with the increase in the price of Central Asian gas (see our note of March 12, 2008). Much will depend on the ability of Ukrainian negotiators to secure their position in talks on creation of the JV replacing RosUkrEnergo. If they manage to agree with Gazprom that the JV purchases gas directly from Central Asian suppliers, and not from Gazpromexport, as RUE currently does, that would help to restrain Gazprom’s leverage and limit penetration into the Ukrainian market.