Russia, Ukraine to talk on gas today, Russia offers USD 20/tcm discount

The discount for Russian natural gas that will be supplied to Ukraine in 4Q15 may amount to USD 20/tcm, Russian Energy Minister Alexander Novak reported on Sept. 24, as cited by the Interfax news agency. The discount-less price for Ukraine for the period was earlier estimated by Gazprom at USD 252/tcm. The same day, the Russian government reported it approved a resolution to grant a gas discount to Ukraine by reducing the export duty, but did not specify any number. The government’s press release only stated that the new gas price for Ukraine has been set at the levels of its neighboring countries.

In other news, Novak reported that Ukraine, Russia and the EU will hold a Sept. 25 meeting to discuss gas supply issues to Ukraine. At that meeting, the parties are going to agree a “winter gas package” for Ukraine, which may include Russia providing a discount and the EU providing a hard currency loan for Ukraine to purchase gas.

Recall, the Russian government offered a USD 40/tcm (14%) discount for its gas to Ukraine for 3Q15 (resulting in a net price of USD 247/tcm), while Ukraine refused to buy at that price. The Ukrainian side had been expecting a net price of USD 201/tcm, which was based on the rules that were applied since 2010, which assume a discount to the benchmark price of 30%.

Alexander Paraschiy: The USD 20/tcm discount is just 8% of the benchmark price of Russian gas, or the lowest discount offered since 2010. However, we believe Ukraine will agree to import at the new price. Ukraine was demanding last year that Russia supply its gas at the market price, and what’s being offered by the Russian side for 4Q15 more or less corresponds to that demand. We expect that gas deal will be signed today at the trilateral meeting, and Ukraine will be able to restart gas purchases from Russia in 4Q15. Though, we expect that Ukraine will prioritize gas purchases from the EU side and will only buy gas from Russia to satisfy its residual needs.