Gazprom Will Have to Reconsider Gas Prices to Ukraine
Gazprom will have to compromise on Ukraine’s natural gas bill because Ukraine’s pipes are Russia’s only option for distributing gas to the lucrative European market.
Although the two countries’ leaders failed to reach an agreement in Sochi, analysts do not believe either country is willing to stir up tensions. Ukraine has firmly rejected the “Belarusian scenario,” which involved taking over the Belarusian gas transport company while applying an “integrative decrease adjustment” to the cost of Russian gas. Ukraine simply will not give up control of its key asset: the Russia to Europe gas pipeline system. Russia is faced with a difficult choice because it currently has no alternative routes for gas supply to this region.
Ukraine also avoided joining the Customs Union or agreeing to merge the assets of Gazprom and Naftogaz.
Former Naftogaz spokesman Valentyn Zemlyansky believes Ukraine will not stop short of petitioning the Stockholm Arbitration Tribunal for a revision to its gas contract with Russia. The oil market has been inconsistent since the beginning of the year. Oil price fluctuations are good enough grounds for Ukraine to contest its contract with Gazprom in an international court, he said, adding that international arbitration is the last thing Russia needs right now. European Corporate lawsuits have already knocked the value of Gazprom stock down.
Ukraine currently enjoys a 30 percent discount on the contract price of Russian gas, although it is limited to $100 per 1,000 cu m. With this discount, Ukraine’s gas bill could reach $400 per 1,000 cu m in the fourth quarter of 2011. At the same time, Germany’s bill is almost the same, while logically, it should be higher due to higher transportation costs, given the respective geographic positions of Germany and Ukraine. This is motivation enough for Ukraine to demand a 30-40 percent cost reduction relative to Germany’s price.
Germany, in turn, is also making noise about a price reduction based on the growing competition in the European gas market.
Source: Moskovsky Komsomolets