Ukraine Pays Romanian Price for Russian Gas

Gazprom believes it sells gas to Ukraine at the European market price. The Russian gas giant also claims that the prices paid by the former Soviet states should achieve netback parity with the European exports. However, for more than three years, Ukraine has been buying gas at prices way above the equal netback level. 

Gazprom management's discussion for Q1-2009 reported the gross average price of gas sold to the countries other than Russia and the former Soviet states at $382.7 per mcm (a year later, because of the change of reporting format, the price was raised to $392.3). A straightforward equal netback approach should assume the Q1-2009 price of gas at the Russian-Ukrainian border at about $383/mcm minus the cost of international transit, including the cost of crossing Ukraine. In fact, the fair price should have been lower because Naftogaz was the biggest importer of Russian gas and on top of that the Ukrainian company was providing free gas storage services to Gazprom (the real market price can be determined only by competition).

Surprisingly, the Gazprom-Naftogaz contract of January 19, 2009 has set the full price of Russian gas for Ukraine at $450 per mcm. Adding the cost of international transit would put the price of gas at the Czech-German border at above $500!

Vladimir Putin has explained this phenomenon at a meeting with German journalists: "Just consider: as for Romania the price of gas is $470 in the first quarter, minus transport, it makes up $450 per 1,000 cubic metres".

If Mr. Putin is correct, then the price of gas for Ukraine is not European. It is Romanian.

Mikhail Korchemkin is managing director of East European Gas Analysis (EEGAS)