Ukraine will pay at least 25 percent more for natural gas supplies from Russia and Central Asia next year
Ukraine will pay at least 25 percent more for natural gas supplies from Russia and Central Asia next year and can expect to pay average European prices by 2011, according to statements made last week by the Kremlin-controlled gas monopoly Gazprom.
No agreements have been signed and the final price will depend on who forms the new government in Kyiv, according to analysts. But the price hikes are expected to further fuel inflationary pressures for Kyiv, which is still adjusting to sharp price rises imposed on natural gas in 2006 and this year.
Russia’s First Deputy Prime Minster Aleksandr Medvedev told the Kremlin-controlled Russia Today English-language news television network last week that a “preliminary” price of $160 per 1,000 cubic meters had been agreed to in talks with Ukraine’s Fuel and Energy Minister Yuriy Boyko.
“We cannot sell [natural gas] to our neighbors at lower prices than we do to others,” said Medvedev, who also serves as Gazprom’s board chairman.
“Most important is that the price suits Ukraine,” he insisted.
Medvedev said a final gas deal would not be last-minute and would be signed “well before” Dec. 31. Striking a deal before the New Year is intended to prevent a repeat of the 2006 price standoff, which triggered supply shortages to Europe.
Earlier, Ukrainian Prime Minister Viktor Yanukovych’s government indicated that prices in the $150-160 range would be acceptable for next year.
The $160 price was named days after Swiss-registered RosUkrEnergo, a middleman company designated by Gazprom to supply Ukraine with gas, paid back more than $1.3 billion in debt. Gazprom is itself a 50 percent shareholder in RosUkrEnergo, along with Ukrainian partners Dmytro Firtash and Ivan Fursin.
But Gazprom spokesman Sergei Kuprianov muddied the informational waters later, announcing that the $160 price tag mentioned by Medvedev is far from being fact.
“There are no agreements on gas prices for Ukraine for next year,” he told the Russia AGI Agency of gas information.
Volodymyr Saprykin, director of energy programs at the Kyiv-based Razumkov Center, said no document specifying a price was signed before bilateral talks were scheduled to resume Nov. 15. Sources said the price Kyiv pays for gas could very well depend on who becomes Kyiv’s next prime minister.
The leading candidate, Yulia Tymoshenko, pledged to remove RosUkrEnergo, which she describes as a shadowy intermediary, from the supply deal, establishing direct agreements between Gazprom, Central Asian suppliers and state-owned energy giant Naftohaz Ukrayiny.
The leadership of Ukraine’s outgoing prime minister, Yanukovych, has generally supported the current supply arrangement using RosUkrEnergo, whose role in the multi-billion-dollar gas-supply business to Ukraine has also been questioned by the US.
Tymoshenko’s return to the prime minister post, a job she held briefly in 2005, is expected to strain relations with Moscow.
“The Kremlin will wait until [Ukraine’s] parliament creates a coalition and the name of the prime minister is known,” before prices for 2008 are finalized Saprykin said.
A new government is expected in Ukraine after the new parliament convenes before Nov. 26.
Saprykin said the 2008 price would be between $150 and $185, most likely in the higher end of that range.
One chip in Ukraine’s hands is to balance out the price hike for gas supplied by raising transit fees on Russian gas pumped to Europe. Ukraine, whose pipelines serve as the main artery for Russian gas exports to Europe, currently charges a fraction of market prices for transit and storage of gas in underground facilities.
But transit and gas storage tariffs are likely to remain unchanged, due to their highly politicized nature, Saprykin said.
“If Ukraine raises tariffs, then Russia will do so symmetrically, resulting in higher prices for Ukraine.”
Ukraine currently pays middleman company RosUkrEnergo $130 for every 1,000 cubic meters of the blue-burning fuel from Central Asia at its borders.
Gazprom officials said that the price Kyiv pays next year would depend on the country’s readiness to accept higher, European prices within several years. The Russian energy giant wants Ukraine to accept higher prices in stages, eventually paying so-called European prices by 2011.
On Nov. 13, Medvedev announced the average European natural gas price forecast for 2008 will be $300 per 1,000 cubic meters.
Saprykin said the average European rate of $300 is for industrial customers in Western Europe, as household prices are determined locally.
“You can’t say Ukraine will pay the full average European prices because distances are significantly smaller, resulting in lower transport costs,” he said, adding that gas prices are increasing in line with oil prices. Globally, oil prices have recorded more than 60 percent year-to-date growth in 2007.
Saprykin said the price Ukraine pays for gas imports would also largely depend on what price is set for exports by gas-rich Turkmenistan, the source of most of the blue fuel that Ukraine consumes.
“Russia’s Gazprom is paying Turkmenistan $100 for every 1,000 cubic meters of gas,” Saprykin said.
Turkmenistan has been seeking to increase the price for gas supplied to Ukraine, while also seeking “greater independence to sell gas to India, China, even Europe,” according to Saprykin.
