For the Russian Federation’s state-owned natural gas monopoly Gazprom, an entity that everyone loves to hate, 2012 is already shaping up as a decidedly mixed year.
The good news is that Ukraine, traditionally Gazprom’s most troublesome customer, has paid its December bill in full, all $1 billion.
Ukraine's national oil and gas company Naftogaz Ukrainy issued a statement noting, "Every month, in a timely manner and in full volume, Naftogaz Ukrainy fulfills its obligations before OJSC Gazprom on payments for imported natural gas."
Not that Naftogaz Ukrainy was happy about it, noting that the price Ukraine paid for Gazprom gas in the fourth quarter of 2011 was roughly $400 per thousand cubic meters (tcm), up from $264 per tcm at the beginning of the year.
But 2011 was not a bad year for the energy giant, as Gazprom CEO Aleksei Miller told journalists that Gazprom's total supply of gas increased by 7.5 billion cubic meters (bcm) to over 513 bcm, while its exports to Europe, its most lucrative market, rose by 13 bcm to over 150 bcm.
So, why isn’t this man smiling?
Well, for starters, Miller stated that Ukraine last year agreed to purchase 52 bcm of natural gas per year but, judging by the latest statements from Kiev, it intends to reduce this figure to 27 bcm, whining, "Gazprom is concerned by the statements made today that Ukraine is getting ready to purchase significantly less gas than stipulated by contracts. So far, our Ukrainian friends are only talking, but no specific proposals have been made. We hope that some sort of specific proposals will be made in the near future."
Naftohaz Ukrayiny public relations office however said that the firm had in fact notified Gazprom in advance that it would buy less gas in 2012, adding that its 19 January 2009 contract with Gazprom on the sale and purchase of gas in 2009-19 “provides for a change in the annual amount of natural gas supplies.” In a thinly veiled swipe at Gazprom’s pricing policies Naftohaz Ukrayiny added, "Considering the high price of imported natural gas (in the fourth quarter of 2011 in particular it was around $400, including the discount stipulated by the Kharkiv agreements (extending the lease for the Sevastopol base of the Russian Black Sea Fleet in exchange for cheaper gas)), the Ukrainian economy will need considerably less gas in 2012. In view of this and under the provisions in the terms prescribed by the contract, Naftohaz Ukrayiny sent to Gazprom around 10 letters with a request that gas supplies to Ukraine be agreed for 2012 in the amount of 27 bcm, which the company undertakes to buy and pay for under the contract in force."
And where might Ukraine purchase alternatives?
And, further north in the former Evil Empire, another former Soviet state is seeking to loosen Gazprom’s suffocating energy embrace.
Estonia’s government has approved legal measures to separate the ownership of natural gas sales and transmission by 2015 to lessen the nation’s dependence on Gazprom. According to Estonia’s Economy Ministry the new regulations will bar Eesti Gaas owners from both producing natural gas and sales.
Eesti Gaas management board member Raul Kotov countered, "The government is wrong in saying Eesti Gaas's ownership of transmission pipes is an obstacle to developing the market. The Competition Board has never made any complaints about restrictions to use of our grid or that someone can't join it."
Why does this concern Gazprom?
Simple – Gazprom owns 37 percent of Eesti Gaas.
Nor is Estonia the only Baltic renegade chafing at Gazprom’s monopoly, as it along with Latvia and Lithuania are seeking EU support to build a regional liquefied natural gas terminal in the region, arguing that they're being charged more for Russian natural gas imports than western European countries.
While the revenue continues to roll in, the future looks bleak enough to cause Miller to reach for the Stolichnaya.
By. John C.K. Daly of Oilprice.com