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Gazprom Reduces Discount For Gas To Ukraine

Gazprom Reduces Discount For Gas To Ukraine

For the next three months Ukraine will keep getting a discount on the gas it imports from neighboring Russia, but the discount will be smaller than it has been previously.

Russian Prime Minister Dmitri Medvedev said June 29 that effective July 1, under the new discount, Ukraine will pay $247 per 1,000 cubic meters for the gas provided by his country’s state-run Gazprom. The current discount, which expires June 30, has been $100, but for the next three months will be cut by 60 percent to about $40.

The reason, Medvedev said, is the past year’s persistently low price of oil and gas, Russia’s benchmark for pricing its gas. “The prices for oil and subsequently for gas have greatly subsided, so the discount will be $40 per 1,000 cubic meters,” the prime minister said during a meeting in Moscow with Energy Minister Aleksandr Novak and Aleksey Miller, Gazprom’s CEO.

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Medvedev said while Naftogaz Ukrainy, Ukraine’s state-run gas company, will not enjoy the same discount it has had, the price will be the same as those charged other Russian neighbors, including Poland.

Moscow has given Ukraine the $100 discount per 1,000 cubic meters of gas since November. At the time the price was negotiated last fall it was calculated as a reduction in import duty. Medvedev said a more generous discount would have pushed Gazprom’s other customers’ prices too low for Gazprom to make a profit.

“This is a serious measure supporting Ukraine’s economy,” Medvedev said. “I hope it will get adequate support” in Ukraine, he said.

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During the meeting with Medvedev, Novak said representatives from Russia, Ukraine and the European Union have scheduled meetings in Vienna beginning June 30 to discuss ways the EU can give financial support to Ukraine to help it buy all the gas it needs.

Novak said the Vienna meetings also will cover Kiev’s practice of storing the gas it buys in warm months for use in the winter. Ukraine needs to store an estimated 18 billion cubic meters of gas this summer in order to have enough energy for the coming winter. Ukraine is now about 7 billion cubic meters short of that goal. That amount would cost $1.7 billion under the new pricing from Gazprom.

Medvedev said his goal in continuing the discount for Kiev is to help the Ukrainian people, even if the discount is not as great as before. “We should meet our Ukrainian partners halfway within reasonable limits, despite all the difficulties in our current relationship,” he said. “The country is in a pre-default situation.”

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While energy for Ukraine is at the heart of the Vienna talks, Ukraine also remains a key transit point for Russian gas shipped by pipeline to customers in Western Europe. The EU so far has received about 30 percent of its gas supplies from Gazprom, half of that amount piped through Ukraine.

That supply, however, has been interrupted three times in the past decade, in 2006, 2009 and 2014, because of political and pricing disputes between Kiev and Moscow. The EU recently has been searching for alternative sources of fuel, and Russia is exploring alternative pipelines to keep its European customers.

By Andy Tully of Oilprice.com

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