Ukraine signs framework natural gas supply deal with RWE
Ukraine's state-controlled oil and gas incumbent Naftogaz has signed a framework agreement with German supplier RWE Supply and Trading concerning purchase of natural gas by the Ukrainian company, Naftogaz said on Friday.
"The current agreement created a legal framework for possible natural gas supplies by RWE Supply and Trading without containing any binding purchase or supply commitments by the parties. Prices, supply volumes and commitments will be determined in separate contracts after those are signed by both companies," the Naftogaz statement said.
Turning spot
The agreement confirms earlier information by a source close to the talks on 12 March that Naftogaz was negotiating to source gas from European hubs in an effort to reduce its dependency on Russia's Gazprom.
Ukrainian prime minister Mykola Azarov, speaking in an interview on 13 March with German daily Die Welt, specified that Naftogaz wanted to buy Russian gas out of reverse transit flow from German energy supplier RWE.
Ukrainian politicians, including energy minister Yury Boyko, had voiced the idea of Ukraine buying gas on spot markets as an alternative to expensive Russian gas at the beginning of this year.
The gas would be virtually reversed through the Slovak-Ukrainian border point at Velké Kapušany, an option that Slovak transmission system operator Eustream said was technically possible.
According to earlier reports in the local media, the deal under discussion would cover around 3 million cubic metres (Mm³)/day, but that information could not be confirmed.
Austria's Baumgarten hub would be the most appropriate purchasing market for Naftogaz, as it is the nearest to Ukraine.
Bargaining manoeuvre
Even if the volumes Naftogaz purchased at a European hub were relatively small, the move would be a turning point for the company.
Nevertheless, purchasing gas on spot markets is unlikely to resolve Ukraine's supply issues and should be viewed in the context of the country's continuing price negotiations with Gazprom.
Ukraine is demanding a revision of its supply contract, which was signed in January 2009. Russia is insisting on keeping the contract intact as it is pushing to take control of Ukraine's transmission system, which is in urgent need of renovation.
The price of Russian gas to Ukraine is calculated on a market-related formula, then discounted by $100 (€77)/thousand cubic metres (Km³). Naftogaz said the price of its Russian gas in the second quarter of 2012 was around $425/Km³, including the $100/Km³ discount.
Ukraine is convinced the price is too high and Azarov has stated several times that Ukraine plans to reduce imports of Russian gas to 27 billion cubic metres (Gm³)/year from 52Gm³ in 2012. However, Gazprom is adamant that the supply contract must stay intact, and that Ukraine must respect its 80% take-or-pay clause, which allows it to decline delivery of no more than 20% of the contracted 52Gm³. KZ
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