CORRECTED: E.ON supplies Ukraine at price based on European hubs

04 July 2014 10:26 Source:ICIS

Published on the ICIS Dashboard at 10:26

Volume units of gas flowing into Ukraine have been corrected to million cubic metres

German utility E.ON started supplying natural gas to Ukraine at the end of June, ICIS understands.

A source close to the matter in Ukraine said that the country’s oil and gas incumbent Naftogaz is buying gas from RWE, GDF SUEZ and E.ON in reverse flow via Hungary and Poland. Depending on the route, prices are based on German GASPOOL or Austrian VTP hub prices plus transportation costs and a seller premium.

ICIS understand Ukraine buys gas from European suppliers on average about $150/1,000 cubic metres cheaper than the base price of $480/1,000 cubic metres enshrined within Naftogaz’s current supply contract with Russian producer Gazprom.

E.ON declined to comment to ICIS this week. Naftogaz did not confirm the information officially.

RWE and GDF SUEZ previously confirmed selling gas to Ukraine via reverse west-to-east pipeline flows.

Representatives from RWE and GDF SUEZ have told ICIS that sales to Ukraine present a commercial opportunity for their companies in the current oversupplied market in Europe. ICIS understands that Naftogaz is involved in talks with European suppliers on a daily basis where they agree what volumes to buy on the hubs in what contracts. Terms of payment differ depending on what contracts are purchased on the hubs and time and route of delivery.

The average amount of gas flowing from Hungary into Ukraine was 6.6 million cubic metres (mcm)/day during the last week of June, down from 8.5mcm/day the previous week. Gas has also been flowing into Ukraine from Poland, but at lower levels.

Slovak grid operator Eustream is to continue with the commissioning of a pipeline between Slovakia and Ukraine after enough suppliers bid for capacity on the connection point ( see ESGM 2 July 2014 ).

The pipeline is expected to become a key source of gas supply to Ukraine after Russian Gazprom stopped supplying gas to the country from 16 June, after Naftogaz failed to pay in advance for gas for the month.

All but a small fraction of capacity has now been booked on the 8bcm per year Vojany pipeline, with Naftogaz buying most of it (see separate story).

A high number of smaller companies interested in sending gas to Ukraine, as well as the majority of former incumbents from eastern European countries, participated in the project, ICIS understands.

The Vojany pipeline will connect into the Ukrainian grid at Budince, not far from the main transfer point for Russian gas entering Europe at Velke Kapusany, but it will be separate from the Velke Kapusany lines. Katya Zapletnyuk

By Katya Zapletnyuk