Updated:Gazprom pays Naftogaz for gas transit amid unclear terms

Russian producer Gazprom has made a payment to Ukrainian natural gas incumbent Naftogaz for the transit of Russian gas across Ukraine to Europe, both companies confirmed to ICIS late Tuesday. Naftogaz added that Gazprom’s payment had been in excess of the transit bill submitted by Naftogaz for September and October, and the excess sum had been returned to Gazprom.

The charge for Russian gas transit through Ukraine is calculated according to a formula set in the Ukrainian/Russian transit contract of 2009 which is linked to the Russian gas price to Ukraine.

The reason for the current lack of clarity over the level of transit charge is that Gazprom is using a higher gas price in the formula, while Ukraine is using a lower one, in order not to be seen accepting a higher price for its Russian gas supply, which could impact on future price negotiations.

In August this year Naftogaz returned a remittance of $10.4m (€8.35m) from Gazprom, made in part-payment for the transit of Russian natural gas through Ukraine in July ( see ESGM 26 August 2014 )

The reason given by Naftogaz was that there were discrepancies between the two companies as to the calculation of the level of transit charge.

Naftogaz was calculating the transit charge on the basis of the Russian gas price early in 2014, when it had been substantially lowered to $268.50/thousand cubic metres (kcm). In Q2 2014 Gazprom raised the price back to an oil-indexed 2009 contract level of $385.5/kcm, so Gazprom’s calculation of the transit charge was higher, and acceptance of the higher transit charge on the part of Naftogaz could imply acceptance of a higher gas price, which Naftogaz wanted to avoid.

In 2012-2013, Gazprom made advance transit payments to Naftogaz intended to cover the period to 1 January 2015, but Gazprom told ICIS on Tuesday these payments had been used up and it was now paying entirely in cash for transit.

Though Ukraine and Russia are still in general disagreement regarding the Russian gas price to Ukraine, the two sides did sign a supply and transit agreement on 30 October in Brussels in the presence of the European Commission ( see ESGM 31 October 2014 ).

This agreement, the so-called “winter package”, set terms for repayment of the Ukrainian gas debt to Gazprom and an interim gas price formula for the winter period until end of March 2015. For the rest of 2014, the price is expected to be $385/kcm, dropping to $378/kcm in Q1 2015. The final gas price should emerge when arbitration proceedings in a Stockholm court are concluded.

Having made a payment of $1.45bn as a first instalment of gas debt repayment, Naftogaz now has the right to buy Russian gas, according to the October agreement, but it must prepay for it.

However, no Russian gas is currently being sold into Ukraine, Naftogaz and Gazprom told ICIS late Tuesday, and no prepayment has been made either. The Ukrainian energy minister Yuriy Prodan has said Ukraine does not require Russian gas at the moment and would be buying it in winter depending on temperature-driven demand, according to reports in the local media. Elizabeth Stonor