Russia’s gas discount for Ukraine to be cut to $40/kcm

Tom Marzec-manser

29-Jun-2015

Russia will reduce the discount of the natural gas it sells to Ukrainian incumbent supplier Naftogaz to $40/thousand cubic metre (kcm) for the third quarter of this year, prime minister Dmitry Medvedev said on Monday.

That effectively leaves the purchasing price for Naftogaz unchanged, as the outright contract price has fallen considerably quarter on quarter. It could also curb Ukrainian demand for gas shipped from Europe.

This is because the gas supply contract is indexed to the price of oil with a time-lag, and Brent crude prices plunged in the second half of 2014.

For the coming three months Russian gas sold by incumbent Gazprom to Naftogaz will cost $247.18/kcm, equivalent to €21.03/MWh.

The current discount of $100/kcm expires at the end of Tuesday. But the outright price for Q2 was $347.18/kcm.

With the price of Russian gas into Ukraine remaining unchanged, Naftogaz’s nominations from both Europe’s hubs and Gazprom are unlikely to alter significantly.

Trilateral talks between Ukraine, Russia and the EU are scheduled to take place on Tuesday, to confirm an agreeable pricing structure for the coming quarter.

Medvedev said the reduced discount for Ukraine brought the price into line with countries such as Poland, and that the cut was justified given the fall in the oil price. Naftogaz’s outstanding debt to Gazprom was also a cause for the cut in the discount.

In reality, by leaving the price Naftogaz pays to Gazprom unchanged, it keeps Russian gas competitive to prices at Europe’s hubs.

On 26 June, ICIS assessed the front quarter at the Austrian hub at €21.238/MWh.

The Russian prime minister said that Ukraine needed to refill storage tanks over the remaining part of the summer, to secure winter transit flows.

Gazprom’s deputy CEO Alexander Medvedev recently said the outright price Gazprom would charge Naftogaz, without any discount applied, would be $287/kcm in Q3 and $262/kcm in Q4. tom.marzec.manser@icis.com

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