Mooted Russian Q4 price to Ukraine above Austrian hub

Ukraine may have to pay some €0.60/MWh more for Russian natural gas in Q4 than for volume procured within the EU, according to a provisional Russian price given by Gazprom on Tuesday and ICIS assessments.

Alexei Miller, CEO of Gazprom, said the price of Russian gas will be about $252/thousand cubic metres (equivalent to €21.282/MWh) in Q4, but added that Gazprom will consider a discount.

Ukraine suspended its purchases from Gazprom on 1 July and is currently buying gas only via Slovakia. Gas sourced from the EU and delivered to Ukraine is often priced at the central European hubs. On Tuesday, ICIS assessed Austrian VTP gas for delivery in Q4 at €20.675/MWh.

Even though European gas could be cheaper for Ukraine, incumbent Naftogaz is likely to still need to resume purchasing gas from Russia in order to meet its demand over the coming winter.

Besides Slovakia, Ukraine can also source EU gas from Poland and Hungary but imports from both countries stopped on 1 May and 1 July, respectively. But even if deliveries from both Poland and Hungary resumed, the current capacity of all three EU states is unlikely to be sufficient to meet Ukrainian winter demand.

All three countries together can export some 60 million cubic metres/day to Ukraine, with some 5.4 billion cubic metres (bcm) of European gas being able to reach Ukraine over Q4.

During the fourth quarter last year 12.4bcm was consumed by Ukraine, during what was an unusually warm winter. So even if demand was similar this year, around half of the 14.4bcm currently in storage would need to be withdrawn, were no volume produced domestically.

This would only leave another 7.4bcm in stock for the higher demand Q1 2016 quarter. In Q1 this year 13.4bcm was consumed.

Minimum stock level

The Ukrainian emergency heating plan seen by ICIS assumes that 20.7bcm needs to be in storage by 1 October. Miller said that Ukraine will not be able to inject enough gas into storage if it did not buy Russian gas.

On Tuesday he said that 19bcm was needed to be held in Ukraine’s storages.

He added that the price was provisional and that Gazprom would take into account the price in neighbouring European countries.

Assisted by the EU, Russia and Ukraine are currently in talks over a new winter package. Last week, Ukraine and the EU failed to move forward in the discussion over funding for Ukraine’s gas purchases. ekaterina.kravtsova@icis.com