Russia drops gas price to Ukraine

17 December 2013 17:10 Source:ICIS

Russia has agreed drop the price of its natural gas deliveries to Ukraine by around a third, the Russian-Ukrainian intercovernmental commission said after a meeting in Moscow on Wednesday.

The meeting was attended by Russian president Vladimir Putin and his Ukrainian counterpart, Viktor Yanukovich.

Agreement was reached to sign an annexe to the original supply agreement for 2009-2019, proving for a drop in the gas price from around $400 per thousand cubic metres (kcm) to $268.5/kcm.

Putin said the agreement was temporary, but that in the long term agreements would be reached regarding both gas supply and transit of Russian gas through Ukraine.

Ukraine transits around 60% of Russian gas exports to Europe. In 2012 Russian gas transit volumes came to 81.18bcm according to Ukrainian TSO Ukrtransgas.

Ukraine signed an oil-indexed contract for Russian gas in 2009 and has since tried to renegotiate it as it is uncompetitive in relation to European hub prices. Ukraine has also been reducing the volume of gas it has taken from the Russian supply contract and expects to take only 26 billion cubic metres (bcm) in 2013 compared with 32.9bcm in 2012.

An annexe was signed in April 2010 giving a discount of either $100/kcm or 30% of the value of the gas – the 30% was equivalent to the Russian gas export tax. It is thought that Russia has now made concessions on the gas price because Ukraine stepped back from signing an association agreement with the EU in Lithuania at the end of November. Elizabeth Stonor

By Elizabeth Stonor