Naftogaz ready to clear its debt to Gazprom until end-May, in exchange for cheap gas

Макроэкономика 16.05.2014 Ukraine’s monopoly gas importer Naftogaz (NAFTO) has offered to solve all issues of gas pricing and payables with Gazprom, Ukraine’s Deputy Energy Minister Ihor Didenko informed journalists on May 15, according to Interfax. He explained that there are no grounds for Gazprom to demand a USD 485.5/tcm price for its gas for 2Q14 and he insists that the price should be USD 268.5/tcm, as it was in 1Q14. The bill for supplied gas should refer to a certain contract, Didenko elaborated, while he insisted that there is no valid contract that can justify the Gazprom’s demanded price. Didenko assured that Natogaz is ready to pay Gazprom about USD 4 bln for all the gas to be received by the end of May 2014. He estimates that the total import of Russian gas will amount to 3.4-3.5 bcm in May 2014. The deputy minister also stated that Naftogaz’s Crimean subsidiary Chornomornaftogaz, which has been nationalized by the self-proclaimed Crimean government, held 2 bcm of natural gas at the time of the nationalization. Ukraine has requested that Gazprom supply the respective amount of gas to Naftogaz as a compensation for the lost stockpiles. The same day, European Energy Commissioner Günther Oettinger declared that he sees a fair price of Russian gas to Ukraine as between USD 350/tcm and USD 380/tcm, according to Frankfurter Allgemeine Zeitung. Alexander Paraschiy: We believe that the Russian monopoly will have no other choice but to make some concessions to Ukraine on the gas pricing issue. So far, it has a choice to either agree on a price discount and receive a USD 4.0 bln for gas exports to Ukraine until end-May 2014, or to continue demanding a higher price and wait for a payment of about USD 7.0 bln from Ukraine (including gas imports until end-May and a prepayment for June). Gazprom would then receive nothing and it would put gas supplies to the EU at risk. We do not believe that the price of USD 268.5/tcm for Russian gas in 2Q14 is realistic, given that according to the contract, the deadline for such price approval has passed. The problem is that there is no price that is recognized by both sides. In these circumstances, we believe the price range that has been suggested by Günther Oettinger on May 15 might become a benchmark in the new talks on gas pricing. All in all, we continue to expect that the solution will be found at a pre-scheduled meeting of energy minsters of Russia, Ukraine, and the EU later this month.