Naftogaz CEO announces new Russia gas talks for Feb. 26-27

Макроэкономика 25.02.2015 Ukraine and Russia might discuss outstanding natural gas issues in Brussels on Feb. 26-27 with intermediation of the EU Commission, Naftogaz CEO Andriy Kobolev reported in a television interview on Feb. 24. He stated that Gazprom has not completely fulfilled Naftogaz’s orders for gas supplies and expressed his hope that the Russian counterpart will provide explanations at the possible meeting. Regarding direct supplies of “humanitarian gas” to the occupied territories, Kobolev commented that it’s the exclusive responsibility of Ukrtrasngas (the state gas transit sub-holding) to place orders to Gazprom and list gas transit routes to Ukraine. Its Donbas-located subsidiary has no power to place any orders to Gazprom, Kobolev highlighted. Recall that last week, Russia initiated unilaterally direct gas supplies to the territories of Donbas not controlled by Ukraine and claimed that Ukraine has to pay for such gas. Naftogaz’s position is that it did not order such supplies and it can’t calculate the volume of such gas, so it won’t pay for it. Naftogaz can potentially import about 3 bcm of gas from Russia under an interim contract valid by the end of March, but to do this it has to make a prepayment. On Feb. 24, Naftogaz reported it cannot repay for Russian gas “until it receives assurance” regarding Gazprom’s strict compliance with valid contracts. As an example, Naftogaz stated that it ordered 114 mcm of gas for both Feb. 22 and Feb. 23, while it received from Gazprom only 47 mcm and 39 mcm, respectively. Alexander Paraschiy: As we highlighted before, the recent moves of Gazprom and the Russian government suggest they are preparing for the next phase of the ongoing gas war with Ukraine. We welcome Kobolev’s attempts to find a compromise at an early stage of escalation, while it is hard to believe that Ukraine and Russia will be able to find common ground this week. The Russian side, which is provoking a new escalation, is not interested in a fast resolution. If Ukraine imports an additional 3 bcm of gas by end-March 2015, before the interim contract with Gazprom is terminated, it won’t be interested in concluding a new deal (to import more from Russia) up until the next winter. Clearly, it is in Russia’s interest that Ukraine imports minimum gas volumes by the end of March, which would enable Gazprom to gain more bargaining power in negotiating a new interim gas deal. We also highlight a lack of adequate planning by Naftogaz, which imported minimum amounts of gas from Russia in November-January, and it only decided to raise imports from Russia in the end of last week. At this moment, the remaining stockpiles in Ukraine’s underground storage facilities have decreased 30% YTD (to 8.1 bcm) and there is limited possibility to further use gas from storages. In this situation, the stability of gas supplies of Russian gas to Ukraine is becoming more critical, and the Russian side can play that to its advantage.