Ukraine, Russia agree on winter gas deal

The Ukrainian and Russian energy ministers, with the intermediation of EU Commission Vice-President Maros Sefcovic, agreed on the key terms of the supply of Russian natural gas to Ukraine for Oct. 2015-March 2016, the parties reported on Sept. 25. The respective protocol that stipulates all the parameters of the “winter package” gas deal was initialed the same day and it will be signed next week, the parties reported.

Among the key parameters of the winter deal is the price of Russian gas. The gas price for Ukraine would be about USD 232/tcm in 4Q15, according to Sefcovic, as cited by Interfax. This implies a USD 20/tcm discount to the earlier announced benchmark price (USD 252/tcm). The Russian government provided another number: a USD 24.6/tcm decrease in the export duty for Russian gas (in this way, Russia “grants” the discount to Ukraine), which implies the 4Q15 gas price would be close to USD 227/tcm. The discount for 1Q16 was not a part of discussion.

Other issues that were discussed at the meeting was the financing of the natural gas purchase by Naftogaz. According to Ukraine’s Energy Minister Volodymyr Demchyshyn, Naftogaz has already accumulated USD 500 mln on its accounts, which would be enough to purchase more than 2 bcm of gas. Gazprom CEO Alexey Miller clarified that this was a loan from Ukrainian state banks, which will be later refinanced by an IFI loan initiated by the EU Commission, according to Interfax. Miller also reported that additional financing of Naftogaz for up to USD 800 mln was discussed at the trilateral meeting.

Alexander Paraschiy: Although nothing is clear about the exact parameters of the winter package, the fact that the parties agreed to it looks encouraging. It will allow Ukraine to count on Russian gas deliveries for at least 4Q15, which creates a better chance that Ukraine’s energy system will be secure this period.

The key drawback of the current “winter package” (as compared to last year’s deal) is that the gas discount has been agreed to for just one quarter. This poses some risk for gas supplies for 1Q16, as there is always a possibility that the parties won’t agree on gas pricing (recall, they failed to agree for 3Q15).

However, a real breakthrough for the current “winter package” is the EU’s promise to help Ukraine finance its natural gas purchases. Last year, Ukraine had to count on its own resources, which was a tough task for the economy with just USD 7 bln in gross foreign reserves as of the middle of last winter. This season, Ukraine could receive financing to purchase almost 6 bcm of natural gas without any effect on its gross reserves.

Источник: Конкорд Капитал