Bloomberg News

Ukraine to Seek European Gas Imports as Russia Offers Price Cut

December 18, 2013

Ukraine will still pursue natural gas imports from the European Union, even after gaining a price cut from OAO Gazprom (GAZP) valued at $7 billion a year, according to the country’s energy minister.

The fuel-import deal with Slovakia will be signed before the end of the year, Eduard Stavytskyi said today. The agreements with Russia yesterday will also keep intact deals with Exxon Mobil Corp. (XOM:US) and Chevron Corp. (CVX:US) to develop gas resources in Ukraine, he said.

“Ukraine still has the plan to diversify,” Stavytskyi told reporters in Kiev. The country will need to import between 30 billion and 33 billion cubic meters of gas next year, he said.

Russia agreed to cut the price it charges Ukraine for gas by about a third to $268.50 per 1,000 cubic meters from next year, President Vladimir Putin said after meeting Ukraine’s President Viktor Yanukovych in Moscow yesterday. Russia will also buy $15 billion of Ukrainian government debt this year and next as the former Soviet republic, a crucial east-west energy transit nation, struggles with its third recession since 2008 and dwindling foreign currency reserves.

Ukraine, which had previously said its 10-year gas contract with Gazprom signed in 2009 is “enslaving,” will save $7 billion a year from the reduced gas price, Stavytskyi said.

European Ties

Ukraine agreed earlier this month with neighboring Slovakia on conditions for supplying as much as 10 billion cubic meters of gas a year from the EU through Slovak pipelines. Importing gas through Slovakia would provide an alternative to Russian supplies at a time when Ukraine has been rocked by protests led by opponents of Yanukovych calling for closer ties with the EU.

Ukraine’s president backed off from European integration deals last month, sparking the biggest street protests since the Orange revolution in 2004.

Vahran Chuguryan, spokesman for Eustream A.S, the Slovak gas transmission system operator, wasn’t immediately available for comment today. Slovakia has an agreement in principle and “now it’s up to the Ukrainian side to set the date,” he said on Dec. 9.

Russia provides 60 percent of Ukraine’s gas needs. The country will buy 26 billion cubic meters of Russian gas this year, Prime Minister Mykola Azarov said Dec. 13. It imported 32.9 billion cubic meters last year.

Temporary Solution

Ukraine started purchasing gas from Poland in November 2012 and from Hungary in April this year. Germany’s RWE Supply & Trading has a framework agreement with Ukraine’s NAK Naftogaz to supply as much as 10 billion cubic meters a year until 2017, with supplies from RWE’s European gas portfolio started in November 2012, Annett Urbaczka, spokeswoman for the German utility, said in August.

The reduced Russian gas price for Ukraine compares with the previous level of $400 per 1,000 cubic meters. The month-ahead gas price on the NetConnect Germany gas-trading hub is $407 per 1,000 cubic meters, according to broker data compiled by Bloomberg.

The Russian gas price cut is a temporary solution, Putin said yesterday.

To contact the reporters on this story: Daryna Krasnolutska in Kiev at dkrasnolutsk@bloomberg.net; Anna Shiryaevskaya in London at ashiryaevska@bloomberg.net

To contact the editors responsible for this story: Lars Paulsson at lpaulsson@bloomberg.net; Balazs Penz at bpenz@bloomberg.net


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