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EU seeks fair Ukraine gas price amid diversification push

ISIS ALMEIDA and ANNA SHIRYAEVSKAYA

KIEV (Bloomberg) -- The European Union is seeking market-based natural gas prices for Russian supplies to Ukraine to end a dispute between the two nations and avoid possible disruptions to the bloc, which is pushing to diversify supplies.

Europe needs to move fast to reduce dependency on external suppliers and options include new gas delivery routes and renewables, Energy Commissioner Guenther Oettinger said on June 3 in London. The bloc has enough gas to last “some” 30 days, better links between members and more options via Norway, Algeria and supplies of liquefied fuel in case of disturbances, he said.

The EU gets about 30% of its gas from Russia, half of which transits Ukraine, and is pushing to resolve a pricing dispute between the two former Soviet nations to avoid disruptions as in 2006 and 2009. While Ukraine paid for February and March supplies, bills are still outstanding for November, December, April and May.

“There is a clear ambition from Russia, from Ukraine and from the EU to avoid any interruption, to avoid any disruption, so it is quite a constructive atmosphere and I am optimistic,” Oettinger said in an interview at the Eurelectric conference. “We want to come to fair market based prices between Russia and Ukraine as we have, more or less, in our European Union.”

Gazprom raised prices for Ukraine by 81% from April to $485 per 1,000 cubic meters by canceling previous discounts. That’s 86% more than front month gas in the UK on the ICE Futures Europe exchange. Ukraine has called for a return to its first quarter price of $268.50.

On June 2 Gazprom gave NAK Naftogaz Ukrainy an extra week before demanding it pay for supply in advance. Russia and Ukraine met in Berlin on June 3 to try to resolve the dispute.

“No doubt $485 per 1,000 cubic meters is more or less a political price and $268 was more or less a political price as well,” Oettinger said.

While Europe wants to diversify supplies, reliance on Russian gas increased in the first quarter. Gazprom exported 42.7 Bcm of the fuel to Europe in the period compared with 41.7 billion a year earlier, Gazprom said last month.

“The share of Russian gas will not decrease over time and maybe also increase because Europe is losing its indigenous production and we have to replace it and at a very rapid speed,” Jean-Francois Cirelli, President of lobby group Eurogas and vice chairman of GDF Suez, said on June 3 in an interview. “Russian gas is one of the best suitable suppliers to replace our indigenous production.”

Shale gas has to be an option for Europe alongside the development of renewables in cost efficient regions, energy efficiency and routes including the so called southern corridor that would bring Azeri gas to Europe, Oettinger said.

“We have to rely on energy efficiency, we have to rely on renewables, we have to rely on other sources, but shale gas should be part,” Cirelli said. “I was very happy that the Commissioner was more optimistic or more engaged vis-a-vis shale gas even if it will be a long lasting process in Europe because there are still a lot of countries to convince.”

Russia, Ukraine and the EU discussed setting a price for the next 12 months on June 2. The former Soviet nations agreed that there would be no supply disruptions while they analyze the plan, Oettinger said after the talks in Brussels. There is “more and more trust” between them, he said on June 3.

A Russian gas cutoff is “still on the agenda,” Ukrainian PM Arseniy Yatsenyuk told lawmakers on June 3 in Kiev, saying he hopes an agreement will be reached this week.

“Our European ambition is to avoid any disruption for European Union gas markets and for the markets of Ukraine and Moldova,” Oettinger said. “We want to leverage Ukraine by financial assistance to pay their old bills and to buy gas in the next three months and to store gas in their Ukrainian storage facilities” before the winter, he said.

06/04/2014

 

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