Russia Sacrifices Gazprom Profit for Politics in Ukraine

Posted by Eric Haun
Friday, April 04, 2014

Russia's top natural gas producer, Gazprom, will eventually lose more than it gains from raising the gas price for Ukraine by 80 percent, analysts said on Friday, predicting Kiev would cut purchases and fail to pay in full.

Gazprom on Thursday announced a price rise for Ukraine to $485 per 1,000 cubic metres, the second increase in three days. The $485 price is the highest of any Gazprom customer and compares with around $370 on average for clients in the European Union.

Ukrainian Prime Minister Arseny Yatseniuk said the increase, two weeks after Moscow annexed Ukraine's Crimea region, was unacceptable and warned he expected Russia to step up pressure by limiting supplies to Ukraine.

"Even if the price is legally justified, it would hurt Gazprom's image, will hit capitalisation and, indirectly, the whole Russian stock market," Valery Nesterov from Sberbank CIB said.

Analysts including Nesterov estimated that Gazprom could lose around $2 billion this year from the move.

Previous pricing spats have prompted Russia to halt supplies of gas to Ukraine, with consequent cuts in gas flows to Europe, where Russia meets 30 percent of demand.

Analysts said Gazprom may turn the taps off again, although immediate cuts are unlikely because of lower gas demand now that winter has ended.

Around half the Russian gas delivered to Europe goes through Ukraine, which ships it to Europe from storage sites in the west of the country.

"Ukraine is unable to fill up its gas storage facilities at this price. Without Ukrainian storage gas, Gazprom is unable to fulfil its European export contracts," Mikhail Korchemkin at East European Gas Analysis said.

Pressure on Ukraine
The two price rises ratchet up pressure on the former Soviet republic following the ouster of President Viktor Yanukovich, who had won a price cut from Russia after aborting plans to sign political and trade pacts with the European Union in November.

Gazprom said it would raise the gas price from $268.50 starting this month after Kiev failed to pay its gas debt of around $2.2 billion on time and after the Russian government introduced an export fee of around $100 per 1,000 cubic metres.

"With a price like this, Ukraine is likely to continue importing gas and increase its debt. This will go on until they decide whether to go to an arbitration or until Russia decides to cut gas supplies to Ukraine," said Valentin Zemlyansky, a former spokesman for Ukrainian state energy company Naftogaz who says he is an independent analyst.

Analysts said the jump in the gas price is detrimental to the fragile economy in Ukraine, which would swiftly run into problems paying.

"The price looks unrealistic for the long term," Nesterov said.

Last year, Gazprom sold 25.8 bcm of gas to Ukraine worth $12 billion, down from 33 bcm in 2012. Russia now meets around half of Ukraine's gas needs.

Nesterov said that Ukraine is likely to buy less than the 25-27 bcm previously expected for this year. He estimated that Gazprom would lose $2 billion this year from the price hike and introduction of an export duty, while its production would decline by up to 5 percent.

Alexei Kokin, of Uralsib Capital, also expected Gazprom to lose about $2 billion this year as a result of the price hike for Ukraine, which he predicted would cut gas purchases from Russia to 20 bcm this year and to 15 bcm in 2015.

Analysts said the crisis could drag on until winter - the season when Gazprom has cut gas supplies to Ukraine in past pricing rows.

"I think a gas conflict will happen in the winter," Kokin said.

(By Vladimir Soldatkin and Denis Pinchuk; additional reporting by Pavel Polityuk in Kiev; editing by Jane Baird)

Maritime Reporter April 2015 Digital Edition
FREE Maritime Reporter Subscription
Latest Maritime News    rss feeds

Energy

New CEO for Evergas

Evergas has appointed Steffen Jacobsen as CEO of the company as of 8 May 2015 Mr. Jacobsen joined Evergas 1 February 2015 as Vice President, Fleet after almost 35 years in Maersk.

Icebreakers Ordered for Neft’s Novy Port Project

Aker Arctic’s icebreaker design selected for Gazprom Neft’s Novy Port project   Aker Arctic and Vyborg Shipyard have confirmed a contract for the design of two

MacGregor's Pusnes bow loading systems for Suezmax Tankers

MacGregor, part of Cargotec, has secured contracts to supply Pusnes bow loading systems for three newbuild shuttle tankers intended for operations in Brazilian waters.

News

New CEO for Evergas

Evergas has appointed Steffen Jacobsen as CEO of the company as of 8 May 2015 Mr. Jacobsen joined Evergas 1 February 2015 as Vice President, Fleet after almost 35 years in Maersk.

NCSP Group Cargo Traffic Up 6% in Q1 2015

Novorossiysk Commercial Sea Port Group (NCSP Group or the Group) (LSE: NCSP, Moscow Exchange: NMTP) reports that Group’s consolidated cargo turnover in Q1 2015 increased by 2 million tonnes or 6.

Naming Ceremony of Evergreen's EVER LYRIC

Evergreen Group today held the naming ceremony for EVER LYRIC, the eighth of its L-type vessels built by CSBC Corporation in Taiwan. The ceremony took place

Government Update

China Snubs G7 Declaration on Sea Row

Reacting to recent declaration of  the Group of Seven (G7) major nations' Foreign Ministers on maritime , China said “the situation of this region is generally stable,

Newport News Shipbuilding Hosts Sen. Inhofe

Huntington Ingalls Industries (HII) today hosted Sen. James M. Inhofe, R-Okla., for a tour of the company's Newport News Shipbuilding division.   The senator,

Severn Trent De Nora's OMNIPURE Systems Get USCG Approval

The new OMNIPURE™ Series 55/64 marine sewage treatment systems from Severn Trent De Nora have received final certification from the United States Coast Guard

Logistics

Liner Service Reliability Jumps to 64%

According to Drewry Supply Chain Advisors, liner shipping service reliability on the three East-West trades showed an aggregate on-time performance of 64% in March - a five-month high.

Suezmax Tankers Bullish

Global fixture activity for suezmax crude tankers rose in the first quarter by 5% year on year, with most of the activity coming out of West Africa.   Suezmax

Seaspan Takes Delivery of New Containership

Seaspan Corporation (SSW) has accepted delivery of a 14000 TEU containership, the YM Wellhead.    The new containership, which was constructed at Hyundai Heavy Industries Co.

 
 
Maritime Careers / Shipboard Positions Maritime Security Navigation Offshore Oil Pipelines Pod Propulsion Port Authority Salvage Ship Electronics Shipbuilding / Vessel Construction
rss | archive | history | articles | privacy | contributors | top maritime news | about us | copyright | maritime magazines
maritime security news | shipbuilding news | maritime industry | shipping news | maritime reporting | workboats news | ship design | maritime business

Time taken: 0.2234 sec (4 req/sec)