Ukraine to reduce gas imports from Russia in November

Ukraine will significantly reduce Russian natural gas imports next month, as the price of European-sourced gas has dropped below the price of Russian gas, the head of Ukrainian incumbent Naftogaz, Andrey Kobolev, said on Thursday, company representatives confirmed.

Ukraine has bought 2 billion cubic metres (bcm) of gas from Russia in October to fill up its storage sites, which are currently holding almost 17bcm. This amount may still not be enough to guarantee the stability of transit flows from Russia via Ukraine to the EU this winter, as the Ukrainian Prime Minister Viktor Yatsenyuk previously said that 19bcm must be in storage in order for Ukraine make it through this winter.

The purchase of Russian gas was made as part of the new winter package deal that the two countries and the European Commission agreed last month, with Russia’s Gazprom providing a discount to Ukraine and the commission allocating $500m (€456m) to Naftogaz.

Even though the deal covers the whole winter period – between 1 October and 31 March – no agreement on further deliveries has been done yet, with Kobolev saying future purchases will depend on the price of Russian gas.

“We have started to buy [European] gas via reverse flows at the more appealing prices than the Russian gas price,” Kobolev said. “The flow rate [of Russian gas] was at the record high recently of 114mcm/day, but now it will decrease to a level that still yet to be agreed,” he said.

According to Kobolev, the price of Russian gas in Q4 for Ukraine with the discount was $227 per thousand cubic metre (kcm), or €19.43/MWh. If Russia continues to sell gas to Ukraine at this price in Q1 2016, Russian gas will cost Ukraine €0.605/MWh more than gas purchased in Europe.

Gas sourced from the EU and delivered to Ukraine is often priced at the central European hubs. On Wednesday, ICIS assessed Austrian VTP gas for delivery in Q1 at €18.825/MWh.

Flows from Europe to Ukraine dropped dramatically from the beginning of this month, with imports from Russia resuming in early October. However, last week, Ukraine and the European Bank for Reconstruction and Development signed an agreement to give $300m to Naftogaz so that it can buy European-sourced gas this winter. A tender for potential suppliers was announced in mid-September, and Kobolev said on Thursday that the tender would be held in the following two or three weeks.

Ukraine also hopes to receive a $500m loan from the World Bank by the end of December, which Naftogaz expects to use to purchase both Russian and European-sourced gas.

Meanwhile, Russian energy minister Alexander Novak told his German counterpart Sigmar Gabriel on Thursday that there was a possibility of a disruption of transit flows from Russia to Europe via Ukraine this winter, as the latter failed to accumulate enough gas in its storage. ekaterina.kravtsova@icis.com