Price of gas determined automatically under an existing contract, not at the will of Gazprom

2 july 2015 | TV Channel "TVC"

In an interview on the program Events. 25th Hour on TVC, Leonid Grigoriev, Chief Adviser to the Head of the Analytical Center, talked about opinions and forecasts in the new round of Ukraine-Russia gas disputes.

Leonid Grigoryev
Leonid Grigoryev
Chief Adviser to Head of the Analytical Center

“We have to bear two framework agreements in mind. Firstly: Gazprom and Naftogaz are in legal proceedings in Stockholm, therefore neither side is able to back down. Secondly: Gazprom contracts with Europe, with European companies, are focused on supplies to the center of Europe – to Slovakia, Austria, and Germany. The volumes range from 100-140 billion cubic meters per year, and this is contracted,” said Mr. Grigoriev. He also noted that supplies are dependent upon the weather and other factors. “For example, the contract may state 300 million cubic meters, but they ask for 350. Gazprom has to find this, but all the winter loads come from Ukrainian gas storage facilities. Last year we had an unpleasant military winter, but we were all lucky: it was warm and peak loads were at a minimum,” said Mr. Grigoriev.

However, not all winters are warm, and there has to be a gas supply. In Mr. Grigoriev’s opinion, Ukraine needs to have 10-12 billion cubic meters of gas, which it must purchase in advance at its own expense. “This is a huge volume and a huge amount of money, which will go towards not so much consumption in Ukraine, but rather consumption in Europe during the winter. This is exactly why we need the Europeans, we say to them “you will need gas in the winter, help the Ukrainians to buy this gas, give them money and let them pump it into their reserves”. We do not care who this money belongs to, as the Roman emperors used to say – money does not smell,” concluded Mr. Grigoriev.

In terms of gas prices, Mr. Grigoriev believes that the normal price in Europe is 250 dollars. If they take it from the reverse flow, there will be additional expenses bringing the price up to 257-279 dollars. Gazprom is offering Ukraine 247 dollars, i.e. cheaper than the price in Europe. But they are actually asking to take off a further 60 dollars to reduce the price to below 200 dollars,” explained Mr. Grigoriev. He also pointed out that Gazprom is not changing the price: “The price is derived from a formula; it is not set by Gazprom. Only the discount is determined separately; the price itself is determined automatically under the existing contract, over which Naftogaz and Gazprom are currently in legal proceedings.

Read more at - Events. 25th Hour