Author Topic: The Annual Gas Crisis: Will January 2009 Be the Worst Ever?  (Read 41513 times)

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Offline David Rochlin

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Yuschenko has said that Ukraine has paid one billion dollars of the gas Debt.  However, now Gazprom says Ukraine also owes $450mm in fines.  So 1.67 Billion dollars is allegedly due. 


http://news.bbc.co.uk/2/hi/europe/7799321.stm

A new twist is that Russia is offering to let Ukraine "Pay" gas debts by "Returning" a portion of the vast quantities of gas Ukraine has in storage to weather the crisis and bolster their own negotiating position.  This does nothing for Russia's cash flow, but Russia must be aware that the crisis would prevent Ukraine from replacing that gas and undermine Ukraine's negotiating position. Yuschenko allegedly announced that an agreement to reschedule payments, perhaps with a return of stored gas, is already agreed upon.
A deal for temporary relief, in exchange for higher costs in the intermediate timeframe.  That would be very Yuschenko.  However, as has been discussed here on the forum.  Tymoshenko, not Yuschenko would have to agree to, if not negotiate this deal.  Tymoshenko has not confirmed Yuschenko's statements.  She might be the mastermind of the gas storage scheme to begin with.  If so, she is not likely to give away Ukraine's cards, just for a bit of Credit from Gazprom.   

Western Europe's dependence upon Russian gas seems to be declining, slightly.  The EU gets 42% of gas from Russia & Co., these days.

Carlusha

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I don't normally link to KP sources but here we go .........

Russia-Ukraine deal 'makes no provision' for returning gas

MOSCOW (Interfax) - The current contract on natural gas trade between Russian gas monopoly Gazprom and Ukrainian national oil and gas company Naftogaz Ukrainy "makes no provision" for any of the gas that has been delivered to Ukraine to be returned to Russia, Gazprom said


http://www.kyivpost.com/business/32369

Offline David Rochlin

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I don't normally link to KP sources but here we go .........

Russia-Ukraine deal 'makes no provision' for returning gas

MOSCOW (Interfax) - The current contract on natural gas trade between Russian gas monopoly Gazprom and Ukrainian national oil and gas company Naftogaz Ukrainy "makes no provision" for any of the gas that has been delivered to Ukraine to be returned to Russia, Gazprom said


http://www.kyivpost.com/business/32369


This is actually sort of a confirmation that the issue of "Returning gas,"  really came up in discussins with Gazprom, so we don't have to go on Yuschenko's statement alone.  Of course gas cannot literally be returned.  Russia would let less in the pipeline, or Ukraine would take less than contracted, and the gas is just sold down the line to the EU.

What the Gazprom statement means is:  "Returns" are not in the present gas deal (point of weakness, because Ukraine can just buy less gas and it is the same thing, really, so Gazprom is saying don't do that.)
Then they are suggesting that: Subject to negotiations in the upcoming, new contract, Gazprom might condescend to  buy Ukraine's, dirty used gas back (at a discount, like maybe half what Ukraine agreed to pay.)  So, following the logic, Gazprom is saying Ukraine would pay full price for the stored gas, then sell it back for a fraction of what they just paid, plus pay $440mm in fines.  Generous of them, hmm?
   Might be cheaper for Ukraine just to buy Gazprom at the current share prices.
« Last Edit: 21:20 25-Dec-2008 by David Rochlin »

Carlusha

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   Might be cheaper for Ukraine just to buy Gazprom at the current share prices.

 :D :D :D :D :D :D :D :D ::)

Offline David Rochlin

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Russia makes another lowball offer for suckers...
Currently, Ukraine receives a payment of $1.72/1000 cubic meters for transporting Russian gas to Western European buyers.
The market price in Western Europe is something like $80 per 1000 cubic meters (for international transport, not to buy gas.)
  Russia's offer is that Ukraine can sell gas transport in advance, a sort of futures market.  Not clear that the price would be as high as the current ridiculously cheap price Ukraine/Naftogaz  gets for transport. 
So it is sort of like futures, except you are guaranteed to lose money (Actually exactly like investing in futures!)
So far Ukraine has turned down the generous offer by its brother nation:

http://uk.reuters.com/article/oilRpt/idUKLR17985120081227

Russia has sworn to get tough on January 1st.  Ukraine has the IMF cash (or should,) to just pay Russia for the gas.  I think they should do it. 
   But, negotiations over a new market price for gas are going to be even tougher than resolving the matter of the $2 BB which is less than Russa throws away, supporting the Ruble on a bad week...
« Last Edit: 11:58 28-Dec-2008 by David Rochlin »

Offline David Rochlin

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Just slightly off topic, one of the things Russia will do with Ukrainian money, is build this monument to the Kremlin-based midget in his own home city of St. Petersburg:

They call it: "Gazprom City," and here are entries in the recent Architectural design competition:

http://bldgblog.blogspot.com/2006/11/gazprom-city.html

They clash just slightly with the world famous, classical Architecture of St. Petersburg, the most beautiful city in the world.  Kind of flashy and uptown, though.

Offline David Rochlin

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There is no progress in the gas dispute as Russia continues to float proposals for ever higher and more preposterous rate proposals with increasingly draconian terms.
   However, Gazprom has unveiled the official dispute website:

http://www.gazpromukrainefacts.com/



Offline David Rochlin

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Ukraine warms to the idea of exchanging up to a year of transit fees for some credit on the $2.1 BB debt to Gazprom.  Ukraine rejected this previously:
Oleksander Shlapak, the chief economic aide to Yushchenko:

"A number of sources (from which to pay debt) is being looked at, including prepayment (for transit) for next year," Shlapak told a news conference.
"If they are really ready to give us credit, to pay for transit services, then they can set their terms," he said.

http://www.fxstreet.com/news/forex-news/article.aspx?StoryId=f42e47b7-9b1d-4e24-90fb-810201ea61d2

Disclaimer:  This guy is probably well briefed on the state of discussions, but as we know, Yuschenko doesn't get to make this deal, Tymoshenko does.  And Yuschenko has been anxious to pay off this gas debt, and his office regularly issues proclamations.  Obviously Tymoshenko would never say "They can set their terms."  Not exactly her style...

Ukraine gets only a very small tranist fee for gas moved to Western Europe, across UA, that it was previously trying to renegotiate.  This would lock in the below market price for about two years.  My own understanding of the price is evolving,  but I think Ukraine gets $1.72 per 1000cm per 100km through its pipeline.  And the Ukraine  dream price is $9.94 per 1000cm per 100km. 

Offline David Rochlin

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  News Flash:
Yuschenko Has announced that Ukraine has paid the $2 BB gas debt to Gazprom.  Gazprom says they have not received the funds at this time. (The check hasn't cleared.)    Note that Yuschenko has indicated that $1 BB had been paid some time ago.

http://www.reuters.com/article/ELECTU/idUSLU15776220081230?pageNumber=1&virtualBrandChannel=0


Unclear also is whether the payment includes late penalties of $400 mm.

Offline peteb

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hurrah (i think?)

i just read what i guess is the same statement here:

http://www.ukranews.com/eng/article/172219.html

/pete

Offline David Rochlin

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hurrah (i think?)

i just read what i guess is the same statement here:

http://www.ukranews.com/eng/article/172219.html

/pete

Well, Russia has latched onto this to make Ukraine a scapegoat for the Russian economy, so they are predisposed to make more problems.  This will probably get Ukraine a short break from pressure and threats, provided that Ukraine did in fact pay every last Ruble that Russia says was owed on gas. 
   Even so, a rate regime is yet to be agreed upon for 2009 and whatever it is, Ukraine probably can't pay it.  Ukraine paid this with IMF money that was borrowed and the loan terms have already been violated.
   The bright side is that Ukraine does have 18 BB cubic meters in storage, and that is a good negotiating position.  Ukraine can now demand more for transit fees and threaten to shut the gas pipeline down, themselves, without worrying about domestic supplies, and without the Russians being able to cry foul. 
  Long term, though, the Russians are going to build a new pipeline to Western Europe that bypasses Ukraine, and then Ukraine will be in big, big trouble.

Offline peteb

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   Even so, a rate regime is yet to be agreed upon for 2009 and whatever it is, Ukraine probably can't pay it.  Ukraine paid this with IMF money that was borrowed and the loan terms have already been violated.
   The bright side is that Ukraine does have 18 BB cubic meters in storage, and that is a good negotiating position.  Ukraine can now demand more for transit fees and threaten to shut the gas pipeline down, themselves, without worrying about domestic supplies, and without the Russians being able to cry foul. 
  Long term, though, the Russians are going to build a new pipeline to Western Europe that bypasses Ukraine, and then Ukraine will be in big, big trouble.

i thought ukraine had borrowed the money from a couple of banks? or have they used IMF money?

having the reserve gas in storage is certainly a good thing... i just google'd and found a reference to the "North European Gas Pipe line". it said it would become operational in 2010 (http://www.heritage.org/research/Europe/bg1980.cfm) so we have another year then?

/pete


Offline peteb

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oh...

Russia ends business day still awaiting payment from Ukraine on $2 billion in gas debts
http://www.kyivpost.com/nation/32534

/pete

Offline David Rochlin

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i thought ukraine had borrowed the money from a couple of banks? or have they used IMF money?

having the reserve gas in storage is certainly a good thing... i just google'd and found a reference to the "North European Gas Pipe line". it said it would become operational in 2010 (http://www.heritage.org/research/Europe/bg1980.cfm) so we have another year then?
/pete

You are right, and that information about the two banks is in your Kyiv Post link, but it was not in the Reuters Story.  Technically, it is probably IMF money that was used, but funneled through the banks.  What else do they have? 

Russia is emphatic that the financial crisis and oil price drop won't affect the plans for the new pipeline.   However, the cost of this pipeline is going to be absolutely staggering.  Once completed, it might very well cost more to operate it than Ukraine's dream price for gas transit fees.   So, this is a political project, more than a business matter.  And nationalism might have to give way to practical considerations, as Russia circles the drain with the rest of us.

Also worth noting, Ukraine has paid for the gas only, and has not paid the $440 mm in penalties, demanded by Russia.
« Last Edit: 00:21 31-Dec-2008 by David Rochlin »

Offline David Rochlin

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Naftogaz tries to correct errors and misleading information:

On the Naftogaz website, they explain that penalties such as Gazprom is attempting to assess are only computed and paid in the event that the contract between Gazprom and Naftogaz and Ukraine, is terminated.  That it is not right to simply include it directly with the gas bill for 2008.

Further, they point out that RosUkrEnergo AG has itself been chronically late paying Naftogaz for gas transmission fees.

http://www.naftogaz.com/www/2/nakweben.nsf/0/A3899B6E86D5BFC6C2257529005B0DAC?OpenDocument&year=2008&month=12&nt=News&

In MIG news, there is a story to the effect that Naftogaz has no authority to pre-sell these transit fees to Russia, which kind of seems reasonable in practical terms, given that Ukraine apparently didn't even get reliably paid on time for them and is therefore unlikely to get them a year in advance.

However, this would seem to bolster Yuschenko's reputation as a gasbag, when it comes to, well, Gas.
« Last Edit: 02:35 31-Dec-2008 by David Rochlin »