Naftogaz prospects in possible arbitration with Gazprom optimistic – expert

Ukrainian national oil and gas company Naftogaz Ukrainy's prospects in arbitration hearings against OJSC Gazprom if a suit is filed are optimistic, independent expert Valentyn Zemliansky thinks.

"First of all, there is written in the contract no precise mechanism for paying for gas on the take or pay principle. Secondly, Ukraine can file countersuit relative to the formation of prices for gas, their discrepancy from Russia-wide [prices], the infringing of Ukraine's interests as a member of the energy community, which in conditions of the world financial crisis led to a serious deterioration of the economic situation within the country. Third, a suit should not be expected in the current situation, since arbitration hearings with Ukraine would virtually give carte blanche to Europe in squeezing Gazprom off the European market," Zemliansky told Interfax.

The presentation of an account of untaken gas would be an act of intimidation, rather than realistic Gazprom claims on Naftogaz Ukrainy, he said. "It is not ruled out that Russia is prepared to move toward a certain compromise in negotiations with Ukraine, but politically it has to present itself for this as a seeker of concessions on the part of Kyiv. Most likely, the issue in the near future could be a trilateral consortium, which will allow the Kremlin to defuse the atmosphere in mutual gas relations both with Ukraine and with the European Union," Zemliansky said.

Projects launched after 2010 have become pretty powerful irritations for Gazprom, he said. "I would speak not so much of the increase in domestic production as of non-political projects: the building of an LNG [liquefied natural gas] terminal, gas resource form Europe, and the signing of a PSA with Shell for the production of shale gas in Ukraine," he said.

Gazprom has presented Naftogaz Ukrainy with a bill for about $7 billion for gas untaken in 2012. The view at the Ukrainian holding is that the company has in full measure paid for Russian gas per an earlier accounting. Naftogaz more than once notified the Russian gas giant of its intent to reduce natural gas purchases in 2012.

Ukraine cut natural gas imports 26.5% (by 11.864 billion cubic meters (bcm)) last year to 32.939 bcm. Almost all of that gas was delivered from Russia to Naftogaz Ukrainy and Dmitry Firtash's OstChem Holding, Ltd. (Cyprus).

Naftogaz Ukrainy imported 24.9 bcm of Russian gas under a contract with Gazprom last year and about 55 million cubic meters (mcm) under a reverse scheme contract with RWE of Germany.

Under an existing contract from January 19, 2009, Naftogaz is to buy 52 bcm of gas, with the least take-or-pay limit being 41.6 bcm. The contract also stipulates the reduction - on a mutually agreed basis - of the contracted volume of gas by a maximum of 20%, with agreement on this needing to be struck not later than six months before deliveries begin.

Naftogaz Ukrainy has negotiated with Gazprom over reducing the minimum amount of obligatory gas purchases to 27 bcm a year, but the parties have reached no agreement. This agreement no longer suits Ukraine, which has attempted unsuccessfully to get its pricing parameters revised. Accordingly, the Ukrainian state holding intends to buy less Russian gas because of its cost and in November began using its gas-transport facilities in reverse to bring in gas from Europe.

In 2010, Naftogaz received a discount of $100 per thousand cubic meters (nullifying the Russian export duty) in exchange for the extension of the Russian naval fleet's presence in Crimea.

Despite the discount, the price for Russian gas for Ukraine in 2011-2012 was the same as or higher than the cost for several European countries, although delivering fuel to Ukraine is significantly less costly.

Buying gas in Europe last year cost Naftogaz Ukrainy less than buying it from Russia did. The country's state statistics service's figures indicate that the average price for gas imported from Germany last November cost the company $425 per thousand cubic meters, where the price for Russian gas was around $430.