News
2006/1/11
SigmaBleyzer Chief on the Gas Deal
http://orangeukraine.squarespace.com/long-articles/2006/1/10/sigmableyzer-chief-on-the-gas-deal.html
ANALYSIS: Dr. Edilberto Segura
Director & Chief Economist, SigmaBleyzer
President, Advisory Board, The Bleyzer Foundation
The Action Ukraine Report (AUR), Number 639, Article 7
Washington, D.C., Wednesday, January 11, 2006
It seems that they are inconsistencies between the signed gas agreement (which is given below) and statements made by officials. But this is not so.
This agreement and other information provided by government officials (the PM and heads of the gas companies), and my own calculations, lead to the following situation:
1. Rosukrenergo will get a total amount of gas of 49 billion m3 (of which 41 billion m3 will come from Central Asia (CA) and 8 billion m3 from Russia (only about half of the maximum amount stipulated). In addition Rosukrenergo will get 15 bn m3 for Moldova).
2. Rosukrenergo will sell to Ukraine a total of 34 bn m3 at a price of $95 th m3. Given the quoted prices ($230 th m3 for Russian and $55 th m3 for CA), about 26 bn m3 of this gas will come from CA and 8 bn m3 will come from Russia. Rosukrenergo will keep to itself the difference of 15 bn m3 (49 bn m3 supplied to it minus 34 bn m3 provided to Ukraine) as payment for transit fees.
3. In addition to the 34 bn m3 from the above deal, Ukraine would also buy from CA (through a separate contract) another 22 bn m3 at an average price of about price of $55 th m3 ($50 in 2006H1 and $60 in 2006H2).
4. The total supply to Ukraine would amount to 56 bn m3 (34 bn m3 from the Russian deal plus 22 bn m3 directly from CA). Together with 20 bn m3 produced internally, Ukraine will have 76 bn m3 of gas for its internal use, a figure similar to last year's. The utilization of this gas supply is expected to be as follows:
Households 18 bn m3
Municipal heating 15 bn m3
Power stations 5 bn m3
Industry 26 bn m3
Govt Institutions 1 bn m3
Transportation 7 bn m3
Storage 4 bn m3
---------------
Total 76 bn m3
Ukraine will have to pay the following for its 56 billion m3 of gas imports plus the 15 billion given to Rosukrenergo for transit fees:
26 bn m3 from CA under the Russian deal at $55/th m3
= $1.43 billion
8 bn m3 from Russia under the Russian deal at $230/th m3
= $1.84 billion
-----------------------------
Subtotal $3.27 billion
Plus:
22 bn m3 from CA under separate contract at $55/th m3
= $1.21 billion
----------------------
Subtotal $4.48 billion
Plus:
Payment to CA for 15 bn m3 of gas given to Rosukrenergo at$55 /th m3
= $0.82 billion
-------------------------
Total $5.30 billion
This expense of $5.3 billion for 56 billion m3 represents a gas price of $95/thousand m3. Therefore, the statement that Ukraine will pay $95 /th m3 at the border is right.
The total gas expense for Rosukrenergo for its gas supply will amount to the following:
41 bn m3 at a price of $55 /th m3 = $2.05 billion
8 bn m3 at a price of $230/ th m3 = $1.84 billion
---------------------
Total = $3.89 billion
To pay for these expenses, Rosukrenergo will receive payments from Ukraine of $3.27 billion (under the Russian deal) plus 15 billion m3 of gas. This 15 bn m3 of gas would represent revenues of $3.4 billion if sold in Europe (that is, 15 billion m3 x $230 billion). Therefore, the total revenue for Rosukrenergo may amount to $6.67 billion.
This will enable Rosukrenergo to pay $3.89 billion for the gas plus any required transit fees (which are unlikely to exceed $1.0 billion at a fee of $1.09 per 1000 m3 per 100 km for both the Ukrainian route and the Russian route. Rosukenergo could therefore retain about $1.8 billion for other operating expenses and profits.
Although we do not know the terms of the agreement between Russia and CA, the CA gas price is valid only for the year 2006. As per the agreement below, the price of gas at the Russian-Ukrainian border of $95 per th m3 is guaranteed only for the first six months of 2006.
Posted on Tuesday, January 10, 2006 at 04:23PM by Dan McMinn