Gazprom Gets a Tariff Boost
// The government won't regulate gas prices for industry
Russian authorities may stop regulating natural gas prices for industries next year. This unexpected bow to Gazprom occurred after the last disputed issue in foreign deliveries was settled: yesterday, Russia relieved itself of obligations to provide gas to Ukraine, leaving it to run its economy on Central Asian gas.
It became known yesterday that the Russian government had returned to a discussion of the fact of the growth of gas prices for industrial users within the country almost to the level of Europe. Interfax news agency reported that that issue was discussed on September 20 at a meeting with First Deputy Prime Minister Dmitry Medvedev. The Ministry of Industry and Energy was given the task of preparing proposals within the next two weeks to change the structure of the domestic gas market. Those proposals were actually discussed at a meeting of the energy ministers of the Black Sea Economic Cooperation Organization in Sochi led by Russian Minister of Industry and Energy Viktor Khristenko yesterday. Khristenko told the meeting that “in the near future a market of long-term contracts under regulated prices will be formed in Russia that may consist of up to 100 billion cubic meters per year.”
Gazprom sold 307 billion cu. m. of gas on the domestic market in 2005. Sixteen percent of that went to the public, 10 percent to housing utilities enterprises and 38 percent to electricity generators. There remains 36.2 percent, or just over 110 billion cu. m. Khristenko stated that more than 90 percent of industrial consumers would buy gas at unregulated prices. For the public and housing utilities, low, regulated prices would be maintained. A “moderate raise” in prices is planned for electricity producers. Plans are for industrial users to pay an “EU minus transit” price for gas. For central parts of the country, that will be up to $180 per 1000 cu. m., as compared to the current rate of $50 per 100 cu. m. The reform is to begin next year.
The chemicals and metals industries, which will face the free market first, each make up 7 percent of Gazprom's domestic deliveries. At the Renova-Orgsintez company, they say that natural gas makes up 40-80 percent of production costs for chemical products in Russia and the majority of industries in the sector will become unprofitable if market prices for gas are introduced. At large metal companies, they estimated gas's share in costs at 8-14 percent, and also see nothing good to come from market prices.
Gazprom itself finished forming the base for the government reforms yesterday. The monopoly took the last step in defining its export policy when Gazprom governance board chairman Alexey Miller and Ukrainian Minister of Fuel and Energy Yury Boiko signed a contract for supplies 55 billion cu. m. of Central Asian natural gas annually from 2007 to 2009.
That agreement was the final accord in a cardinal shift in relations between Russia, Turkmenistan and Ukraine. Last year, Ukraine bought 30-40 billion cu. m. of gas directly from Turkmenistan. In the last ten years, Turkmenistan sold Gazprom at least 1-5 billion cu. m. of gas per year. At the end of last year, Gazprom took the initiative in negotiations with President (Turkmenbashi) Saparmurat Niyazov and contracted for 30 billion cu. m. for 2006 with the goal of selling all that gas to Ukraine. Naftogaz Ukrainy still has a contract for the purchase of the same 30 billion cu. m. from Turkmenistan directly then. After tough negotiations in Turkmenistan, all Turkmen gas came under the control of Russia.
Ukraine didn't receive a single cubic meter of Central Asian gas in 2006 except through Russia, and it won't in coming years either. But yesterday's contract between Gazpromexport, Rosukrenergo and Naftogaz Ukrainy on “supplies of gas of Central Asian origin in the fourth quarter of 2006” may be compensation. Prices will remain at $95 per 1000 cu. m. With a purchase price of $100 per 1000 cu. m. for Turkmen gas, that is a direct loss for Gazprom. But “taking into consideration long-term cooperation,” it will be covered from Rosukrenergo profits. A source at the negotiations said that “less than $400 million” is in question and Ukraine will make compensation for it with money or assets next year.
Gazprom will supply Ukraine with more than 50 billion cu. m. of Turkmen natural gas per year for the next three years. Another 5 billion cu. m. of Kazakh gas will have to be purchased at the expected price of $100-140 per 1000 cu. m. Thus the plan for the purchase of cheap Turkmen gas and expensive Russian gas has been formulated. Domestic consumers are the last bastion of non-market priced gas for Gazprom. After the reform of the domestic market, less than half of Gazprom's market will be regulated. This will be the climax of the campaign begun last year to convert its consumers to market prices.
Natalia Grib; Alexander Gudkov, Sochi
All the Article in Russian as of Sep. 28, 2006
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