The Miller Cocktail
// Russian and Turkmen gas will flow to Ukraine through a Swiss in-between
The Gas War
No one could expect the gas war between Russia and Ukraine to end in this way. The acutest economic crisis of 2005 did not freeze Ukrainian villages or brought German plants to a halt but enabled RosUkrEnergo (RUE), the gas trader with the turnover of billions of dollars, to enter the European gas market bringing profits to its unknown co-owners.
Vladimir Putin bluntly excluded Ukraine from the set of the countries which are our “closest friends and neighbors” after his negotiations with Ukrainian Energy Minister Ivan Plachkov on December 29. Since then, hardly anyone could have supposed the Russian leader to announce “a new unprecedented level of relations” with Ukraine on January 4 at a meeting in Novo-Ogarevo. It took Russia five days to alter the policy towards its neighbor from the energy blockade to the close cooperation.
Gazprom was determined at the end of the last year to deliver gas to Ukraine for $230 per 1,000 cu. meters, while Ukraine was set to buy it for $70-80, at most. Gazprom suspended the gas supply to Ukrainian customers at 10:00 a.m. on January, 2006 decreasing the pressure in the Soyuz gas main equal to the Ukrainian quota.
The dispute between Gazprom and Naftogaz Ukrainy was said to be settled at 10:00 a.m. on January 4. Viktor Yushchenko said that Ukraine would buy gas at the Russian-Ukrainian border at $95 per 1,000 cu. meters ($50 in 2005) while the transit rate of 1,000 cu. meters in 100 km for Gazprom would go up to $1.6 from $1.09. Gazprom CEO Alexey Miller declared an hour later that Russian would supply Ukraine with its gas for $230 per 1,000 cu. meters through the Switzerland-based RUE, the company which had earlier delivered Turkmen gas to Ukraine under the Ukrainian-Turkmen agreement. No explanations were given as to how RosUkrEnergo, 50-percent owned by Gazprom through Gazprombank, would managed to stay afloat purchasing gas at $230 in Russia to sell it to Ukraine at $95.
The agreement between Naftogaz Ukrainy, Gazprom and RUE was sealed at Gazprom’s headquarters at 2:30 a.m. on January 4, according to the information Kommersant obtained. The final decision was taken before the midnight at Ukraina Hotel during talks between leaders of all the parties concerned including the businessman Semen Mogilevich who set up RUE in 2004, unofficial sources reported. Shareholders of this offshore company which is registered in Swiss canton Zug will reap revenues as early as in 2006.
Yulia Timoshenko, the head of the Yulia Timoshenko Bloc, revealed at the news conference in Kiev the agreement, whose authenticity was not refuted by Gazprom or Naftogaz Ukrainy. The gas compromise is the following, according to the document published. Gazpromexport, the exporting subsidiary of Gazprom, and Naftogaz Ukrainy are to sell to RUE all gas Turkmenistan is able to export in 2006 (41 billion cu. meters) at the Turkmen-Uzbek border. RUE is to buy extra 8 billion cu. meters of Uzbek gas at the Uzbek-Kazakh border and 7 billion cu. meters of Kazakh gas at the frontier between Kazakhstan and Russia. The exact volume of the purchase will depend on the carrying capacity of the Central Asia-Center gas transportation system, and prices for the purchases are still unknown.
RUE’s transit agreement with Gazprom stipulates for the delivery of the total of 56 billion cu. meters at the Russian-Ukrainian border. The prime cost of this Central Asian gas mixture for RUE will amount to between $85 and $90 per 1,000 cu. meters, including the transit rates. Afterwards, RUE is to sell the gas to a joint venture set up in Ukraine with Naftogaz Ukrainy. The company is due be founded by February 1, under the agreement, and be presumably called Rosukrenergo. The joint venture will be selling gas in Ukraine with no right to re-export it.
RUE pledged itself to supply its joint venture with 34 billion cu. meters of gas in the first half of 2005. What’s more, RUE promised to buy some 17 billion cu. meters at $230 from Gazprom at the border between Russia and Ukraine. This is what Alexey Miller was speaking about. The price for Rosukrenergo for 34 billion cu. meters is set at $95 per 1,000 cu. meters, which Viktor Yushchenko reported. Curiously enough, the minutes to the agreement were signed afterwards, therefore Gazprom had no accusations against Ukraine. The January 4 agreement includes other things which were never declared in public. RUE is eligible to export the 39 billion cu. meters of gas left after it had fulfilled its obligations at any price to any place it wants – to Ukraine which will be in short of 22 billion cu. meters in the second half of 2006, or to the CIS and Europe where this gas will be priced at $180-270 per 1,000 cu. meters. RUE’s revenues from the gas exports may come to some 2.7 billion, given the average price of $250.
RUE binds itself to annually supply Ukraine with up to 58 billion cu. meters of gas from 2007 at a fixed price, which is not set yet. Considering this, the surplus from the company’s activities outside Ukraine alone will total at least 15 billion cu. meters of gas. Wolfgang Putschek, the head of RUE, said late last week that he was satisfied with the agreement between Russia and Ukraine on the gas issues and officially confirmed that his company was set to boost its turnover by 30-40 percent in 2006 to become Europe’s leading gas trader and prepare to IPO.
There seem to be no losers in the gas war between Russia and Ukraine. From Ukrainians’ point of view, their government secured the gas supply for $95 per 1,000 cu. meters for the toughest first six months of 2006 (the upcoming parliamentary elections is on the list too). Moreover, RUE is likely to agree to deliver gas to its subsidiary for $95-160 per 1,000 cu. meters in the second half of 2006. The relative peace in Ukraine is a guarantee that the $1.6 transit rate for Rosukrenergo and Gazprom has come to stay. Gazprom does not seem to have lose anything either after it secured selling 17 billion cu. meters of Russian gas sale at $230 per 1,000 cu. meters to RUE, instead of the Ukrainian government. RUE does not look a defeated party too: there will be enough of Central Asian gas to make the supplies profitable.
The only problem is that Gazprom had to hand to RUE everything it had earned since 2001 buying up the Central Asian gas. Turkmenistan, Uzbekistan and Kazakhstan essentially resolved on January 4 the task of exporting Russian gas to the EU with no direct dependence on Gazprom. Gazprom earlier could count on 100 percent of the profits from exports of Central Asian gas to Europe. Now it will gain no more than 50 percent as the other half will be distributed among other stockholders of RUE which will increase its share on the CIS and European markets to 11-12 percent from the current 4 percent.
But what could have prompted Gazprom to willingly give up its position to the 2-year old offshore company? As Wolfgang Putschek said quoted by Reuters “a group of international investors who still prefer to stay unidentified” is behind Raiffeisen Invest AG, another owner of RUE. It reminds one of Vladimir Putin’s declaration made a year ago that a group of “experienced energy specialists” is behind the Baikal Finans Group company which bought Yuganskneftegaz at the Federal Property Management Fund’s auction.
by
Dmitry Butrin
All the Article in Russian as of Jan. 10, 2006
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