Eurasian Energy Briefs

Age: 15 years

By Roman Kupchinsky

Ukraine’s state-owned oil and gas company Naftohaz met the July 7 deadline and paid Russia’s Gazprom some $280 million for June gas deliveries. As has been the case every month since February 2009, Gazprom officials had been predicting that Ukraine would be unable to come up with the money and were threatening to demand prepayment if the monthly deadline were missed.

Part of the explanation for the relatively low amount paid for June deliveries is that Ukraine imported a record low amount of gas last month – some 33 million cubic meters a day. The previous bill for May 2009 was higher – $475 million, and was paid in full on June 7.

July however, might prove to be more problematic. Naftohaz increased daily deliveries for July to 120 million cubic meters or 3.5 times the June amount. Most July deliveries will go into underground storage for use during the heating season. The price Ukraine paid for gas in the third quarter of 2009 fell to $198 for 1,000 cubic meters from the second quarter price of $271.

Despite the lower price, Ukraine needs to come up with some $675 million by August 7 to pay for July purchases. The perplexing question is where will the money come from?

On June 29, 2009 the Slovak gas monopoly SPP signed a 10 year contract with Germany’s E.ON to buy 500 million cubic meters of gas annually, or 10 percent of Slovakia’s demand. The deal is being touted as the first step towards diversification of gas supplies to Slovakia which is totally dependent on Russian gas. SPP also announced that it intends to sign a similar agreement with France’s GdF according to the Polish Center for Eastern Studies publication Central European Weekly.

The following day, June 30, Poland signed an agreement with Qatar to buy 1 million tons of LNG (1.5 billion cubic meters) annually beginning in 2014. The Polish state-owned gas company PGNiG eventually hopes to import 5 billion cubic meters of LNG.

The growing trend in Central Europe to diversify gas suppliers could eventually have a ripple effect forcing Gazprom to reevaluate or downsize the expensive and controversial Nord Stream and South Stream gas pipeline projects and explore the much cheaper alternative of modernizing the aging Ukrainian pipeline.