Naftogaz has returned to acting like a spoilt child in it's dealings with Gazprom
Ukraine’s state owned energy giant, Naftogaz, doesn’t need Gazprom anymore. And don’t let the door hit you on the way out, one can almost hear Naftogaz executives telling their Russian partners.
The company said Friday that it will not be resuming natural gas purchases with Gazprom effective immediately because, ironically, the low-cost producer was more expensive than Western European suppliers.
Naftogaz stopped purchasing natural gas from Gazprom on November 25 thanks to overflowing supplies in the European market that made Russia less competitive. Naftogaz did not purchase any Gazprom gas in the first quarter either.
Ukraine has not been importing natural gas from Russia for 125 days, marking the first time Naftogaz did not need fresh Russian supply to get through the winter.
Like the rest of the region that’s been dependent on Russia as a fuel source, Ukraine is diversifying and Gazprom is slowing watching its market share erode.
Ukraine is still a major transit for Russian gas heading into Europe. E.U. consumers received nearly 27 billion cubic meters of natural gas transported from Russia via Ukraine. But new gas and new supply is non-existent between the two former Soviet allies turned bitter enemies.
Russia and Ukraine have been at loggerheads for nearly three years now. It began when president Viktor Yanukovych opted out of a European trade deal that would have moved his country closer to the interests of Brussels and West European companies. As a gift, Yanukovych was given below market rates for Gazprom gas, helping the country subsidize and suppress energy inflation.
Now that Yanukovych is out of the picture and a new pro-Western government is at the helm, Ukraine is following in the footsteps of Poland and the Baltics and turning Westward while Russia is getting sanctioned in the process for its overt support of the eastern Ukraine separatist movements.
Naftogaz press officials declined to comment on where the natural gas was coming from, but said it was being shipped into Ukraine from Slovakia, Hungary and Poland. The origination of the supply, however, was further west. The company said they were able to get fresh deliveries from those countries at prices below Russia’s offer of $212 per trillion cubic meters (tcm).
Under a loan deal with the European Bank of Reconstruction and Development (EBRD), Naftogaz awarded 17 contracts to European firms to supply it with 1.7 billion cubic meters of gas. That deal ended on March 31 and including the trading arms of Italian energy firms Eni and Germany’s E.ON. The cost of the gas including delivery to the border of Ukraine ranges from $188 to $211/tcm. Current prices remain deflationary, the company said.
This week, Gazprom rejected Naftogaz’s request to extend the so-called “winter package” — a set of delivery and price arrangements that regulate the conditions of Gazprom supply to Ukraine. It appears the relationship between the two state-owned enterprises will remain stuck in the quagmire, just like their parents in Kyiv and Moscow.
Gazprom shareholders are having the last laugh. The stock is up 18.5% year-to-date, clobbering Eni and E.ON and beating the Market Vectors Russia (RSX) exchange traded fund by about seven percentage points.