Gazprom pipelines and export capacity

Газопроводы Газпрома и экспортные мощности

Gas pipelines of West Siberia

Газопроводы Западной Сибири

Export flows of Gazprom

Экспортные потоки

Spot, Gazprom, Brent

Цены на нефть и газ

End-use price of gas

Russia and USA

Daily gas production

Суточная добыча


Russian-Ukrainian Gas Dispute


Comments on Vladimir Putin's meeting with foreign media on January 8, 2009

In my view, the numbers given in the presentation of Russian Prime Minister Vladimir Putin support the position of Ukraine rather than that of Russia.  These and some other questionable issues are addressed in the same order as they are in the presentation.

  1. V.PUTIN: "I would like to draw your attention to the fact that Ukraine, for example, has been receiving gas at well below market prices. While we sold gas to Western Europe at 100, 150 and 200 dollars per 1000 cubic meters Ukraine received our gas at $40, 50 per 1000 cubic meters. Thus, only in the gas sphere, the Russian Federation subsidized the Ukrainian economy to the tune of about $47 billion over the past years."

    COMMENT: The numbers officially reported by Gazprom are different from the numbers of Vladimir Putin. Table 1 shows the size of the "subsidies" in the period when Mr. Putin was the Prime Minister and the President of Russia. In 1999-2005, Gazprom was supplying gas to Ukraine at $50/mcm as payment for transit services. There were no cash transactions between Gazprom and Ukraine at that time. All other volumes were sold by Itera and other companies. From 2006, Gazprom is buying Central Asian gas and reselling it to Ukraine via Rosukrenergo. In 2006-2008, Turkmenistan, Uzbekistan and Kazakhstan were subsidizing Gazprom and Naftogaz.

Table 1. Russia's "subsidies" to the Ukrainian economy in 1999-2005

 

1999

2000

2001

2002

2003

2004

2005

Total

 Gas supplied by Gazprom, bcm
29.6

27.2

21.9

25.9

26.0

26.0

21.6

-

 Price of Gazprom's gas, $/mcm
50

50

50

50

50

50

50

-

 Ukrainian transit cost, $/mcm (1)

14

14

14

14

14

14

14

-

 European price of gas, $/mcm (2)

65

103

118

103

124

138

192

-

 "Subsidies", $ billion

0.0

1.0

1.2

1.0

1.6

1.9

2.8

9.5

(1) At the official transit tariff of $1.0937/mcm per 100 km.

(2) The average price of European exports reported by Gazprom.

It is worth noting that the gas storage facilities of Ukraine save Gazprom much more than the so called "subsidies" (see our comment of Jan-5-2009).  

  1. V.PUTIN: "By January 5 the reductions of Russian gas supplies were felt in seven European countries: the Czech Republic, Turkey, Poland, Hungary, Romania, Bulgaria and Greece. We were notified that supplies of Russian gas had dropped by 5-30%. By January 5 the volume of illegally taken gas amounted to 65.3 million cubic meters <..> By the way, between January 1 and 6, 86 million cubic meters was stolen <..> In the morning of January 6 Hungary, Bulgaria, Turkey, Greece, Serbia, Slovenia, Slovakia and Romania stopped receiving Russian gas. Gas supplies to France, Austria and Germany were reduced significantly."

    COMMENT: In my view, this part of the talk is a real disaster because the numbers show how insignificant was the gas loss in Ukraine. Statements of Gazprom of Jan-4 and Naftogaz of Jan-08 indicate that the average transit flow to Europe in the first six days of January was equal to 239 mmcm/day (mmcm = million cubic meters). According to Gazprom, from Jan-1 to Jan-4, Ukraine has siphoned 65.3 mmcm of gas, which is an equivalent of 16.3 mmcm/day or less than 7% of the average daily transit flow. According to V.Putin, in six days, 86 mmcm was stolen, which makes 14.3 mmcm/day or 6% of the daily transit flow to Europe.

    Table 2. Transit flows through and the losses of Russian gas in Ukraine, million cubic meters

     

    Jan-1

    Jan-1

    Jan-2

    Jan-3

    Jan-1-4

    Jan-1-6

    Jan-1-6

    Jan-1-6

     Supplied by Gazprom
    326
    303.8

    296

    295

    NA

    NA

    1488.2

    1488.2

     Flow to Europe
    NA
    305.7

    NA

    270

    NA

    NA

    1435.9

    1435.9

     Gas loss
    NA
    -

    NA

    25

    65.3

    86

    52.3

    86

     Average daily flow to Europe
    NA
    305.7

    NA

    270

    NA

    NA

    239.3

    239.3

     Average daily loss

    NA

    -

    NA

    25

    16.3

    14.3

    8.7

    14.3

     Share of loss in transit, %

    NA

    -

    NA

    8.5%

    NA

    NA

    3.5%

    5.8%

     Source of information

    (1)

    (2)

    (3)

    (4)

    (5)

    (6)

    (7)

    (8)

    (1) Gazprom statement of Jan-1.

    (2) Naftogaz: Russian Natural Gas Transit via Ukraine. Scheme (excluding supplies to Moldova).

    (3) Gazprom statement of Jan-2.

    (4) Gazprom statement of Jan-4. The document also notes the loss of 25 mmcm by Rosukrenergo.

    (5) Gazprom statement of Jan-5.

    (6) Presentation of Vladimir Putin on Jan-8.

    (7) Naftogaz: Statement of Jan-8.

    (8) Share of losses according to Gazprom.

    From the standpoint of European consumer, gas suppliy at 90-94% of the contractual obligations is very different from the total cutoff. Viewing from Hungary, Slovakia or Czech Republic, a low pressure in the Balkan pipeline (that supplies gas to Romania, Bulgaria, Greece, Turkey and Macedonia) is not a good reason to turn off gas supplies to other export pipelines.

    It looks like the Russian government considered the loss of 6-7% of the transit flow as the reason for the total cutoff.  The loss is not irretrievable. Gazprom can get back its lost profit in the Arbitration Court of Stockholm. However, the insignificance of the size of siphoning may indicate that the loss of gas was not the reason, but an excuse to stop the gas exports.

    Please note that Vladimir Putin's statement on the halt of gas deliveries to Hungary, Bulgaria, Serbia, Slovenia, Slovakia and Romania on January 6 and Mr. Putin's numbers do not match. From Jan-5 to Jan-6, Ukraine has siphoned 20.7 mmcm of transit gas (86 - 65.3 = 20.7). The minimum daily flow to the named countries (excluding Turkey and Greece) is twice bigger than that.

    Russia and Ukraine are facing trials on the transit volumes and volumes of gas used at compressor stations of Naftogaz. We estimate the demand of fuel gas for the transit of 240 mmcm/day at 8-9 mmcm/day.

  2. V.PUTIN: "If Ukrainian neighbours in the European Union pay an average $470 per 1000 cubic meters in the first quarter, it is clear how much Ukraine has to pay if one subtracts from that price the cost of transit to the Western border of Ukraine."

    COMMENT: Among dozens of contracts of Gazprom, there may be one or two with that high price of gas (most likely, it is a contract with a country that does not have access to alternative sources of gas, or it is a contract with a low level of take-or-pay volume). We estimate the average price of European exports of Gazprom in the 1st quarter of 2009 at $384/mcm. The actual price will be published in the corresponding financial statement of Gazprom.

    The Ukrainian price of gas must reflect the seasonal factor. Gazprom produces as much gas as it can sell. In summer time, the average daily production stands at 1250 mmcm, in winter at 1650 mmcm. If Ukraine stops injecting gas in its storage facilities in summer time, Gazprom would be unable to sell this gas to anybody because of the lack of demand (all underground gas storage facilties in Russia and in Europe are injecting gas at the maximum rate anyway). There are no other buyers of "summer gas" in Russia or in Europe. Moreover, the Ukrainian storages help Gazprom to create spare pipeline capacity for winter flows of gas, when the fuel demand is high.

  3. V.PUTIN: "I regret to say that it indicates a high level of corruption in Ukrainian government structures which today are fighting not over the gas price, but for the possibility to keep certain mediators in the game in order to use the dividends for personal enrichment and to raise the necessary funds for future political campaigns."

    COMMENT: I agree. Rosukrenergo is a corrupt scheme. Indeed, Gazprom defines the size of the profit of Rosukrenergo (RUE) by giving the Swiss broker allowances to export gas to Europe. RUE is not competing with Gazprom in European markets. RUE exports as much gas as needed to provide its Ukrainian shareholders (Messrs D.Firtash and D.Fursin) daily profits of over $1 million, 7 days a week. The shareholders of Gazprom, including the Russian Federation, get less profits, respectively. It would be impossible to imagine that Ukraine has forced Mr. Putin to give a gas export quota to RUE. It is also hard to imagine that the executive director of RUE (who is also a member of the Executive Board of Gazprom) runs an independent policy in European markets and competes with his boss, Mr. Alexey Miller, and with Mr. Miller's boss, Vladimir Putin.

    When Rosukrenergo was founded by Gazprombank and Raiffeisenbank, Gazprom gave a promise to its shareholders that  the Swiss intermediary would invest money in the expansion of gas transmission capacities along the route from Turkmenistan to the Ukraine. In real life, RUE has not invested a penny. All profits were paid in dividends. Half of the dividends went to lucky Messrs. Firtash and Fursin. Members of the Executive Board of Gazprom who are also members of the board of RUE have always voted for paying dividends instead of investing profits.

Mikhail Korchemkin

January 9, 2009

ADDENDUM: Ukrainian "subsidies" in 2006

Table 1 ends in 2005, but the sales of Russian gas to Ukraine continued for one more year. Table 3 shows quarterly volumes of sales and prices of these transactions.

Table 3. Russia's "subsidies" to Ukraine in 2006

 

Q1

Q2

Q3

Q4

Total

 Sales of gas produced in Russia:
 

 

 

 

 

 Volume, bcm
4.1

0.8

4.2

-

9.1

 Price, $/mcm

230

230

230

-

-

 Ukrainian transit cost, $/mcm (1)

20

20

20

-

-

 European price of gas, $/mcm (2)

243

261

267

280

-

 "Subsidies", $ million

-33

8

68

-

44

 Sales of Central Asian gas:
 

 

 

 

 

 Volume, bcm
12.4

12.2

12.2

11.0

47.8

 Price, $/mcm

95

95

95

95

-

 Total gas sales to Ukraine, bcm

16.5

13.1

16.4

11.0

56.9

 Gazprom's export to Europe, bcm

45.6

39.3

33.9

42.7

161.5

(1) At the transit tariff of $1.60/mcm per 100 km.

(2) The average price of European exports reported by Gazprom.

In my view, the 2006 price of Russian gas for Ukraine was well above the market (or European netback) price because the seasonal pattern of Ukrainian supplies and the size of sales were not taken into account. In Q2- and Q3-2006, Gazprom has delivered to Ukraine 29.5 bcm of gas and 27.5 bcm in the heating period of Q1- and Q4-2006 (more in summer and less in winter). Exports to Europe went according to the demand: in the heating period, Gazprom exported 15.5 bcm more than in Q2- and Q3-2006. Gazprom was able to export more gas to Europe in winter because Naftogaz has bought more gas in the summer and injected it into its underground storage facilities. Naftogaz did and still does this big favor to Gazprom and Rosukrenergo for free. Moreover, Naftogaz pays to its Russian and Swiss partners for providing this valuable service.

In Q1-2006, Ukraine "subsidized" Gazprom in the amount of $33 million. Calculated Vladimir Putin's way, the total value of Russian "subsidies" in 2006 was $44 million. In 2007-2008, Gazprom was not exporting Russian gas to Ukraine. Therefore, Russian gas could not subsidy the Ukrainian economy.

From 2006, Gazprom acts as a gas broker between the Central Asian states and Rosukrenergo. The price of Turkmen, Kazakh and Uzbek gas has nothing to do with the Russia's "subsidies" to Ukraine.

In my view, the presence of Gazprom or any other intermediary between the Central Asian producers and Ukraine complicates the Russian-Ukrainian relations. In fact, Gazprom shows a bad example of a transit country (Russia is the transit country for Central Asian gas) buying all gas that gets into its territory and selling this gas on its own terms. It is a paradox that Gazprom demands the freedom of an interrupted gas transit through all countries while there is no freedom of gas transit in Russia.

Mikhail Korchemkin

East European Gas Analsysis

January 17, 2009


Last modified: 12/07/14                    East European Gas Analysis 2006-2014                                           Email: info@eegas.com
Reproduction or use of materials is allowed only with reference to East European Gas Analysis or www.eegas.com