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


Important Changes in Russian Gas Business Environment


Russian-Ukrainian Gas Conflict: Financial Effects of the Russian Side (in PDF format)

Gazprom agrees to accept financial loss

Media reports and political statements misunderstand the economic part of Ukrainian gas transit problem. Gazprom does not simply sell gas to Ukraine as Turkmenistan does. Russian gas monopoly delivers gas as payment in kind for Ukrainian transit services. For years, the Ukrainian transit tariff was set at the rate, which allowed Ukraine to generate enough cash for an agreed volume of gas. The transit tariff matched the price of gas delivered as payment for transit services, which means that the value of payment gas was equal to the transit revenue of Ukraine.

After 2000, payment gas volume was agreed at 26 bcmy (billion cubic meters per year) and the price at $50/mcm (thousand cubic meters). Transit tariff was set at $1.0937/mcm per 100 km. At a briefing on June 7, 2005, Mr. A.Ryazanov, Deputy Chairman of Executive Board of Gazprom, said that the price and the tariff rate were very profitable for Gazprom and there was a good partnership and mutual understanding with Ukraine (briefing transcript in Russian).

By raising the price of payment gas, Gazprom increases its own transit expense in Ukraine. Ukraine, in turn, can raise its transit tariff to generate enough cash for buying the same volume of gas it gets now. Then Gazprom would have higher expenses, no profit and three times higher export duty.

On the positive side, Ukrainian transit tariff is linked to the tariff Gazprom charges for the transit of Turkmen gas. It means that a raise of Ukrainian tariff also increases the transit revenue of Gazprom.

Table 1 shows our estimations of effects of the raise of Ukrainian gas price on the financial results of Gazprom. For the sake of comparison, we use the transportation work and transit volumes of 2004.

Table 1: Gazpromís Financial Results of the Raise of Ukrainian Gas Price

 

Unit

$50/mcm

$120/mcm

$160/mcm

Gazprom sales revenue:

 

 

 

 

Gas volume

bcm

26

26

26

Value of gas

$ million

1300

3120

4160

Cash payment for transit

$ million

250

3120

4160

Cost of transit service

$ million

1550

3120

4160

Transportation work

thous. bcm * km

142

142

142

Transit tariff

$/mcm/100km

1.09

2.20

2.94

Export duty of Gazprom

$ million

390

936

1248

Difference from 2005

$ million

                      -

-546

-858

Gazprom transit revenue:

 

 

 

 

Transit volume from Turkmenistan

bcm

34

34

34

Transit tariff

$/mcm/100km

1.09

2.20

2.94

Gross transit revenue

$ million

312

629

838

Difference from 2005

$ million

                      -

316

526

Combined result of Gazprom:

$ million

                    - 

-230

-332

Compared with the current rate of $50/mcm, a raise of price to $120/mcm adds $316 million in transit revenues, but takes $546 million in additional exports duties. The combined result of price increase from $50/mcm to $120/mcm is a loss of $230 million. If the price is raised to $160/mcm, then the loss increases to $332 million.

Please note that the current price of $50/mcm is below the estimated cost of Russian gas delivered to the Ukrainian border, so Gazprom is breaking the Russian tax code for over a year.

Russian side is likely to have the following effects of the raise of gas price for Ukraine. The government gains as tax collector, but loses as the main shareholder of Gazprom. All minority shareholders of Gazprom just lose.

 

See on the same topic:

Clarifying the Math of Ukrainian Transit Tariff

Brief History of Soviet and Russian Gas Pipeline Policy


Last modified: 12/07/14                    © East European Gas Analysis 2006-2014                                           Email: info@eegas.com
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