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


RosUkrEnergo Wins, Gazprom and NAK Lose

RosUkrEnergo is making daily profits of $3 to $5 million with the half going to unknown shareholders. This is a very good reason for RUE to stay in the business as long as possible.

Table 1 compares costs and benefits of Gazprom and NAK Naftogaz of Ukraine under transit terms of 2005 and 2006. It is important to include all sales of Central Asian and Kazakh gas into the analysis of gains and losses of Gazprom.

Before 2005, ZMB GmbH (Germany, 100% owned by Gazprom) was exporting Central Asian gas to Europe and states of the former Soviet Union.

Apparently, Gazprom transferred the exports of Kazakh gas from ZMB to RUE. Without cheap gas from Kazakhstan, it was impossible to get the price of $95/mcm at the Ukrainian border, as required by the agreement between Gazprom, NAK Naftogaz and RUE.

For the sake of simplicity, the exercise does not take into account transit flow of Russian gas via Ukraine to southern Russia. It is assumed that Ukraine needs 56 bcm of imported gas and Moldova 3 bcm.

Table 1. Estimated Revenues and Expenses of Gazprom and NAK Naftogaz Ukraine in 2006

 OLD AGREEMENT
 bcm $/mcm $ mill.
 NEW AGREEMENT
 bcm $/mcm $ mill.

 GAS BALANCE

     

 GAS BALANCE

     
 Demand:        Demand:      
 Ukraine net import
56    
 Ukraine net import
56    
 Moldova import
3    
 Moldova import
3    
 Trans-Caucasus net import
7    
 Trans-Caucasus net import
7    
 Europe via Ukraine
118    
 Europe via Ukraine
118    
 Total:
184    
 Total:
184    
 Supply:
     
 Supply:
     
 Kazakhstan 15      Kazakhstan 15    
 Turkmenistan & Uzbekistan 48      Turkmenistan & Uzbekistan 48    
 Gazprom gas required 121      Gazprom gas required 121    
 Total:
184    
 Total:
184    

 GAZPROM

     

 GAZPROM

     
 Revenue:
 
 
 
 Revenue:
 
 
 
 Gazprom to Europe via Ukraine
109
230
25,070
 Gazprom to Europe via Ukraine
101
230
23,230
 Gazprom pmt gas to Ukraine
21
50
1,050
 Gazprom to RUE
17
170
2,890
 Gazprom to Ukraine for cash
8
87
692
 Gazprom to Moldova
3
110
330
 Gazprom pmt gas to Moldova
1
80
80
 ZMB to Trans-Caucasus (*)
7
110
770
 ZMB to Trans-Caucasus (*)
7
110
770
 Transit to Ukraine
56
9
514
 ZMB to Moldova (*)
2
110
220
 50% of RosUkrEnergo profit
 
 
676
 ZMB to Europe (*) 9 230 2,070
 Total:
184
 
28,410
 Transit to Ukraine & Moldova 27 9 248        
 50% of RosUkrEnergo profit     350        
 Total:
184
 
30,550
 
 
 
 
 Expenses:
   
 
 Expenses:
   
 
 Procurement - Kazakhstan gas
15
30
-450
 Procurement - Kazakhstan gas
7
30
-210
 Turkmenistan & Uzbekistan
21
65
-1,365
 Ukrainian transit
101
20
-2,068
 Ukrainian transit 109 14 -1,526
 Export duties
121  
-7,935
 Export duties
139  
-8,068
 Total:
 
 
-10,213
 Total:
 
 
-11,409
 
 
 
 
 BALANCE     19,141  BALANCE     18,197
 Difference from old agreement
 
 
- 
 Difference from old agreement
 
 
-945

 NAK NAFTOGAZ

     

 NAK NAFTOGAZ

     
 Procurement expenses:
 
 
 
 Procurement expenses:
 
 
 
 Gazprom payment gas
21
50
-1,050
 RosUkrEnergo
56
95
-5,320
 Central Asian gas 35 90 -3,150  Revenue (excl. sales):      
 Total:
 
 
-4,200
 Transit service - Gazprom 101 20 2,068
 Revenue (excl. sales):        Transit service - RUE 17 20 348
 Transit service - Gazprom 109 14 1,526  Storage fee 15 2 34
 Total:
 
 
1,526
 Total:
 
 
2,450
 BALANCE BEFORE SALES     -2,674  BALANCE BEFORE SALES     -2,870
 Difference from old agreement
 
 
- 
 Difference from old agreement
 
 
-196

(*) Transit sales free of Russian export duties (30% of price).

The assumed price of $170/mcm at which Gazprom sells gas to RUE may look optimistic to shareholders of Gazprom. In Q3-2005, Gazprom was selling gas to RUE at $80/mcm, while the average price of European exports was $196/mcm. RUE exported gas to Europe.

Gazprom's revenue includes 50% of RUE profit. For 2005, we use conservative estimation of $700, based on published profit for January-September 2005. RUE profit in 2006 is calculated in Table 2.

Table 2. Estimated Performance of RosUkrEnergo in 2006

 
 bcm $/mcm   $ mill.
 Asian gas (priced at Ukrainian border):      
 Procurement - gas from Turkmenistan and Uzbekistan
48 90 -4,320
 Procurement - gas from Kazakhstan
8 40 -320
 Total cost and average price of Asian gas:
56 83 -4,640
 Sales revenue
56 95 5,320
Profit from Asian gas:
184   680
 Gazprom gas:
     
 Procurement cost 17 170 -2,890
 Cost of transit via Ukraine 17 20 -348
 Export revenue 17 230 3,910

 Profit from exports of Gazprom gas:

    672
 Total profit:
    1,352

According to our estimations, if RUE stays in business through the year, Gazprom would lose about one billion dollars. If Gazprom sells gas RUE at $230/mcm, the loss decreases to $741 million (see attached table).

We consider the price of $230/mcm very unlikely. The short history of RUE shows that maximization of profit of the Swiss trader has always been among top priorities of Gazprom. In January-September 2005, gas price set for RUE by Gazprom gave the Swiss trader a profit of $0.5 billion, which corresponds to a very generous profit rate of 17%. Technically, this profit was diverted from shareholders of Gazprom, including the state, to shareholders of RUE.

Under the terms and market conditions of January-February 2006, we estimate the annual loss of NAK Naftogaz at about $200 million (Table 1).

Despite excellent lobbying capacity of unknown shareholders of RUE, we expect the Swiss trader to be out of the deal within few weeks or months.

Mikhail Korchemkin

March 6, 2006

 

Previous publications on Russian-Ukrainian gas dispute:

Economics of Russian-Ukrainian Gas Conflict: Who won the war?

Russian-Ukrainian Gas Conflict: Lack of Free Market in Russia

Russian-Ukrainian Gas Conflict: Financial Effects of the Russian Side - 2

Russian-Ukrainian Gas Conflict: Financial Effects of the Russian Side

Brief history of Soviet and Russian gas pipeline policy

Clarifying the math of Ukrainian transit tariff


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