Yanuk tackles gas

Yanukovych is quite properly urgently tackling the problem of procurement of gas for Ukrainian citizens and industry. Next week he will meet with Russian PM Mikhail Fradkov in Sochi, where a EvrAzES summit is being held. [Eurasian Economic Community comprising Belarus, Kazakhstan, Kyrgyzstan, Russia, Tajikistan & Uzbekistan]

New minister of fuel and energy, Yuriy Boyko yesterday renewed his Russian contacts at Gazprom when he met its CEO, Aleksey Miller. It was Miller, who together with Boyko signed the agreement by means of which RosUkrEnergo became the transit operator for Turkmen gas supplied to Ukrainian markets. RUE is now the monopolistic supplier of gas to Ukraine.

An article in 'Vremya Novostey' declares:"The key question for Kyiv in future negotiations is the position of Moscow with respect Turkmen gas, which forms more than 50% of Ukraine's gas balance. It is well known that the contract between Gazprom and Ashkabad for the purchase of 30Bn cu.m. of gas at $65, (which is transferred to RUE and delivered at the Russian-Ukrainian border for $95), terminates in October. The president of Turkmenistan proposed extending the contract, but with new conditions - that the price for gas is increased to $100 per Th.cu.m., but was told to 'get stuffed'.

However, without 11 -12 Bn cu.m. of Turkmen gas in the final quarter, Ukraine will either freeze, or will be forced to renew its habit of skimming off of unsanctioned gas intended for customers in other parts of Europe.

So it is vital for Boyko to know if Gazprom is ready to act in concert with Kyiv in price negotiations with Turkmenbashi. The price finally agreed for Turkmen gas will determine whether or not the $95 price that Ukraine pays at the moment can be maintained until the end of the year (this was one of Yanukovych's promises made during the VR election campaign)."

'Vremya Novostey' suggest that negotiations will not be drawn out for long because the Russian PM has to fix the budget for 2007 next Thursday.

If Yanuk and the new cabinet can close a good deal, plenty of kudos will be accrued.

Complications in the Russia-EU energy relationship are well described in this recent Oxford Institute for Energy Studies paper.

A quote: "..the projected decline of Russian gas output from existing fields [is] from 545.1 Bcm in 2004 to 344 Bcm in 2020...Gazprom alone requires about $100Bn to develop new gas fields. The existing energy infrastructure..also requires considerable investment for modernization and maintenance."

If there is a severe winter in Europe, my guess is that gas pressure drops will be again be experienced, but EU leaders don't seem to be too bothered at the moment..

ps Hello to the boys and girls at 'KP'.