Analysts Predict Gazprom’s 80% Gas Price Hike In Ukraine Will Backfire

Russia’s top natural gas producer, Gazprom, will eventually lose more than it gains from raising the gas price for Ukraine by 80 percent, analysts said Friday, predicting Kiev would cut purchases and fail to pay in full.

Gazprom on Thursday announced a price rise for Ukraine to $485 per 1,000 cubic meters, the second increase in three days. The $485 price is the highest of any Gazprom customer and compares with about $370 on average for clients in the European Union.

Ukrainian Prime Minister Arseny Yatsenyuk said the increase, two weeks after Moscow annexed Ukraine’s Crimea region, was unacceptable and warned he expected Russia to step up pressure by limiting supplies to Ukraine.

“Even if the price is legally justified, it would hurt Gazprom’s image, will hit capitalization and, indirectly, the whole Russian stock market,” Valery Nesterov from Sberbank CIB said.

Analysts including Nesterov estimated that Gazprom could lose about $2 billion this year from the move.

Previous pricing spats have prompted Russia to halt supplies of gas to Ukraine, with consequent cuts in gas flows to Europe, where Russia meets 30 percent of demand.

Analysts said Gazprom may turn the taps off again, although immediate cuts are unlikely because of lower gas demand now that winter has ended.

About half the Russian gas delivered to Europe goes through Ukraine, which ships it to Europe from storage sites in the west of the country.

“Ukraine is unable to fill up its gas storage facilities at this price. Without Ukrainian storage gas, Gazprom is unable to fulfill its European export contracts,” Mikhail Korchemkin at East European Gas Analysis said.

The two price rises ratchet up pressure on the former Soviet republic following the ouster of President Viktor Yanukovych, who had won a price cut from Russia after aborting plans to sign political and trade pacts with the EU in November.

Gazprom said it would raise the gas price from $268.50 starting this month after Kiev failed to pay its gas debt of about $2.2 billion on time and after the Russian government introduced an export fee of about $100 per 1,000 cubic meters.

“With a price like this, Ukraine is likely to continue importing gas and increase its debt. This will go on until they decide whether to go to an arbitration or until Russia decides to cut gas supplies to Ukraine,” said Valentin Zemlyansky, a former spokesman for Ukrainian state energy company Naftogaz who says he is an independent analyst.

Analysts said the jump in the gas price is detrimental to the fragile economy in Ukraine, which would swiftly run into problems paying.

“The price looks unrealistic for the long term,” Nesterov said.

Last year, Gazprom sold 25.8 bcm of gas to Ukraine worth $12 billion, down from 33 bcm in 2012. Russia now meets about half of Ukraine’s gas needs.

Nesterov said that Ukraine is likely to buy less than the 25 to 27 bcm previously expected for this year. He estimated that Gazprom would lose $2 billion this year from the price hike and introduction of an export duty, while its production would decline by up to 5 percent.

Alexei Kokin, of UralSib Capital, also expected Gazprom to lose about $2 billion this year as a result of the price hike for Ukraine, which he predicted would cut gas purchases from Russia to 20 bcm this year and to 15 bcm in 2015.

Analysts said the crisis could drag on until winter — the season when Gazprom has cut gas supplies to Ukraine in past pricing rows.

“I think a gas conflict will happen in the winter,” Kokin said.

20 Comments on "Analysts Predict Gazprom’s 80% Gas Price Hike In Ukraine Will Backfire"

bobinget on Sun, 6th Apr 2014 3:50 pm 



Russia could raise gas prices 200%. As Ukraine isn’t
paying anyway, what’s the diff?

Ukraine is already two billion.two in debt to Gazprom.
Maybe Russia will simply foreclose.

When a credit customer never questions price, beware.

Arthur on Sun, 6th Apr 2014 3:53 pm 



President Viktor Yanukovych, who had won a price cut from Russia after aborting plans to sign political and trade pacts with the EU in November.

You don’t want to be our friends any more? Fine, here is the new gas bill tailored for those who contemplate becoming friends with those who seek to destroy us. And if you don’t like the price, get your gas somewhere else… if you can.

dissident on Sun, 6th Apr 2014 3:55 pm 



The headline is designed to shock. Russia is raising the gas price to its European level. About the same as the one Norway and the Netherlands charge to their customers. Why should Gazprom subsidize Ukraine with a huge price discount?

Davey on Sun, 6th Apr 2014 3:55 pm 



“Destroy us” is a bit strong Art!

dissident on Sun, 6th Apr 2014 3:57 pm 



@Arthur,

NATO should subsidize the quisling regime it installed in Kiev. It is absurd to expect Russia to subsidize its self-admitted enemies.

rockman on Sun, 6th Apr 2014 4:46 pm 



I think most would agree that all three – Russia, the EU and Ukraine – would all suffer to some degree. But I can’t imagine the Ukraine surviving as a country. A huge portion of their GDP comes from their exports. And while they may be the breadbasket of the eastern hemisphere much of that output is dependent upon energy imports. Yes…Gazprom might lose $billions and the EU economies would take a big hit. But I can’t imagine it not resuming in severe deprivation and death for many Ukrainians. I would be willing to bet that if Russia and the EU don’t immediately blink at the Ukrainian threat the Ukrainian economy would go into a tailspin and a complete revolt against the gov’t by the citizens would ensue. At that point the Russians and EU leaders will be negotiating with a whole new set of Ukrainian actors.

Davey on Sun, 6th Apr 2014 4:50 pm 



Diss, it is in Russia’s best interest to maintain Ukraine as a functioning economy. The alternative is mayhem spilling across the boarders. Contrary to PPI’s here Russia is a basket case banana republic with huge social ills. It cannot afford to manage a collapsed Ukraine.

I admire the Russian people how they have face so much adversity in their history. I am not anti Russian at all. What I am “anti” is the 20th century game between US and Russia.

Arthur on Sun, 6th Apr 2014 4:58 pm 



@Davey,

Yes, destroyed as in Germany, Vietnam, Iraq, Libya, Syria. You could even add Czarist Russia to the list as the first color coded revolution (red), entirely subsidized by Wallstreet and carried out by the likes of Trotzky. It began with the banksters, todat there is no difference between banksters and US government.

http://www.paulcraigroberts.org/2014/02/14/russia-attack-paul-craig-roberts/

Russia under Putin, China, and Iran are the only constraints on the neoconservative agenda… Washington withdrew from the treaty that banned anti-ballistic missiles and has established anti-ballistic missile bases on Russia’s frontier. Washington changed its nuclear war doctrine to permit nuclear first strike… All of this is aimed at degrading Russia’s deterrent, thereby reducing the ability of Russia to resist Washington’s will… Washington is the perpetrator of the crisis in Ukraine and intends to take over Ukraine for the precise reasons that the experts list. It is a perfect plan for destabilizing Russia and for negating Putin’s successful diplomacy in preventing US military attack on Syria and Iran… Insouciant Americans are paying no attention and have no idea that a handful of neoconservative ideologues are pushing the world toward destruction.

You do realize for what ‘neocon’ is a codeword for?

indigoboy on Sun, 6th Apr 2014 4:59 pm 



Just out of interest. Could Ukraine possibly retaliate by tripling NG gas prices to a newly independent Crimea? Does anyone know if there are NG connections from Russia across the Strait of Kerch to Crimea?

Kenz300 on Sun, 6th Apr 2014 5:16 pm 



Wind and solar are more reliable than Russia for energy supplies.

Davy, Hermann, MO on Sun, 6th Apr 2014 5:19 pm 



Art said – Russia under Putin, China, and Iran are the only constraints on the neoconservative agenda…

Yea, they help stymie the neocons. I am glad we have this situation because imagine a neocon world???horrible But Art, the world has changed and the neocons are passé. Besides the US is broke as far as new adventurism and it will only get worse. Now Art, your poster girls have all played there part in the current global situation you speak of. The stymie works both ways Art, Putin needed his hair cut as bad as the neocons. Putin is a cocky arrogant man bent on a regional domination of his neighbors socially, economically, and militarily. Someone has to stand up to him. Russia and the Soviet Union has shown the west you can trust a bear!

Arthur on Sun, 6th Apr 2014 5:20 pm 



@indogoboy

Google is so good these days that it almost suffices to ask the question in normal language and get direct results.

http://rt.com/business/crimea-russia-gas-gazprom-533/

Crimea has been very dependent on mainland Ukraine for its energy needs, importing 90 percent of its water needs, 80 percent of its electricity, and most of its gas travels through Ukraine, the peninsula is home to only one of Ukraine’s thirteen gas storage facilities.

Building a pipeline is… err in the pipeline.

Stilgar Wilcox on Sun, 6th Apr 2014 5:55 pm 



“Diss, it is in Russia’s best interest to maintain Ukraine as a functioning economy. The alternative is mayhem spilling across the boarders.”

Don’t you think they are doing it to bring the Ukraine to its knees, i.e. to the bargaining table to also be annexed like the Crimea?

This may go down as an example of the power of dwindling resources as those country’s with FF apply pressure on those that don’t. Russia can also raise the price to the EU next winter to punish them for sanctions or just put more pressure on Western sources to meet demand, meaning force the US to fill the gap, raising US NG price.

This is a huge development, sending a strong signal to country’s without sufficient energy sources to find them or pay big bucks.

Davey on Sun, 6th Apr 2014 7:06 pm 



Yea stilgar but the strategy carries big risk for Russian and the rest of global society

andya on Sun, 6th Apr 2014 7:48 pm 



Kinda like the arab oil embargo of days gone by. While it’s not a sanction per se it still is way of punishing a non conformist government. In a world of scarcity it’s easy for the haves to control the have not’s. The US has the reserve currency and uses it to sanction those who have not, Russia has oil and gas. Gazprom won’t ‘lose 2 billion’ because they still have the gas, they lost 2 billion when they sold the gas and didn’t get paid for it.

rockman on Sun, 6th Apr 2014 9:34 pm 



Indigo – Actually the Crimea was supplying the Ukraine with 20% of their domestic NG supplies. But as mentioned Ukraine was supplying them with water and e-. But Russia is physically separated from the Crimea by just several miles of water. It will take some time to replace those Ukrainian resources but not too long. Besides the pipeline plans are in the works for 3 Crimean power plants.

The population of Crimea is round 2.3 million but that includes around 500,000 ethnic Ukrainians who could be deported if it suites Russia’s purposes.
So it will cost Russia some bucks to free the Crimea from Ukrainian support but it comes with a nice dowry: $2 billion/yr from NG production which it could easily trade to the Ukraine for resources since the pipelines already exist. Couldn’t find numbers for oil. Then add the $100 billion in proven NG reserves Russia got by adopting the Crimea. Another metric: just the proven NG reserves represent almost $70,000 per Crimean citizen. Just my WAG but I think Russia’s little Crimean adventure will pay for itself and then some. And perhaps more to come: ExxonMobil et al had plans to spend $750 million to drill just 2 exploration wells in Crimean waters. One might think they have high hopes of success given that initial entrance fee.

So let the Ukraine gov’t try to let the Crimean die of thirst in the dark before Russia can step in to help them. After all, what could Russia possibly do to retaliate? LOL.

rockman on Sun, 6th Apr 2014 9:52 pm 



Davey – True…risk for everyone involved. But very different levels of pain for the actors. Russia loses some cash flow but they would till be largest exporter of energy and would survive. The EU industries would suffers lost productivity without it’s full supply of NG and some folks might get very cold next winter. But they’ll survive. And the Ukraine? Just consider the worse case scenario: at a minimum I suspect gov’t rule would turn into complete anarchy especially since they aren’t that far away now IMHO. And I think it’s a very good bet that Russia will take eastern Ukraine to protect those “Russians” from that anarchy. Again, not that far away from such a possible move today IMHO. At this point the EU and US would either step in and provide almost 100% of the support for the Ukrainian citizens or sit back and watch it turn into possible the worst sh*t hole on planet with a lot of existing sh*t holes already.

Everyone gets hurt. But for the Ukraine it could be terminal. At best the Ukraine becomes a monetary black hole to the west for many decades to come.

Makati1 on Mon, 7th Apr 2014 12:57 am 



BANANA REPUBLIC is a political science term for a politically unstable country (one party) whose economy is largely dependent on exporting a limited-resource product, e.g. (war).

It typically has stratified social classes, including a large, impoverished working class (47 million on food stamps & 18% unemployment)and a ruling plutocracy of business, political, and military elites;

[1] this politico-economic oligarchy controls the primary-sector productions to exploit the country’s economy.

Perfect description of the US of A.

rockman on Mon, 7th Apr 2014 1:55 am 



Many – Now you’re just being rude. Not necessarily incorrect but just rude. LOL.

Arthur on Mon, 7th Apr 2014 9:03 am 



BANANA REPUBLIC

Paul Crag Roberts:

http://www.infowars.com/another-fraudulent-jobs-report/

As I predicted in 2004, the US will have a third world work force in 20 years.

PCR means 2024.

The US, once a land of opportunity, has been transformed into an aristocratic economy in which income and wealth are concentrated at the very top.

The kosher dominated elite will be thrilled to be called ‘aristocratic’ rather than plutocratic.

The old Constitutional America is not going to be destroyed by the Russians, Chinese or European Red Coats 2.0.

The US elite can handle it’s the destruction all by itself without help from foreigners. And at the end of the road there is a new Bolshevik revolution looming, this time organized from the top, using the imported third worlders as the new proletariat to do the dirty work for the ‘aristocrats’. Read the mind of our own noobtube and his hatred for all things European (‘bacteria’). Economic communism was bad enough. Are you ready for economic AND racial communism in a post-constitutional America?

Alex Jones is all you got, folks.