Gazprom gets Ukraine assurance as potential of future beckons

Gazprom has no doubt Ukraine will pay for gas deliveries on time this month. Ukraine’s Naftogas will buy only a third of the gas it contracted for - but without penalties.

Kiev is trying to live within its means. In June Ukraine will limit its gas consumption to 1.3 billion cubic meters from 3 billion that were planned before.

This will cut its gas bill to $300 million and Gazprom believes Ukraine can afford it. During Friday’s talks with the head of Naftogaz, Oleg Dubyna, Gazprom even promised to waive penalties. But Gazprom’s CEO Aleksey Miller says Kiev will have to stop this gas diet as soon as July.

“Ukraine has sharply decreased the amount of gas it pumps into underground storages, as prices in June are higher than they will be in July and third quarter. We currently estimate the amount Naftogaz will have to pay next month will be higher than it was in June, or even May, despite the lower prices. These volumes will remain in August and September and for the beginning of the fourth quarter.”

Europe is also likely to boost its consumption of Russian gas in the third quarter. Despite a 40% drop in Gazprom’s exports to Europe in the first five months of 2009 the volume of European orders recovers and is in line with the level of 2008. If the positive trend continues, Gazprom may change its plans to cut investment and may have another look at production forecasts.”

So far Gazprom has talked about a 30% investment cut next year and significant reductions to output. But the company will act in accordance with the market, says Aleksey Miller.

“If the situation is favourable, the most Gazprom could produce is 500-510 billion cubic metres, although that figure could be lower. It's too early to review medium-term amounts of production. We are planning for an investment decision to be made on the Shtokman project in March 2010. Right now, we are saying that the dates for opening the field – late 2013 for pipeline gas and 2014 for liquefied gas – remain in force.”

Gazprom has already postponed the development of the Bovanekovo gas field in Yamal till 3 quarter of 2012, according to Mikhail Krutikhin of Rusenergy

“The decision on Bovenekovo has been forced on Gazprom by low energy prices. At the current price it’s absolutely non economic to develop it. It can be commercially justified if energy prices are in the range of $120- 150 per barrel of oil.”

Experts say the Shtokman destiny also depends on the oil price. If it’s below $80, they doubt that investors will take a positive decision on the project next March.