Russ Oil-Gas

30 August 2007 - Upstream OnLine - Russia's gas monopoly Gazprom said today it planned no major revisions of gas prices for its neighbours in 2008, saying instead it would "fine tune" tariffs, in a move to help soothe fears over new disputes and supply disruptions to Europe. "We are definitely not planning any major revisions as all revisions have been done in the past. Now it is all about fine-tuning," Reuters quoted Gazprom spokesman Sergei Kupriyanov as saying. The comment follows a statement by Lithuania last week that Gazprom may sharply raise prices to between $312 per 1000 cubic metres and $320 per Mcm from the current $190 per Mcm. Today Moscow-based business daily Kommersant reported today that Ukraine and Belarus may also face big price hikes. Both countries are the most important transit routes for Russian gas to Europe and previous pricing disputes have led to supply disruptions as Gazprom accused Kiev and Minsk of siphoning off gas from transit pipeline. Gazprom sold 101 billion cubic metres of gas to former Soviet Union states in 2006, earning $6 billion. It sold over 150 Bcm in Europe, earning over $37 billion, and has said it long-term goal was to bring prices in former Soviet states closer to European levels. Kupriyanov said talk of big price hikes was exaggerated but declined to comment on specific pricing discussions. "It all differs very much from country to country," he said. He said volumes and prices for Belarus and Moldova were already fixed in term deals, signed last year or early this year. "No additional talk is needed. There is a simple pricing formula, which depends on global prices. This has been agreed by all sides," he said. Belarus currently pays the lowest price among ex-Soviet republics of $100 per Mcm. Gazprom threatened to cut gas to Belarus in July after Minsk failed to cover debts for deliveries in the first half of 2007. The dispute was solved after Minsk paid back the debt. Kupriyanov said the same mechanism applied to prices in Lithuania, Estonia and Latvia. "The price will be fine-tuned depending on the global energy prices," he said. As for Ukraine, he said Gazprom had yet to finish relevant talks with Uzbekistan and Kazakhstan. Gazprom sells gas to Ukraine via trader RosUkrEnergo by mixing its own gas with gas bought from Central Asian producers Turkmenistan, Kazakhstan and Uzbekistan. It buys the biggest volumes from Turkmenistan, but Kupriyanov said a deal to buy gas from Ashgabat at $100 per Mcm would expire only in 2009. Deutsche UFG brokerage said in a research note that Gazprom's export prices are based on a formula linked to a basket of oil products, except for Ukraine and Belarus, Reuters said. "Given that the 2007 prices of crude oil and refined products have remained largely unchanged from 2006, we do not expect gas prices for European consumers to alter significantly: $267 in 2007 and $259 in 2008," it said. But it forecast that imports of central Asian gas will become more expensive for Gazprom from next year, resulting in a price growth for Ukraine to $150 from the current $130. "The price for Belarus will continue to be the subject of special negotiations. For the next year, we forecast the gas price for Belarus of $143," said Deutsche. UralSib said in a note it expected Gazprom's revenues from this region to rise by 30% in 2008 to $9.4 billion. But it said that buyers would resist sharp price hikes as both Belarus and Ukraine had substantial bargaining power through their control over Gazprom's gas transit to Europe.