Glimmers of promise in Ukrainian gas, for now
Don't expect a new Gazprom-Naftogaz crisis out this year. At least that's the message from Kiev
So confident is Ukraine with its gas balance that it will not be buying Russian gas, even at Gazprom's discounted price of $212 per 1,000 cubic metres (/000), Arseniy Yatsenyuk, the country's prime minister, said on 10 January. Instead, it will buy Russian gas more cheaply - at about $200/000 cm - through pipelines from Europe. The country's natural gas stocks of 14bn cm are 2.3bn cm higher than a year ago, providing a decent cushion.
Ukraine's gas sector does indeed look stronger and better prepared this year. Alongside its burgeoning stocks and cheaper gas from reversed European supply, a rise in domestic household tariffs is helping state firm Naftogaz minimise its losses.
Most important of all is that reversed gas flow, which for the first 11 months of 2015 slashed Gazprom's share of Ukraine's imports to just 6.2bn cm, or 38% of the total. Unsurprisingly, Kiev has been able to adopt a newly confident posture in dealing with its mighty neighbour. Antimonopoly hearings on Gazprom's position in Ukrainian gas transit are underway, and a hike in transit tariffs at the end of 2015 was hardly friendly to the Russian energy firm either. Moreover, Yatsenyuk, Naftogaz chairman Andrey Kobolev and energy minister Vladimir Demchishin all seem to be united in their position vis-à-vis Gazprom - a rare moment for Ukraine's gas sector.
But this improved position isn't without threats. The healthier inventory levels could yet be weakened by a cold snap. In the milder first 10 days of January last year, just 0.75bn cm was taken from stocks. In the same period this year, heavy snowfall and frost brought a spike in domestic demand, sucking 1.1bn out of the inventory.
Analysts won't be entirely confident about the recent unity among Kiev's leaders and officials
The price of reversed-supply gas from Europe won't necessarily always be cheaper, either. Last year, Russian gas prices were lower even in the summer. The same may already be true now. Naftogaz stopped buying Gazprom's gas in November, when the discounted price for Q4 2015 agreed between the two firms was $227/000 cm. This meant that in December all of Ukraine's imports were through reversed supplies from Europe - and the economy ministry says the average price for that month was $237/000 cm. So it's unclear that Naftogaz is buying gas at a lower price, as it claims. In first week of January, flows of Russian gas to Europe through Ukraine rose to 210m cm a day. In 2014, Russian supplies through Ukraine to Europe amounted to 62bn cm.
Not everyone in Ukraine's gas sector is happy about the recent increase in transit fees, which took some of the country's own companies by surprise. Andrey Favorov, head of Energy Resources of Ukraine's trading division, claims the price hike has increased the delivery costs for importers supplying gas from the EU by $12.5/000 cm. He was especially perplexed that the decision to lift the price was taken on 29 December and enforced on 1 January. "Why not warn the market a month or so [before] to avoid force majeure declarations on January contracts? Is this amateur hour or something?"
As for the new household tariffs, they've certainly bolstered Naftogaz's finances. But according to Yatsenyuk about a third of households received subsidies from the state budget last year. In other words, a third of families couldn't afford their energy when prices were cheaper. The state may be on the hook again for even more subsidies this year.
Analysts won't be entirely confident about the recent unity among Kiev's leaders and officials either, which remains fragile. Yatsenyuk is satisfied with the performance of Naftogaz's new leadership, but has a record of conflicts with energy minister Demchishin, a member of President's Petro Poroshenko's camp. Last year Yatsenyuk said Demchishin was one of the ministers who needed to be replaced in an imminent reshuffle.
But Yatsenyuk's own position isn't altogether secure either. His unpopularity is growing. Ukraine's political infighting may have lulled during the winter holidays and the parliament's vacation, but it doesn't mean the conflicts are settled - it is just a pause in the country's persistent political crisis. The long-awaited reshuffle of ministerial positions isn't likely to settle this.
What is still stable is Ukraine's commitment to meeting its gas transit obligations to the EU. That makes sense, given that the EU is now both the key source of Ukrainian gas and has the money to pay for it. But uncertainty remains over whether or not the country can meet this obligation without Russian supplies. It wasn't able to in 2015 despite higher stocks and an abnormally warm winter.