Worst News So Far: Gas Prices to Rise across The Board

The launch of the Baku-Ceyhan oil pipeline has breathed new life into the already declining international contacts of oil and gas transportation experts. Ukraine now has an opportunity to join this process. The international conference “The Future of Ukraine’s Gas Transportation System in the Context of Liberalization of the EU Gas Market,” which began last Friday in Kyiv, has allowed foreign experts to revise the earlier planned, current, and already forgotten Ukrainian oil and gas projects aimed at strengthening this country’s energy security. Yet, in the speech (referred to as a greeting in the conference program) by Oleksiy Ivchenko, Deputy Minister for Fuel and Energy and president of the Naftohaz Ukrayiny national joint-stock company, the share of future prospects was clearly overshadowed by meticulously prepared statistical data and returns. Most impressive in the flow of figures is the intention to increase gas transit to Europe by about 15-20 billion cubic meters. However, ways of transporting Iranian and Turkmen gas to Ukraine were mentioned in haphazard, general terms.

But behind the scenes, Mr. Ivchenko spoke as befits an experienced newsmaker. Announcing both good and bad news, he skillfully presented the latter in a manner calculated to offset any alarm. This writer, who has often written about those who lobbied and encouraged the use of the Odesa-Brody oil pipeline in the reverse direction, was much overjoyed to hear Ivchenko say that the government of Ukraine is going to resume pumping oil through this pipeline in the originally-planned direction early next year at the latest. (Quite interestingly, this announcement coincided with another piece of news this writer heard behind the scenes: a reliable source told The Day that the president has issued a decree reappointing Oleksandr Todiychuk, who favors the originally-planned direction, as president of Ukrtransnafta). Still, although the deputy minister named the sources that would fill the Ukrainian pipeline (Kazakhstan and Azerbaijan), he failed to clarify whether any supply contracts have been signed with US or other foreign companies. It looks as though emphasis is being put on intergovernmental agreements with the above-mentioned countries, but The Day’s experts claim that this is not enough. Ivchenko also maintained that there is such a glut of oil products on the Ukrainian market that it is time to lift the ban on exporting Ukrainian oil and related products. This is also encouraging news.

In his welcoming speech, the Naftohaz president provided few details about the consortium that will run the Ukrainian gas transit system. He focused mostly on the construction of the Novopskov-Uzhhorod gas pipeline and, particularly, its segment between Bohorodchany and Uzhhorod, to be used, among other things, for transporting Turkmen gas to Europe. The first stage of the construction will increase Ukraine’s transit capacity by 5 billion cu. m., to be increased to 19 billion when the construction is finished. Ivchenko disclosed this country’s new approaches to the creation of a gas transit consortium. According to him, Ukraine is ready to consider the participation of new states, but it no longer requires their investments or their management (our specialists were the first in the world to begin exporting gas and are unsurpassable in this). All Ukraine wants from the consortium partners is sales markets. This is a very promising approach.

Relations with Turkmenistan, which raised the price of its gas for Ukraine in the past year, are going to be a difficult area of Ukraine’s gas business. True, the so-called investment gas that Ukraine receives as payment for its design and construction work in that country is far cheaper and has somewhat “watered down” the new price. The price for 2006 is not yet known. Ivchenko and his staff are now actively practicing “shuttle diplomacy” to solve this vital problem. But it will still be more difficult to obtain Turkmen gas after 2006, when our long-term agreement expires. From 2006 onwards, Turkmenistan, as a monopolist, will be supplying almost all its gas to Russia. Therefore, Ukraine has practically lost its second gas source and found itself completely dependent on its northern neighbor, with whom it maintains eternally strategic relations, which are not always very good. Yet, Ivchenko hopes we will continue using Turkmen gas because Russia has not yet made a final deal with Turkmenistan. On the other hand, conference participant Oleksandr Narbut told this writer that we “will enter a new zone of uncertain gas supplies” in just six months’ time.

Ordinary Ukrainians are sure to feel the direct impact of entering this zone. Naftohaz seems bent on “launching a new price-rise offensive.” Ivchenko claims that household gas in Ukraine is the cheapest in the world. It is also planned to raise gas prices for industrial enterprises this year, which is the worst possible news. The firm belief of this country’s gas chief that Ukrainians will not feel the impact of this price hike is not exactly music to anyone’s ears.