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Alexander Khurshudov: the Ukraine has cautiously risen the white flag in the gas conflict

December 03/ 08:02

Moscow. The Ukrainian National Committee on Energy and Utility Payment Regulations approved the project on a sharp reduction in the charge for gas transportation through the country’s territory. The charge at all the gas transport pipeline inlets is planned to decline from $12.47 to $6.04 for a thousand cubic meters without VAT. The outlet charge is also going to drop 1.5-2.1 times.

The Oil and Gas Information Agency expert Alexander Khurshudov comments on the news:

An unexpected turn, isn’t it? Half a year ago precisely the Ukrainian Naftogaz threatened to raise the charge, asking to guarantee the transit of 110 bln m3/year. As the attempt to blackmail failed, their position changed drastically. Let’s have a look at last month’s news.

About 300 km of pipes are laid at the bottom of the Baltic Sea as part of Nord Stream-2 pipeline construction. Two lines are laid offshore Germany, construction is being done in Germany’s and Finland’s exclusive zone, the preparation is in progress offshore Russia. Since so many pies are already laid, there is no doubt that the pipeline will be constructed and there is no stopping it.       

The Bulgarian parliament approved the amendments to the legislation that permit the construction of gas transport system from the Bulgarian-Turkish border to Serbia, which would enable them to accept gas from the Turkish Stream pipeline. Two lines 11 and 484 km long will supply gas to Serbia and Bulgaria avoiding the Ukrainian gas transport system starting from January 1, 2020. Gazprom has already been asked to book supply capacity. They agreed and asked to announce the quotes.

Gazprom’s Serbian subsidiary Gastrans is engaged in laying the pipeline to Hungary and they have already hired Saipem Company as the FEED. The pipeline is planned to put in operation in October 2019, though commentators believe the construction may take another year. The existing pipelines between Hungary, Slovakia and Austria are planned to increase capacity.  

So, in two years’ time the Ukrainian gas transport system will only handle the supplies to Moldavia and the Ukraine itself, which is about 10 bln m3/year or 5.6% of its design capacity.  

In the last 4 years the Ukraine has failed to find a buyer for 49% share of the gas transport system for  $7 bln. The head of Naftogaz A. Kobolev has recently sadly admitted that the buyer is unlikely to appear in the foreseeable future.  

On top of all that misfortune, the above-mentioned order decreases the gas transit charge 3.3 times making the Urktransgaz’s revenue 6-8 times less.

So, the gas transit charge reduction is nothing but a white flag cautiously raised above the trench to call for negotiations.  Personally, I don’t think they’ll be successful. There is no trusting a dishonest partner, even though he is pretending humble and innocent at the moment. Only short-term deals with strict terms are possible with such a partner/

Other news items briefly.

Proved oil reserves in the US grew by 19.5% in 2017 and amounted to 39 bln barrels. The increase is due to the re-estimation of the existing reserves at the increased price. Not a single new deposit has been discovered in the last two years.

Proved gas reserves in the US grew more significantly, by 36.1%. Last year the gas price at the spot market increased by 18.6%, this year by 48.7%, from 111.9 to 166.4 $/1,000 m3. The gas price for utility consumers reached $613 for the same volume. Gas stocks in the underground storages are now 17.3% less than last year.

, . . , , . 

Gazpromneft-Sakhalin announced discovering the Triton field in the Bautin formation of Ayashsky license area in the Sea of Okhotsk.  The original oil in place is estimated at 137 mln tons of oil equivalent, the proved reserves of oil at 45 mln tons. Last year another field, Neptun with 415 mln tons of proved reserves was discovered there.

The OPEC increased oil production by 127 thousand bpd in October, having reached 32.9 mln bpd. The biggest increase was due to the UAE and the Saudi Arabia, while Iran showed the biggest decline.

The US oil production in November was within 11.7 mln bpd, according to field production data. The commercial stocks of oil grew by 24 mln barrels that month. The rig count increased from 1067 to 1076.

The Brent quotes dropped by 21.1% in November having broken the long-term uptrend (pic.1). The trading closed at $59.07.

Pic.1

The decline was excessively sharp. Now I am expecting a bounce back to $65-70, with the decline continuing after the New Year to the level of $50-52. The rate of the back bounce will depend on the OPEC+ meeting on December 6-7. So far, the secretariat recommended the conference participants to decrease the production for the total of 1.3 mln bpd.

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