Natural Gas Price Up 17%

Elena
02 Jan, 2006
New York City

Russia cut natural-gas shipments to Ukraine by a quarter after Kiev refused to pay $230 per 1,000 cubic metres which is four times as much compared with the current price of $50. The sharp conflict led to reduced deliveries to other customers in Europe as Russia provides 25% of European gas with the bulk of those shipments flowing through Ukraine. Since the crisis broke out, in the last two days, natural gas price in London trading has jumped 17%.

NATURAL GAS CRISIS

Prices of natural gas went up in 2005 because of perceived shortage and another spike is likely in the coming months due to a Ukrainian gas crisis.The price for immediately deliverable gas on the electronic APX Gas Exchange rose 7.9% to 70 pence per therm ($12.07 per million British thermal units) at 10:25 a.m. London time, after gaining 7.2% yesterday.

In a sharp conflict over gas price, Russia cut natural-gas shipments to Ukraine on Sunday after it refused to sign a new contract, requiring it to pay a higher fuel price.

Russian Gazprom insists their largest customer of the former Soviet Union should pay market prices for fuel of $230. Last year, Ukraine paid about $50 per 1,000 cubic metres in exchange for giving Russia discounted rates for shipping exports to Europe. Ukraine threatened to retaliate by raising the rent that Russia''s navy pays to use the Ukrainian port of Sevastopol as headquarters for its Black Sea fleet.

The pricing dispute between the two countries led to reduced deliveries to Russia’s other European customers as Russia provides 25% of Europe’s gas with the bulk of those shipments flowing through Ukraine. 80% of Russian gas exports to western Europe pass through Ukraine with the chief European importers of Russian gas being Germany, Italy and France.

More than two-thirds of European gas demand is covered by local resources. The Netherlands, Norway and the U.K. account for about 80% of western Europe natural gas production. The Netherlands is not threatened by the Russian- Ukrainian conflict as it is the only European Union member self- sufficient in natural gas and exports about half its supply.

Hungary is experiencing a 40% drop in gas. Mol Rt., the company that operates the Hungarian section of pipelines, shipping natural gas from Ukraine to Western Europe, has lowered gas sales to Bosnia and Serbia. Austria used 8.6 billion cubic meters of natural gas in 2004, 59% of which was from Russia.

Russia accused Ukraine of siphoning gas meant for exports to western Europe, but Ukrainian President Viktor Yushchenko insisted his country is fulfilling its obligations to ship Russian gas through its territory to export customers.

Because of the freezing weather European gas is in large demand and the countries would have to draw down reserves or seek alternative supplies if there was a major supply disruption. The European Union said it did not expect shortages but was concerned by the standoff. Energy ministers of Germany, Italy, France and Austria made a joint appeal to Moscow and Kiev to ensure a steady flow of gas despite the conflict.

EU energy officials are scheduled to hold an emergency meeting on the crisis Tuesday.

Gazprom charged western European consumers an average of $135 per 1,000 cubic meters in the first nine months of 2005 and expects almost a double price of $255 in 2006. It plans to sell about 151 billion cubic meters of gas in western Europe in 2006, up from an expected 145 billion in 2005.