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Outside View: Russia hikes gas to Ukraine

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by Oleg Mityayev
Moscow (UPI) Dec 3, 2007
On Nov. 27 the Russian energy giant agreed to buy Turkmenistan's gas at a higher price, and this sparked the rumor that the gas price for Ukraine would be raised since Gazprom resells Turkmen gas to Ukraine.

However, the agreement Russia and Ukraine are initially preparing already stipulates a higher price.

The leaders of Turkmenistan and Gazprom agreed on Nov. 27 to raise the price of Turkmen gas from $100 per 1,000 cubic meters in 2007 to $130 in the first half of 2008 and to $150 in July-December 2008.

Immediately afterward, Uzbekistan also expressed a desire to raise gas prices for Russia, and Gazprom will most likely have to agree since energy prices have been growing in the world year on year. Gazprom intends to raise its prices for gas supplied to Western Europe from $250 to $300-$400.

Gazprom is supplying Central Asian gas, mainly from Turkmenistan, to Ukraine. Therefore, gas prices for Ukraine directly depend on the purchase prices.

Gazprom and Ukraine began negotiating new gas prices for 2008 and subsequent years some time ago.

Gazprom adds $30-$35 to Turkmen gas it sells to Ukraine, and so it is easy to calculate the 2008 price for Ukraine. Russia bought gas from Turkmenistan at $60 and sold it to Ukraine at $95 in 2006, and the prices in 2007 were $100 and $130 respectively.

Both Ukraine and Gazprom expected the Central Asian gas producers to raise prices. Otherwise their new agreement would have stipulated a price of $150-$160 for Gazprom's supplies to Ukraine.

Now that Turkmenistan has announced the new price, Gazprom and Ukraine can sign the contract. Ukraine was shocked when it learned that Turkmenistan would charge Gazprom $150 for its gas, because its 2008 budget stipulates gas allocations at $160 per 1,000 cubic meters.

Gazprom may agree to sell gas to Ukraine at $160 in the first half of the year, but in the second half Ukraine will most likely have to pay $180.

Ukraine's acting Economics Minister Anatoly Kinakh has said that a price above $180 would ruin the bulk of Ukrainian economic sectors. I would say that Ukraine will carry the burden in 2008, but the situation may become more complicated in subsequent years.

Gazprom has said more than once that it plans to convert to European prices in gas relations with Ukraine in 2011. Besides, the era of cheap Turkmen gas is ending both for Ukraine and for Gazprom. The price of Turkmenistan's gas has more than tripled in the past three years, from $44 in 2005 to $150 in 2008, and we can expect it to continue growing in accordance with the global trend.

The European Union is encouraging Turkmenistan to join the project to build the trans-Caspian gas pipeline running through Azerbaijan, Georgia and Turkey, bypassing Russia and Ukraine. The pipeline will deliver Turkmenistan's gas directly to Europe, where it would be able to sell it at a much higher price.

To convince Turkmenistan to continue selling its gas to Russia, Gazprom has offered it an alternative project of a pipeline running along the eastern shore of the Caspian across Russia. But to entice Turkmenistan to join this project, Russia -- and Ukraine -- should agree to pay much more for its gas.

(Oleg Mityayev is an economic commentator for RIA Novosti. The opinions expressed in this article are the author's and do not necessarily represent those of RIA Novosti.)

(United Press International's "Outside View" commentaries are written by outside contributors who specialize in a variety of important issues. The views expressed do not necessarily reflect those of United Press International. In the interests of creating an open forum, original submissions are invited.)

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