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Cablegate: Rosukrenergo Crunched by Central Asian Cold Spell?

VZCZCXRO9884
OO RUEHIK RUEHLN RUEHPOD RUEHVK RUEHYG
DE RUEHKV #0286 0361215
ZNR UUUUU ZZH
O 051215Z FEB 08
FM AMEMBASSY KYIV
TO RUEHC/SECSTATE WASHDC IMMEDIATE 4890
INFO RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUCNCIS/CIS COLLECTIVE
RUEHZG/NATO EU COLLECTIVE

UNCLAS KYIV 000286

SIPDIS

SENSITIVE
SIPDIS

DEPT FOR EUR/UMB,EB/ESC/IEC - GALLOGLY/WRIGHT
DOE PLEASE PASS TO LEKIMOFF, CCALIENDO

E.O. 12958: N/A
TAGS: EPET EFIN ECON ENRG UP
SUBJECT: ROSUKRENERGO CRUNCHED BY CENTRAL ASIAN COLD SPELL?
REFS: A) 07 KYIV 2611

B) KYIV 162
1.(U) According to media reports, Central Asian suppliers (mainly
Turkmenistan) have been unable to fulfill their natural gas delivery
commitments to Russia and other countries because of the early
January cold snap. RosUkrEnergo (RUE), Ukraine's exclusive gas
importer that nominally delivers gas from Central Asia, announced
that it would sell Russian gas to Ukraine from January to March to
cover the shortfall and provide uninterrupted supplies. RUE
Managing Director Konstantin Chuychenko reportedly indicated that
the shortfall amounts to about 40 million cubic meters (mcm) per day
or 14 billion cubic meters (bcm) per year.
2.(U) According to press reports, between January 1 and January 16,
RUE purchased approximately 740 mcm of Russian gas at $314.7 per
thousand cubic meters (tcm), in accordance with the existing
contract and a price formula agreed by the parties in January 2006.
This price is considerably higher than the $179.5 price negotiated
last December by Ukraine's former Minister for Fuel and Energy Yuriy
Boyko and Gazprom's chief Alexei Miller for 2008 supplies of a mix
of Central Asian and Russian gas. The difference in total price for
the delivery of 740 mcm at $314.7 per tcm versus $179.5 per tcm
would be approximately $100 million.
3.(U) RosUkrEnergo sells gas to Ukraine through the Ukrainian-based
UkrHazEnergo (UHE) which then sells gas to NaftoHaz Ukrainy
(Ukraine's state-owned gas and oil company) and to industrial
customers. Gazprom has reported a steep rise in debt from RUE
which, in turn, points to an overdue debt due them from UHE
amounting to $830 million.
Many Questions Unanswered
-------------------------
4.(SBU) Post sought to find out if the cost for this more expensive
gas could be passed on to Ukrainian customers. Our contacts at
NaftoHaz and the Ministry of Fuel and Energy confirmed that RUE is
buying Russian gas at $314.7 per tcm, but added that they could not
comment on UHE's commercial contracts. UHE also refused to release
such information. Because the terms of contracts between RUE and
UHE are not public, it remains unclear whether RUE is passing along
the higher costs of the Russian gas to UHE. In addition, the period
during which UHE's recently reported $830 million debt for gas
supplies was accumulated was not specified. However, recent press
reports indicate that the debt is associated with gas in storage for
which UHE has not yet paid, and that the debt is not attributable to
the higher cost of Russian gas. (Note: It appears the gas debt
settled in October 2007 involved gas supplied under trade credits
and then later called "debt" (ref A). From descriptions in the
press, it appears these debt figures could represent other trade
credits. End Note.) UHE Board Chairman Ihor Voronin has also
indicated in press interviews that RUE is not passing along the
higher Russian gas prices to UHE.
5.(SBU) Even if RUE is absorbing the loss associated with the gas
price increase, and the $830 million debt is simply the result of
trade credits, UHE's situation is anything but stable. A recent
"Kommersant" article claimed that NaftoHaz is refusing to sign
contracts with UHE as well as with regional gas distribution
companies that are unable to pay for gas at the time of delivery.
In the press, Former Minister of Fuel and Energy Boyko claimed
NaftoHaz is siphoning gas from UHE stores, accusing NaftoHaz of
covering its siphoning by refusing to provide a paper trail for gas
contracts. (Note: Post is seeking a meeting with NaftoHaz to
clarify the situation.)
6.(SBU) Comment: It is unclear whether the cold winter in
Turkmenistan is truly forcing Turkmenistan to divert gas exports to
domestic markets. There have been no reports of Gazprom complaints
regarding shortfalls from Turkmenistan, which one would expect,
suggesting that the weather is not the sole culprit. In fact, the
Central Asian press has quoted the Turkmenistan Foreign Office as
stating that it is fully meeting its obligations and delivering the
Turkmen natural gas to Russia in full compliance with the terms
stipulated in its contract. Although Gazprom continues in the press
to blame shortages on bad weather in Central Asia, Russia may also
be using more than its share of Central Asian gas for domestic use,
instead of fulfilling contracts with Ukraine. In any case, we doubt
that the weather is the only reason Ukraine is receiving reduced
shipments of Central Asian gas.
7. (SBU) Comment continued: It is also unclear what these recent
events say about the current gas balance for Russia -- does Russia
have adequate supplies of cheaper Central Asian gas on hand, or not?
Some energy experts have suggested that Gazprom's price increase
for RUE is a reflection of rumored heightened problems between the
two. Other press reports speculate it is a Russian reaction to
Prime Minister Tymoshenko's call to significantly increase transit
fees in gas renegotiations and to eliminate intermediaries in the
gas trade between the two countries (ref B). NaftoHaz's recent
refusal to sign contracts with UHE, amid accusations of gas
siphoning, might also suggest Ukraine's boldest stand yet against
the gas middlemen. At the same time, Gazprom has expressed its
willingness to eliminate the gas intermediaries if Ukraine is
willing to pay the full European price -- the current price of
$314.7 per tcm may serve to demonstrate the consequences of such a
move. End comment.
8. (U) Embassies Moscow and Ashgabat have cleared this cable.

Taylor

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