Naftogaz Proposes Cut-Rate Transit in Ukraine

Ukraine's gas monopoly Naftogaz has proposed changing the methodology for calculation of gas transmission tariffs for the first five-year price control period (2019-2024) which would cut a fifth off the tariff that Russian gas monopoly Gazprom pays Ukraine now. 

The new prices however assume that there is as much as 141bn m³/yr of overall transit, which would allow the costs of running the system to be spread across a larger volume than today. Naftogaz said that would be possible if Nord Stream 2 is not built and if Gazprom's monopoly on pipeline exports were ended and if Gazprom also allowed central Asian producers to use the Russian grid. The methodology envisages a review of tariffs in case of changes in the forecast volumes of booked capacities.

Naftogaz said the changes, which it submitted to the regulator July 13, "aim at bringing the methodology in conformity with requirements of Commission Regulation (EU) 2017/460, which was adopted in March 2017 and has established a network code on harmonised transmission tariff structures for gas."

Changes to the methodology were developed by transmission system operator Ukrtransgaz and a team of international experts with extensive experience in advising national energy market regulators in Europe, said Naftogaz. 

Among other proposed changes, the methodology allows under-recovery or over-recovery of allowed revenues in the current regulatory period to be carried over into the next two regulatory periods; and aggregating certain entry and exit points.

Based on this scenario, the average cost of gas transit through the territory of Ukraine in the next regulatory period, converted from capacity-based tariffs into volume- and distance-based tariff, would be about $2.17/'000m³/'00 km, including VAT and fuel gas component.

This is about a fifth less than the transit tariff based on the existing transit contract between Naftogaz and Gazprom; and less than half the average cost of gas transit according to the regulated entry/exit tariffs established by the Ukraine regulator in December 2015. 

Under the same parameters, the tariffs for domestic entry points for the Ukrainian gas producers are estimated at hryvnia 127 ($4.8)/'000 m³ including VAT; and at hryvnia 136/'000m³ including VAT for domestic exit points to distribution systems and direct consumers.

In addition to the submitted proposed changes to the tariff methodology, Naftogaz plans to develop a proposal for the consideration by the regulator with respect to multiples applied to reference tariff, which take into account the duration of capacity booking, and a proposal about conditions of using discounts for capacities with restrictions.