Temporary Deal Hints at Easing Geopolitical Tensions
At the end of the first cold week in Europe, Russia and Ukraine finally signed a 4.6 billion dollar deal on Thursday, with the Kremlin opening the door to a “fair dialogue on all issues.”
The outgoing European Commission registered an expensive success two days before the end of its mandate. European officials said that the EC will provide ‘unprecedented levels of … aid.”
Logically, markets reacted. British and Dutch wholesale prices for the rest of the year fell on Friday.
TEMPORARY BINDING AGREEMENT
‘This Protocol sets out the framework enabling the delivery of gas volumes from JSC Gazprom to NAK Naftogaz of Ukraine necessary to cover the domestic consumption in Ukraine over the upcoming winter period (November 2014 – 31st of March 2015), in order to safeguard the security of gas supply in the upcoming winter season,’ reads the binding temporary protocol signed by the Ukraine’s Yuriy Prodan, Russia’s Alexander Novak and EU’s Günther Oettinger.
The protocol covers three points: purchase of natural gas, payments for transit services and schedule of payments for unpaid services.
Firstly, Russia will deliver gas to Ukraine at a price lower than $385/1000m3.
‘The decrease of the export duty shall be calculated according to the following formula: at a price of three hundred thirty-three US dollars and thirty-three cents and higher per 1000 cubic meters of natural gas the reduction is one hundred US dollars, at a price lower than three hundred thirty-three US dollars and thirty-three cents the reduction is thirty percent from such price,’ reads the protocol.
Russia committed to deliver all paid volumes.
Secondly, Kiev will settled its debts in two trances at a preliminary price of $268,5/1000m3. The first $1,45 billion tranche will be paid immediately, the second ($1,65 billion) will be transferred by the end of the current year.
According to reports published on Friday, the Ukrainian government instructed the National Bank and Naftogaz to immediately transfer the funds.
Thirdly, the payment for transit services will be made in accordance with the Transit Contract.
COMMENTS: PUTIN AND BARROSO
“With our strong support, Ukraine and Russia have today found agreement on their outstanding energy debt issues, and on an interim solution that enables supplies to continue this winter,” José Manuel Barroso, President of the European Commission, said on Thursday night.
According to a note released by the European Commission, Brussels is ready to support Kiev at any time.
‘Unprecedented levels of EU aid will be disbursed in a timely manner, and the International Monetary Fund (IMF) has reassured Ukraine that it can use all financial means at its disposal to pay for gas. Further work with the IFIs on financial assistance to Ukraine, also in relation to gas supplies, will still continue, but all three sides are reassured that Ukraine will have the necessary financial means.’
Russia’s President Vladimir Putin touched upon the wider consequences of the deal, hinting at a progressive easing of the ongoing tensions between Brussels and Moscow.
“We are open to equal and respectful dialogue in all issues of the global and regional agenda,” Putin said on Friday.
GAS PRICES
According to Reuters, British wholesale prices for the rest of the year fell for two reasons: the deal signed by Russia and Ukraine, and warm weather in the UK.
‘The UK gas contract for delivery in November was trading at 52.20 pence per therm at 0915 GMT on Friday, down 1.5 percent from the previous settlement. It earlier touched 52.00 pence, its lowest since the contract began trading,’ reads an article published by the news agency, adding that the prices should not significantly plunge over the coming hours.
Sergio Matalucci
Sergio Matalucci is an Associate Partner at Natural Gas Europe. Follow him on Twitter: @SergioMatalucci