Gas prices in the world and in Ukraine
Gas prices in the world and in Ukraine
09/09/2021
The increase in global natural gas prices is the result of several factors. First of all, in the year of the COVID-19 pandemic, after the warm winter of 2019-2020, the record cold winter of 2020-2021 came, which provoked an increase in gas demand in Europe and the world. All volumes of gas were maximally raised from UGS.
At the same time, the factor of increased demand for gas in Asia redirected LNG volumes there. When gas prices in Europe were fixed at $300 per thousand cubic meters, they had a price of $800-1,000 per thousand cubic meters.
At the same time, it was recorded that the production of liquefied natural gas (LNG) worldwide was lower.
And the third factor is the low occupancy of UGS in Europe. According to estimates from European agencies, the shortage of gas in European storage is about 25 billion cubic meters today. Why?
Several Norwegian gas fields stopped for planned maintenance. In addition, let's remember that Gazprom also carried out repairs to its facilities, several accidents occurred at its transit facilities.
And in August, there was an accident at the Yamal plant of Gazprom. Because of it, the export monopolist temporarily reduced the production and shipment of gas.
The main supplier of gas to Europe is in no hurry to reserve additional capacity in Ukraine for supply outside of its long-term contracts.
Experts are discussing this today, citing the fight for Nord Stream 2 as the reason.
In addition, it is now economically profitable for Gazprom to supply gas to Asia, supporting high demand, and therefore record prices in Europe.
Ukraine and the influence of world prices
As long as Ukraine's own gas production does not exceed domestic consumption (population and industry), gas prices will be formed as "import parity plus".
Although it should be noted that at the moment the Ukrainian market has ceased to be premium and has become a discount in relation to the prices of the European TTF hub.
This is primarily due to the presence of significant volumes in UGS in the "customs warehouse" mode and, of course, own production.
That is, I would like to emphasize once again that if earlier in most cases we had a clear price reference to the European hubs TTF, CEGH, NCG plus, today gas for non-household consumers is sold 10%-15% cheaper than import parity due to a number of factors.
The prices are affected by the offers of private companies, the prices of OTC contracts, as well as the offers of imported gas stored in the "customs warehouse" regime.
Thus, today Ukraine has conditionally developed its own internal benchmark for the price of gas, which is influenced by the factors of own production, residuals in gas storage (both internal resources and in the "customs warehouse" of non-resident and resident companies), import parity, as well as the desire or reluctance of market participants to sell significant volumes of their positions in one or another period of time.
Today, expensive European gas primarily affects industrial consumers. Record high prices for natural gas carry the risk of shutdown for chemical industry enterprises, which are among the largest consumers of gas, other energy-intensive industries focused on the consumption of natural gas also feel serious financial burdens. If we talk about household consumers (population) in Ukraine, the prices for them are formed by the decisions of the Government at the expense of the resources of "Ukrgazvydobuvannya".
We remember how at the beginning of the year the Government limited gas prices for the population in a "manual" mode, setting the price at UAH 6.99 per cubic meter. m.
Then, from May 1, the population was transferred to annual contracts. To ensure them, "Naftogaz" concluded contracts with the largest suppliers, who control about 80% of gas supplies to the population.
Today, the population uses the proposed annual gas products at a price of UAH 7.96 per cubic meter. up to 8.8 per cubic meter.
If we take into account that we have a market economy and we all decided to build a gas market according to the European model, then, of course, such decisions "kill" market development.
But the main thing is that such decisions still do not lead to the creation of a consumer protection system. These are temporary measures. We do not have a system to protect vulnerable categories of consumers from such force majeure situations, but there is a solution "everything from the wheels" and at the expense of "Ukrgazvydobuvannya".
Decisions are made in a similar way: "how to quickly make sure that people do not go out on the streets because of high tariffs and beat the wave of social discontent."
It is wrong for "Ukrgazvydobuvannya" to subsidize the rich and the poor at the same time, these are different volumes of consumption. In addition, the company needs to increase gas production, making colossal investments in exploration ...Where to get investments?
I do not see that anyone has calculated what is more profitable. Whether Ukrgazvydobuvannya, having sold its gas at the market price, paid taxes to the budget, from which subsidies were then paid to the poor, or gave a physical subsidy in the form of gas for all consumers, the cost of which is already 4 times cheaper than on market. Tell me, who counted it?
What changes are needed?
The state should develop a mechanism to protect the population from such sharp fluctuations in price by establishing long-term contracts with suppliers, but this price should be marketed at the time of concluding these contracts.
For example, options for long-term contracts partially linked to indices are possible, because we do not know what the volatility of world prices will be tomorrow.
That is, at some point, the price for the year is fixed and everyone must buy volumes of gas at that moment, set prices, and keep this price for the consumer.
Prices must be transparent, justified and they must be market-based, this is a global practice.
And what is very important, the state must take care of strategic reserves. The country needs to create a strategic reserve of natural gas, which was previously kept by the State Reserve.
This gas must be stored in UGS of "Ukrtransgaz" in case of force majeure situations.
When they occur, it is the state that decides how to act: either sell it to certain categories of consumers at the price determined by the state; or a decision will be made about volume interventions on the domestic market to reduce prices, etc.
The procedure for using the reserves must be approved by the Government, Naftogaz can be the custodian of the reserve, and Ukrtransgaz, as the UGS operator, the custodian, respectively.