Ukraine and Russia reached a new short-term gas arrangement this week, just as the previous deal dubbed the “winter package” expired. The new agreement lasts just three months—we might call it the “spring package”—but importantly comes with a steep discount for Kyiv. Reuters reports:
Ukraine’s energy ministry said Kiev would buy Russian gas at $248 per thousand cubic metres during the April-June quarter while. This compares with $329 per thousand cubic metres which it has been paying under a winter package. That package, which carried a price discount of $100 per thousand cubic metres and a requirement for advance payment, expired on Tuesday. […]
Apart from the price, the new temporary agreement extended all the other terms of the winter package, the energy ministry said in a statement.
Kyiv will still have to pre-pay for its gas, but with gas coming relatively cheap and demand slackening as the weather warms, that won’t seem so onerous a condition. Offering gas at just $248 per thousand cubic meters, this new deal gives Ukraine access to the resource at roughly 60 percent of the cost that it was buying it before tensions boiled over and supplies were shut off last year. Also important is the suspension of a controversial take-or-pay clause, under which Ukraine would be obligated to pay for a certain amount of gas whether or not it actually had the appetite for it.
Moscow has historically looked to oil markets when setting the price for its gas, a major point of contention for its customers when crude was trading above $100 per barrel. In today’s bear market, however, that’s working out for the hydrocarbon consumers of the world, and it’s certainly a factor in the lower price Ukraine negotiated out of this spring deal. So too is the fact that with temperatures high, Kyiv doesn’t need Gazprom’s product as desperately as it did these last few months.
But make no mistake: When demand starts spiking again next winter, Kyiv’s cheap springtime gas will do little to blunt Moscow’s ability to leverage its gas for strategic reasons.