Gas talks on hold

In the US, John McCain is suspending his campaign to address the country’s distressful economic situation.  In Ukraine, Yulia Tymoshenko has suspended key natural gas price negotiations due to the country’s distressful political situation.

From Monday’s Kommersant:

On Friday Prime Minister Yulia Tymoshenko communicated that negotiations with Russia on the price of gas in 2009 have been halted because of the political crises.  Naftogaz intends to use this pause to wait out for the December lowering of world hydrocarbon prices, which theoretically allows it to get gas at a more advantageous price.  Analysts figure that this expectation is not unfounded — if oil quotes, to which gas prices are connected, will continue to drop, than the cost of gas could end up being lower by 25%.  But if the pricing market isn’t favourable, it threatens to be a significant loss.

The head of the government, Tymoshenko, announced to journalists that because of the political instability in Ukraine, negotiations with Russia on the supply of natural gas have stopped for the time being.  “Without question, when there is an uncertain situation in Parliament, an uncertain situation with the coalition, holding negotiations doesn’t work out [не получается],” noted Tymoshenko.  A highly-placed source in Gazprom confirmed to Kommersant that the Ukrainian side has for the time being halted consultation on the price of gas.  “Next week representatives of Naftogaz were supposed to arrive to reach agreement on the pricing fromula and concrete points in the agreement.  But the visit was put off for an unspecified amount of time without explanation,” said the source.

Oleg Dubina, the head of Naftogaz, explained the delaying of negotiations not as political, but with completely comercial justifications.  According to him, the later that a contract is reached, the less the price of gas for Ukraine could be.  Based on the price-setting formula that Gazprom uses, the price of gas is connected to the price o oil, which gets lower as we approach December, asserted Dubina on Friday.  Correspondingly, gas for Ukraine also would become cheaper.  Therefore, Naftogaz figures that “it’s not worth it to rush into signing [an agreement].”

Should give Naftogaz a bit more time to try to secure another loan to buy the fuel it needs for the upcoming heating season.

There’s more to it than just relying on this “December price drop”…

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