Russia's embrace of resource nationalism has restored some of its Soviet-era clout over former satellites. The Kremlin has put them on notice that they should expect to pay western European gas prices rather than their former sweetheart supply rates. Ukraine has seen massive gas price hikes over the past couple of years - but another is pending.
The only question is how big an increase, with a bitter dispute ongoing over Russian plans to raise prices from around US$130 per thousand cubic metres (mcm) now to perhaps US$180/mcm, compared with the US$150/160 the Ukrainians had been expecting. Due to the relative underdevelopment of its own massive gas reserves, that which Russia ships to Ukraine it buys in turn from Turkmenistan - and with the Turkmens having just upped their prices to US$130/mcm in the first half of 2008 and US$150/mcm in the second half, Russian state gas giant Gazprom wishes to maintain its profit margin.
But bad news for Ukraine is good news for independent gas producers in Ukraine such as JKX Oil & Gas and Regal Petroleum, because Russian imports are the price-setter for their own sales. With JKX, for example, realisations were roughly US$137/mcm in the first half of 2007, up from around US$100/mcm across full-year 2006 and US$64/mcm across 2005. But just wait for the 2008 Russian price hikes to feed through...
Companies further afield also benefit from this ongoing dynamic - in Bulgaria, rising import prices underpin Melrose Resources’ planned conversion of its offshore Galata gasfield into a gas storage facility. And back in Turkmenistan, both Burren Energy and Dragon Oil have significant but as-yet unexploited gas deposits. Will the new gas-pricing deal with Russia and associated plans for a new Caspian-shore gas pipeline mean 2008 is the year the Turkmen government finally authorises development of these fields?
