Erste Group – Short Note

Page 1

Latest events …

1) On Jan 15, Gazprom has sent thesame application for gas transit as a daybefore: 99.2mn cm of gas from northernSudzha to Orlovka and smaller amount toUzhgorod. Ukrainian side has once moreasked Gazprom to supply the gas via southern stations and to resume the full transit of 300mmn cm/day.Earlier this week Naftogas has stated that as parts of the local gas transportation system are temporarilyworking in reverse direction, supplying gas from storages to eastern regions, the proposed by Gazpromroute from Sudzha to Orlovka is not currently possible.2) The Russian prime minister Mr. Putin has once more promoted the idea of Nord Stream during hisinterview for the German TV channel ARD.3) Ukrainian president Mr. Yuschenko has offered Russia to settle the current gas dispute in the arbitrationtribunal, if Russia still thinks that Ukraine is guilty in the gas conflict.Mr Yuschenko had a phone call with the Chancellor of Germany A. Merkel, during which he informed MsMerkel he will participate in the Saturday’s summit of European countries on the gas dispute if this summitwill be held in Europe and not in Moscow. Besides that, he has assured that Ukraine is ready to transit theRussian gas to Europe even without the contract, if the gas will be supplied in full amount.4) Ukrainian side has once more stressed the importance of signing a temporary technical agreement onthe gas transit to settle up technical details with Gazprom. The proposed agreement was sent to Gazpromtwo days ago. Price negotiation could be carried out later, even after the gas deliveries would be resumed.5) Due to warmer weather Ukrainian gas consumption has decreased to 242mn cm/day, while during therecent cold days it was at 286mn cm/day. The gas extraction from the local gas fields was increased to62mn cm/day. Additionally Ukraine receives 208mn cm of gas/day from own underground gas storages.6) In the second half of the day, Mr. Yuschenko has talked with Russian president Mr. Medvedev and askedhim to resume the transit gas delivery in the amount of 330mn cm/day. Ukraine in its turn ensured a fulldelivery of this gas to European customers.7) Ukraine has offered Gazprom several calculations of gas and transit fee price, ranging from $192.6 to$218.8/thsd cm for Russian gas sold to Ukraine, and $2.20 to $2.47/thsd cm per 100km as transit fee forRussian gas delivered to Europe via Ukraine. The calculations where done using the approaches currentlyapplied in Central and Western Europe to determine the gas price.8) Presidents of Poland and Lithuania considered the recent actions of Russia as unacceptable. They havestated that EU has to take action to ensure the energy security.

The currently lobbied by Russia Nord Stream pipeline project, if completed, would allow Gazprom to turn off gas supplies to Belarus and Poland without affecting exports to other countries. Therefore, the worries of the Polish authorities about the

Short Note – January 16, 2008

Ukraine:

Gas dispute update

Erste Group – Short Note

Page 2

negative effect of the Nord Stream project on the security of gas supply to Poland are well-grounded and such reaction on the Russian move is in line with our expectations.

9) Europe is still not receiving gas from Russia. "EU monitors are clearly seeing Russia is not supplyingenough gas into the pipeline and clearly choosing the most difficult route and not using multiple routes as isnecessary,"

–

the source told Reuters.

So what are the major transit routes of Russian gas via Ukraine to European countries?

Below is the table and maps which show us the four major transit routes via Ukraine.

Transit pipelines Capacity,bcm/yearDestination of exports

Orenburg - Western border (Uzhgorod) 26Slovakia, Czech, Austria, Germany, France,Switzerland, Slovenia, Croatia, ItalyUrengoy - Western border (Uzhgorod) 28Slovakia, Czech, Austria, Germany, France,Switzerland, Slovenia, Croatia, ItalyYamburg - Western border (Uzhgorod) 28Slovakia, Czech, Austria, Germany, France,Switzerland, Slovenia, Croatia, ItalyAnanyev-Tiraspol'-Ismail/Orlovka &Shebelinka-Ismail/Orlovka (3 lines)24Romania, Bulgaria, Greece, Turkey, Macedonia

Source: East European Gas Analysis

Major Gas Pipelines of the Former Soviet Union

Source: East European Gas Analysis, Erste Bank Ukraine