Gazprom - Naftogaz Ukrainy Dispute:

Business or Politics

Presented By:
Debarati Saha
Chenna Rajesh
Gagandeep
Seemab Sulemani
Sanchi Sangal
Saket Jhanwar
 Gazprom

• 1989:Formed Under Mikhail Gorbachev’s reform of

Perestroika and Glasnost

• Largest extractor of natural gas in the world

•
• Largest Russian company
•
• 2008: Produced
549.7 billion cubic meters (BCM) natural gas
32 million tons of oil
Accounted for 10% of Russia's GDP
•
•Supplies gas to-
22.8 million homes
12,200 industrial facilities
29,600 boiler houses

•Owns Russia’s Unified Gas Transportation System (UGS) –

Largest gas transportation system in the world
Exports to Europe

•Started in 1940’s by the Soviet Union to Poland

•
•Large scale exports in 1967 to
Central and East European countries
•
• Exports were Highly Subsidized
•
•Gazprom maintaining the cordial commercial relations
•
•Agreement s - Joint Ventures with France, Italy , Austria et
•
•In 2004 Gazprom Exports to Europe:140.5 Bcm
•
•
•
 Russia – Ukraine gas dispute
Disintegration of Soviet Union .

Russia- agrees to supply oil and gas at highly
•subsidized rate .
Recipients were prohibited from re-exporting.
•

After disintegration – Russia refused –recognition of

• Ukraine’s sovereignty.
•

Russia’s problems with Ukraine

b.
c.
d.
1.Control of nuclear weapons
2.
3.

4.Ukraine –monopoly over Russian gas exports to Europe

5.
6.Disputes-price and mode of payment for this transit also: its
domestic consumption.
7.
8.Ukraine’s Naftogaz-purchase and supply domestic gas.
9.
10.Bitterness between Gazprom and Naftogaz.


Gas Disputes In 1990’s
Russian financial crisis


a.Fall in Rouble .
b.
c.Slump- gas and oil prices
d.
e.Non –payment in domestic Russian market.
•

Warned- stop illegal withdrawal of gas.

•

Russia cut supply.

•

Siphoning increased.
•
Russia’s and Ukraine’s focus-new pipeline
•

In 2004 reached agreement

•

Naftogaz debt- Vnesheconombank

•

RosUkrEnergo replaced Eural Transgas.


Elections in UKRAINE

•Vikitor Yanukovych • Vikitor Yushchenko

• Prime Minister • Ex-Prime minister.

• •
• Outgoing president • Advocated closer ties with
Leonid Kuchma. west and EU.
• •

• Russian President
Vladimir Putin. • He was a champion in
market –oriented
•
economic reforms .
• Closer ties with his big
neighbor Russia.
• ORANGE REVOLUTION, resulted in 3rd round of elections.
•
• The new government favored EU and NATO
•
• March 2005, Yushchenko asked to raise Gas transit fee to European
level, 0.9/Tcm/100 Km in Belgium and 4.5/Tcm/100 Km in
Greece.
•
• In reply, Gazprom accepted the proposal but raised Gas prices to
European levels, which averaged to US 230$ (in cash).

•
• May 2005, Dispute regard to storage of 7.8Bcm



 TURN OFF EVENTS
November 22, 2005
• Gazprom’s demand for US$ 160 per Tcm
•

December 9, 2005
• Revaluation of lease facilities
•

December 13, 2005

• Demand for US$ 230 per Tcm
• Gazprom proposed a joint venture
•

December 29, 2005

• Gazprom’s deal with Turkmenistan
•

December 30, 2005

• Offering commercial loan & a halt in price rise
•
 Few concerns. . .

Mutual dependence between Gazprom and EU


Independence comes at a cost

 Political aspects
Analysts says, increase in gas prices was Russian
• way of punishing Ukraine.
•

On the other hand some say , as Ukraine was moving

• to market economy ,it should pay market prices for
• its imports .

Jan1,2006 Gazprom cutoff gas supplies.
 Settlement

•Jan4,2006 Gazprom and Naftogaz enters five year

contract.

•Gazprom will supply gas to Rosukrenergoat

US$230per Tcm

•Rosukrenergo will supply gas to Naftogaz at US$

95 per Tcm

•All transactions will be in cash.

Limitations

Did not touch the issue of future prices.

•

Turkmenistan entered into contract with Gazprom to

• supply 30Bcm of gas in 2006
•

Agreement was drawn up hastily to resolve the

• crisis.
 Causes of rise in the prices of Gasoline
Refining capacity of oil

Depletion of oil reserves

Deter consumption so as to preserve for future

Dependence on imports
•

Global demand leads to fluctuation in price

•
Gasoline prices and US Economy
 Effects of high gasoline prices

Mobile economy affects transportation


Increase in prices of products

Drop in sale of luxuries

Drop in sale of cars

Increase in sale of cars with better mileage, electric cars


Effect of high gasoline prices