Russia makes the rules on gas market

Newsroom 30/09/2008 | 16:24

Europe – which depends on Russia for a quarter of its total gas consumption – has not yet cut the umbilical cord with Russia's gas reserves, but continues to dream of a separation. “For Europe, this remains a very serious problem and the European states have to resolve the energy issues,” said energy expert Dieter Helm of Oxford University.
While there are various solutions on paper, they are far from becoming reality. The Russian energy giant Gazprom, the largest gas producer in the world, has revised its projected export income upwards and announced that it expects its income to surpass USD 65 billion, in the context of a record increase in gas prices throughout Europe in the last quarter of this year. Last year Gazprom reported income of USD 39.5 billion.
According to Gazprom officials, gas prices in Europe will reach USD 500 per 1,000 cubic meters by the end of the year, almost double the average for last year, USD 260.
The trend can also be seen in Romania, where distribution companies that are active locally have increased their imports from Russia, which are made through Wintershall and Imex Oil.

From Russia – with cost
Gas distribution companies which have operations on the local market and import natural gas from the Russian giant paid an average of 35 percent more for imported gas in the first half of the year compared with the same period of last year. The average price of gas imported from Russia reached USD 416.44 per 1,000 cubic meters in June, a consistent increase from USD 282.65 in the same month of last year.
According to the latest National Energy Regulatory Authority (ANRE) report, in June this year, Distrigaz Sud was the top gas importer with 25.58 percent of its total stocks hailing from Russia, while in the same month of 2007 the company's gas imports made up 18.14 percent. E.ON Gaz Romania, meanwhile, reported a moderate increase in gas imports from Russia from 13.29 percent to 14.79 percent.
“Each company tries to get the right balance between imported gas and local production. Currently, companies import at USD 480 per 1,000 cubic meters. For the last quarter of this year firms have devised their budgets based on an acquisition price of USD 520,” said Gabriel Sirbu, manager at the ANRE.
According to him, the price of imported gas is calculated using the oil rates for different derived products. Currently, the price of gas acquired from Russia is USD 500 per 1,000 cubic meters for the third quarter of the year. But for the last quarter of the year a rise to USD 550 has been predicted.

Gas distributors go cap in hand to ANRE
Distrigaz Sud has asked the ANRE to approve a 12 percent increase in the price of gas as of October 1, due to the increase in
the acquisition prices of imported gas.
“We asked the ANRE to calculate the gas tariffs for the local market based on the purchase costs of imported gas. Currently, the ANRE uses an average price for natural gases of USD 480 per 1,000 cubic meters, while in the third quarter it cost USD 500 and we expect this price to increase,” Distrigaz Sud officials told Business Review.
They did not put a specific figure to the discrepancy between the acquisition price of gas and the
sale price on the local market, because of fluctuations in the price of an oil barrel, variations in the
exchange rate and the seasonal nature of activity in the natural gas field.
ANRE officials said that they had received another request to adjust the gas prices starting October 1 from E.ON Gaz Romania, earlier this month.

Authorities say ‘no'
Despite the distributors' persistency, the ANRE has announced that it has decided not to charge end-consumers more for their gas for the last quarter of the year.
“The decision of the ANRE regulatory committee reflects our intention to keep the price of natural gas at a reasonable level for the next period, without affecting security in the supply process, in the context in which favorable future fluctuations in imported gas prices are expected,” said ANRE officials.
They added: “Their [the distributors'] demands are justified by the increase in the cost of imported gas and company calculations that indicate an increase in acquisition costs for the fourth quarter of the year. We must add that the import prices paid by the natural gas suppliers are based on a formula which includes average rates for crude oil and diesel oil for the last nine
months before the start of the trimester, rates which saw a
continuous increase in January-July this year.”
Despite the gas distributors' pessimist outlook, ANRE representatives think that next year gas prices could even drop.
“The recent trend of crude oil prices indicates a falling trend, and this should also be reflected in the acquisition price of imported gas from the second half of next year,” said ANRE officials. Recently, Varujan Vosganian, economy and finance minister, said that natural gas prices would not be increased from October 1. Furthermore, prime minister Calin Popescu-Tariceanu added that a gas price increase from this fall, as requested by suppliers, would be unjustified given that the international rates for crude oil have decreased.
The most recent gas price increase came on July 1: 12.5 percent for Distrigaz Sud customers and 11.6 percent for E.ON Gaz Romania clients.
According to ANRE sources, a possible increase in gas prices will be decided upon most probably from January 1 next year, a legacy of the new administration.
By Dana Ciuraru

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