On March 26, the Verkhovna Rada of Ukraine Energy Committee held a special meeting dedicated to the gas market problems, in particular, the issue of filling underground gas storage facilities before the next autumn/winter period and penalties for gas quality. Here are some conclusions I made from this meeting.
NJSC "Naftogaz of Ukraine" can no longer subsidize everyone — households and businesses, since given the gas deficit for the next heating season of at least 4 BCM, the Company will have to cover it with expensive imports and sell gas at low regulated prices on the domestic market. In addition, at home, gas is strongly underpriced due to administrative mechanisms and the distorted market model.
Currently, both state-owned and private electricity producers receive gas at a preferential price not exceeding UAH 13,750 per 1,000 m3 less VAT. When switching to market mechanisms, the price of gas for them will rise to the market price of UAH 16,600 per 1,000 m3 (less VAT), which will raise the cost of electricity. In this case, the cost of electricity production from gas will increase from UAH 3,000–3,500 per MWh to UAH 5,000–5,600.
Cancellation of preferential gas prices for electricity producers will not result in their stoppage. Their profitability may be maintained by changing or removing price caps the electricity. Otherwise, it will be impossible to keep household prices stable, since all state-owned companies are obliged to cover gas needs of households and utility companies in the first turn. The same refers to nationalized Ukrnafta that has to sell its gas to NJSC "Naftogaz of Ukraine" for supply to households, too.
It is equally important to solve the problem of penalties imposed on gas producing companies because of their inability to 100% guarantee the quality of the produced gas due to the destruction of or serious damage to the relevant equipment by hostile missiles and drones.
Ukrainian gas extraction has lost up to 40% of gas production due to Russian terror, which puts state and private companies in extremely difficult economic conditions. Penalties for gas quality in this situation only aggravate the financial crisis in the industry. Therefore, it is advisable to cancel them for the period of equipment restoration under conditions of non-critical deviation of gas quality from standard parameters.
