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№ 2014/1

Market: forecast and conjuncture

PODOLETS Roman 1, DIACHUK Oleksandr 2, YUKHYMETS Roman 3

1Institute for Economics and Forecasting, NAS of Ukraine
2Institute for Economics and Forecasting, NAS of Ukraine
3Institute for Economics and Forecasting, NAS of Ukraine

The peculiarities of price formation in the international trade in natural gas

Ekon. prognozuvannâ 2014; 1:53-66


The article investigates the character and conditionality of the existing practice of price formation in the international trade in natural gas. In particular, it has been established that one of important consequences of the consecutive realization of the policy of the liberalization of natural gas markets in the European countries, became decoupling between the price and principles of gas price formation. That caused a transition from the previously predominant pricing formula in the international contracts ("netbackprice") to the one based on competition principles ("gas-alternative fuel").
In European countries, they mention three basic approaches to defining the gas price in long term contracts. The first one consists in linking the gas price to the price of a basket of alternative energy resources (coal and oil products, which are traded on the stock market and have a "market price"). The other one is based on the price for monthly futures contracts for an indicative oil type (as a rule, it is Brent). And the price level on the spot market is the third reference indicator for the formation of gas price.
In parallel with the existing system of contract relations on the European gas market, in recent years, a principally new market model has been shaping whose characteristic features are a stock market based pricing formation and complete refusal from long term contracts in favor of spot transactions. The elements of the new system have been united into the EU GasTargetModel. It is planned that this model include all EU Member Countries and those of the Energy Community, whose member is Ukraine.
It is established that the contract for the sale of natural gas in 2009-2019 between National Joint-Stock Company Naftogas Ukrainy and Open Joint-Stock Company Gazprom of 19.01.2009 is a typical "take or pay" contract of Groningen type with a linking to oil product price and similar to those used by the Russian monopolist in gas trade in long term contracts with absolute majority of European countries. For Ukraine, that contract allowed a transparent and forecastable calculation of the gas price, and, while the economic justification of the basic price of 450USD per 1000 cubic meters remains disputable, it became an effective incentive to real fuel economy in our country.
The authors justify that the losses incurred due to the conclusion of the gas contract of 19.01.2009 were caused exclusively by the market factors and are similar, in their nature and volumes, to those incurred as a result of lowering prices for and reduction of the world demand for metal items, and the further steps towards its lowering, in reality, not so improved the competitiveness of Ukraine's produce on the world markets, as recovered the previous profitability level profitability of certain activities.
Besides, the high prices for the imported natural gas led to the emergence of private suppliers, in particular, Ostchem HoldingLimited, which, in 2013, supplied almost half of natural gas from abroad. At the same time, the terms of the contracts with Ostchem HoldingLimited are incomparable, in financial and commercial way, to those with Naftogas Ukrainy, which may become a precondition for the appearance of a new private vertically integrated monopoly in place of the existing state owned company.

Keywords: natural gas transfer price formation, European gas market, Ukraine's gas market, liberalization, long-term gas contracts, spot prices

JEL: D400; D410; Q430

Article in Ukrainian (pp. 53 - 66) DownloadDownloads :361