OREANDA-NEWS. August 24, 2015.

TASS: You had a working meeting today with Andrey Kobolev, CEO of Naftogaz of Ukraine, where you discussed the preparations for the upcoming winter season. If international loan institutions are not going to financially support Naftogaz of Ukraine in buying natural gas, so is Gazprom ready to look into other options of injecting natural gas into Ukrainian UGS facilities?

Alexey Miller: Well indeed, we see that the whole process of gas injection into Ukraine’s UGS facilities is going much slower than it was last year. Back to these days, by the start of the withdrawal season Naftogaz accumulated 16.7 billion cubic meters of gas in its storages. If it carries on like this, Naftogaz will not achieve even the mentioned figure. For the time left, 3.2 billion cubic meters, or 25 per cent of already injected volumes, need to be added extra. We have some concerns about the situation, and the process has to be accelerated. It is crucial to keep a certain amount of gas in storage – it is a prerequisite for the provision of reliable gas supplies to Ukrainian consumers as well as for gas transit to Europe during the upcoming winter period. We believe that it is Naftogaz’s responsibility to cover these issues and, consequently, we are not going to inject our own gas into Ukraine’s UGS facilities.

TASS: Right, may be reduced gas consumption in Ukraine can ensure safe gas transit alongside smaller amounts of injected gas?

Alexey Miller: Ukraine’s economy is still in a deep recession, but the future downfall in yearly consumption is not a guarantee of safe gas transit, if less gas is available. It is not an economy, but the weather that makes the difference in the peak gas consumption. It was very warm last year and 16.7 billion cubic meters turned to be enough, but Ukraine can’t think that every winter will be the same, the country should be ready to face the cold.

TASS: Is OPAL capable to hedge risks of reducing gas transit via Ukraine by reaching its full capacity? Do Gazprom and its partners offer such an option?

Alexey Miller: Reaching the full capacity by OPAL will not eliminate the danger related to Ukrainian transit. It may facilitate the issue, but will not solve the problem completely.

TASS: What price do you expect for Ukraine in the upcoming quarter? Is it possible for Gazprom to fix the constant price for the whole winter season or the quarter-wise price will stay in force?

Alexey Miller: Contract pricing is the oil-based one. The oil price tends to lower and the contract price for gas, with no discount, in Q4 may be USD 35 less versus Q3. Quarter-wise pricing is stipulated by the contract and there is no reason to revise the pricing concept. No such changes are expected. Thus, a discount will be based on the same quarter-wise concept and fixed through the customs duties reduction. It is impossible to stick to some fixed price for the whole heating season 2015–2016. It is unclear why you put this question, because it is a common practice for global gas contracts. Currently, Naftogaz gets reverse gas under the monthly adjusted price.

TASS: But could you reveal any reference figures for the whole heating season?

Alexey Miller: Yes, I think that discount determination approaches could be declared, consequently, Ukraine will clearly understand that the price for the Russian gas is competitive in terms of the European market.

TASS: Why does Ukraine pay higher price for the reverse gas? Some contracts stipulate USD 20 and even USD 30 more versus the Gazprom price.

Alexey Miller: There is no commercial explanation to the fact. Since the reverse gas supplied from Europe is mostly the Russian gas, Naftogaz buys the same Russian gas, but at a higher price. Why do they act like this?

TASS: Is Naftogaz ready to resume the Russian gas purchase, and are there any hints of it?

Alexey Miller: Naftogaz clearly sees that the essential UGS reserves can only be maintained through buying the Russian gas. But a lack of money for gas injection is the main and only problem.

TASS: Ukraine keeps stating that trilateral agreement, i.e. Ukraine-Russia-EU, is needed to resume supplies.

Alexey Miller: The complete technical and commercial terms of gas supplies are subject to provisions of the contract and its attachments. The pricing provisions of the contract are and always will be the Russia-Ukraine issue. As to the customs fee discount – the Russian Federation Government solely decides upon the matter. As to trilateral agreements – these are framework documents devoid of a business contract status and are no legally binding, unlike the existing one.

TASS: What do you need to resume the Russian gas supplies?

Alexey Miller: Just money. But it is clear that Ukraine doesn’t have any.