Page 81 - bne IntelliNews Russia Country report May 2017

9.0 Industry & Sectors 9.1 Sector news
9.1.1 Oil & gas sector news
The Stockholm Arbitration Court has cancelled the take-or-pay condition in Gazprom’s gas contracts with Ukraine and the prohibition on re-exporting gas, and also allowed Ukraine to reconsider the formula-based price of gas since 2014, taking into account the market price of gas in the European hub, according to Naftogaz. Kommersant reports that based on this decision, Ukraine might be obliged to pay some $1bn to Gazprom. In general it looks like that Gazprom’s chances of winning its $37bn legal claim against Naftogaz with regard to the take or pay condition in the 2009 contract are quite low. However, at the same time, Naftogaz’s statement means that the Stockholm Arbitration Court only approved the reconsideration of the formula-based gas price from 2014, while Naftogaz had requested being able to reconsider them from May 2011 to October 2014. This means that the Ukrainian company is not able to force Gazprom to pay back Naftogaz’s ‘overpayment’ of $14.3bn (according to Gazprom’s 1Q17 IFRS report), which limits the amount of potential losses. Nevertheless, the cancellation of the take-or-pay clause looks like a loss for Gazprom, which tried to defend it as an important part of any long-term gas delivery contract. In fact, this might now have additional consequences regarding Gazprom’s other contracts with European counterparties.
Ukraine has published a draft energy policy and plans to produce 30-35bcm of gas by 2035 but does not plan to buy Russian gas in the longer term. The gas transit volumes via Ukraine are to be at a minimum level after 2019. VTBC forecasts that Gazprom might sell marginal volumes to Ukraine in 2017-20F. VTBC conservatively assume that Turkish Stream and Nord Stream-2 might not be launched until 2020F, so gas transit volumes via Ukraine at around 60bcm/a over that period.
OPEC at the end of May held its regular meeting in Vienna, an outcome of which was the decision to extend the current production adjustments for a further period of nine months until the end of Mar 2018. OPEC as well as non-OPEC oil-producing nations that joined the production cut for 1H17 (Azerbaijan, Kingdom of Bahrain, Brunei Darussalam, Kazakhstan, Malaysia, Mexico, Sultanate of Oman, the Russian Federation, Republic of Sudan, and the Republic of South Sudan) are party to the agreement, with the media reporting that the terms are broadly the same. To recap, OPEC earlier agreed to curb its output by 1.2mmmbpd, while non-OPEC producers were committed to a 600kbpd joint cut, with 300kbpd thereof related to Russia. As previously, Nigeria and Libya were reportedly freed from those obligations because of the unstable political situation in both countries.
Russia says key goal is to bring global oil stocks down to five-year average . The main goal of proposed extension of oil output cuts deal is to bring the global commercial oil inventories down to 5-year average and stabilise the market, Russian Energy Minister Alexander Novak said on Tuesday. "We never say that our goal is a price. Our goal is to balance the
81 RUSSIA Country Report May 2017 www.intellinews.com