SE Europe Gas Supply Risk From Gazprom Prepayment Halt - Fitch

July 12, 2013

Fitch Ratings said that Gazprom decision to halt prepayment of natural gas transit fees to Naftogaz until at least 2015 creates the potential for modest supply disruptions in South East Europe this winter due to low levels of gas in Ukraine's storage facilities. The move is a further blow to Naftogaz, which depends on revenues from the transit of Russian gas to Europe.

Gazprom's prepayments are critical for Naftogaz, which continues to rely on gas transit revenues and support from the Ukrainian government to offset losses on domestic gas sales due to low government set tariffs.

Since the beginning of 2012, Gazprom has made USD 3.5 billion of transit fee prepayments to Naftogaz, which the Ukrainian company used to finance purchases of Russian gas, including that for storage. But Gazprom said recently that the latest USD1bn payment will cover the period until the start of 2015.

However, these payments have helped Naftogaz maintain stored reserves of 7.5 billion cubic meters. But Gazprom said that Naftogaz needs to store a further 12 billion cubic meters of gas to ensure Ukraine has enough for the winter and that it won't need to use gas passing through the pipeline to Europe.

Copyright: The Steel Guru , 2013.