Gas prices rise daily on European markets nearing the start of the heating season. It is the stock quotes that determine the price of gas at which Naftogaz sells natural gas to heat producers and household consumers. Should Ukrainian consumers panic about future gas bills?
We disassemble what caused the gas crisis in Europe and how it may affect other utility bills of Ukrainians, such as heat.
Gas prices in Europe have approached the mark of 1,000 dollars
The wholesale price of European nat gas is now equivalent to $150.5 a barrel -- higher than Brent crude ever was during the 2008 price boom (and yes, barrel of oil equivalent pricing has its challenges, but worth using to show magnitude of the crisis) h/t @Ole_S_Hansen— Javier Blas (@JavierBlas) September 15, 2021
The main factor in price growth is the low level of gas reserves in Europe's underground storage facilities with limited supply.
US State Department senior energy adviser Amos Hochstein said that gas supplies from Russia had declined compared to traditional levels. The expert believes that Moscow's actions in the gas market have contributed to the growth of its market prices.
The head of Naftogaz Yuri Vitrenko explained that gas prices in Europe were the result of Gazprom’s blackmailing and creation of an artificial deficit.
“Today, for good reasons, Nord Stream 2 is not certified or allowed to operate, and Gazprom is blackmailing the whole of Europe in this way, saying that you will not receive additional volumes if you do not allow Nord Stream 2 to operate,” Vitrenko explains.
This year, Gazprom reserved 40 billion cubic meters of gas (one and a half times less than last year) for transit through Ukraine. In this way, Russia wants to convince the European Union to fully certify Nord Stream-2.
When will gas tariffs increase?
Despite the rise in price of natural gas in Europe, during a press conference Prime Minister Denys Shmygal promised that the price of gas for household consumers will not change.
The price will remain as it was fixed in the annual tariff of gas supply companies until May 1, 2022. For example, for Naftogaz this price is UAH 7,96. In most gas supply companies, the price is also fixed at around UAH 8.
Then the contracts will be reviewed and the next annual contract will be offered.
“This is a very important point, because today the price is breaking world records. The price of gas is approaching and already exceeds $700 under some agreements - this is more than 20 thousand UAH per thousand cubic meters. Accordingly, we, as the government, and Naftogaz, as a state-owned company, guarantee that the price of gas for household consumers in Ukraine will not change and will remain, according to the signed annual contract, UAH 7.96. Or if other suppliers, they also have an annual contract valid in prices stipulated in the agreements,” Shmygal said.
However, this situation only applies to the population. Budget institutions are forced to buy gas at market prices.
What will happen to the heating?
In turn, the heating price may change for the population. The heat tariff directly depends on the price of natural gas.
According to the law, tariffs remain the responsibility of local governments, there is no ban on changing them. In addition, prices will increase as planned from October 1, 2021 in accordance with the resolution of the Cabinet of Ministers № 859 (from August 11, 2021).
At the same time, the Cabinet of Ministers says that there are no grounds for raising tariffs.
“If one of the mayors is ready to take responsibility and raise tariffs in this difficult time for the people, I think, firstly, people will evaluate such mayors immediately. Secondly, the government has taken all necessary steps so that it doesn't happen ... If one of the mayors does it, we will sit down and have a dialogue ... So far, the mayors of the cities where the district heating companies want to raise tariffs ... we haven't talked to such mayors yet," Denys Shmygal explained.
Shmygal also said that Teplokomunenerho has no grounds to increase tariffs for heat and hot water due to the government's actions regarding thermal communal energy (TCE) debts and the gas price fixed for them.
“The government has taken all steps to prevent this from happening. We are fulfilling our obligations under the memorandum, we are giving over $1 billion to TCE to bring order there, and we have made the price of gas without VAT UAH 6.18 per cubic meter, which for many cities is less than set in the heat tariffs,” the Prime Minister said.
At the same time, in some TCE companies the heat tariff remains at the level of UAH 4.5-5. The Prime Minister noted that in such cases “it will be necessary to look for mechanisms to compensate for the difference from local budgets and possibly from the state.”