Minsk and Yerevan want to negotiate with Gazprom on lowering gas prices

Minsk and Yerevan want to negotiate with Gazprom on lowering gas prices

Belarus intends to revise the price of Russian gas supplies. In order to achieve a re-duction in tariffs, in April 2020 Minsk joined Yerevan in a dialogue with Gazprom, which also wants to buy Russian gas at a lower price. Information and analytical portal “Eurasia. Expert” gives an assessment of this situation by Russian expert Ig-or Yushkov.

In his opinion, the Belarusian position proceeds from the fact that gas prices should be standardized inside the EAEU. This should lead to the fact that the price for Bel-arus should be the same as in the Smolensk region, plus the cost of delivery to the border of the republic. The Russian side did not accept this argument. On Decem-ber 20, 2020, Vladimir Putin said that equating prices for Belarus with gas prices in the Smolensk region is “strange”, since the gas tariff in the Smolensk region is the most “subsidized” one.

Belarus has been preparing for a dialogue on price reductions. On March 31, 2020, the President of Belarus and the Prime Minister of Armenia held telephone conver-sations, during which, in essence, they coordinated their actions on a dialogue with Gazprom on gas prices.

In an official press release from the presidential administration in Belarus, it was noted that “Alexander Lukashenko and Nikol Pashinyan noted an overestimated level of prices for Russian natural gas, noting that it obviously does not correspond to the world level and the current situation as a whole.” On the same day, Deputy Prime Minister of the Armenian government Mher Grigoryan sent a letter to the head of “Gazprom” Alexey Miller with a request to start negotiations on a price reduc-tion.

Yushkov believes that acting as a “united front”, Armenia and Belarus are strength-ening their negotiating positions in a dialogue with Gazprom on issues of the price of gas supplied. However, Armenia’s chances of improving its position look better. First, gas prices on the border of Georgia and Armenia are now higher than the sell-ing price of Russian gas to Belarus. Armenia - $ 165 per thousand cubic meters, and Belarus - $ 127. That is, Armenia can bargain with Russia to lower prices at least to the Belarusian level.

Under a commercial contract, the cost of gas for Belarus at present is about $ 152 per thousand cubic meters, but according to the protocol between the government of the Republic of Belarus and PJSC Gazprom, it is fixed at the level of $ 127 per thousand cubic meters by the end of 2020.

On April 2, Lukashenko, in an interview with Mir television and radio company, ex-pressed the opinion that Russian gas for Belarus should cost $ 40-45 per thousand cubic meters. The Belarusian president refers to the low prices established in Eu-rope.

What led to a decrease in gas prices in the European market? In 2019, everyone was preparing to stop the transit of gas through Ukraine and filled underground gas storages (UGC), and pumping eventually continued. In addition, the winter of 2019/2020 turned out to be very warm, which led to the fact that Europe left the heating season with full UGS facilities.

Also, in 2019, a record number (in terms of production) of LNG plants was intro-duced in the world, which increased the oversupply, and the warm winter and the decline in consumption in Asia, due to coronavirus, led to the overflow of LNG supplies from Asian markets to Europe. And finally, a drop in oil prices will soon lead to lower gas prices under oil-linked contracts, which Gazprom has quite a lot of.

As a result of trading on the Dutch TTF hub on April 16, the cost of gas amounted to $ 69.8 per thousand cubic meters. The average indicator of the cost of Russian gas in Europe is also at less than $ 100 per thousand cubic meters. Considering that in Gazprom’s long-term contracts gas prices change after oil prices with a lag of 6–9 months, at least until the end of 2020 the cost of gas in the European market will be very low.

It will likely remain so low even in 2021. Thus, in the short term, it is beneficial for Minsk to demand a lower price, appealing to the level of European prices.

At the same time, the expert will ask a question, but what if, after some time, gas prices in Europe go above $ 200 per thousand cubic meters? Yushkov emphasizes that Belarus needs to assess the prospects for price changes in the European market and dwell on one of the pricing formula options. Either with reference to Russian tariffs, or to European hubs. According to the Russian expert, shuttle pricing will not work here.