Can Ukraine reverse the flow?

Now that the Q2 2014 price paid by Naftogaz for Russian gas has increased by around 80%, Kiev is looking for opportunities to purchase cheaper spot volumes via reverse flows from Poland, Hungary and Slovakia. The price of $268.5/Mcm for gas in Q1 2014 was raised to $385.5/Mcm on 1 April and to $485.5/Mcm on 2 April, after Russia’s cancellation of the Kharkiv agreements, which granted Ukraine a discount in exchange for Russia’s lease of naval bases in Crimea.

In fact, now that European hub prices stand below this price, RWE said in mid-April that it had restarted reverse flow deliveries of gas through Poland. The company has an agreement with Naftogaz to supply up to 10bcm/y to Ukraine dependent on individual contracts. RWE delivered about 1 billion cubic metres (bcm) of gas to Ukraine in 2013 based on European wholesale price levels. France’s GDF SUEZ is also understood to be in talks with Ukraine over potential supplies from the EU. Reverse flow nominations had stopped in December after the introduction of the price cut from Gazprom. The $268.5/Mcm discounted price in Q1 2014 (equivalent to around €18.50/MWh at the time) made spot purchases at European hubs uneconomic.