Gas prices likely to soar in 2008

  • 2007-11-28
  • By TBT staff
RIGA - Conflicting reports about the future of gas prices in the Baltics surfaced last week, pointing to both an underlying instability on the world energy market and a lack of analysis about how trends could affect the Baltics.
It would appear, however, that the wholesale price for gas at which all three countries buy from Russia's Gazprom could rise dramatically 's by as much as 50 percent.
Alexander Miheyev, a Gazprom representative and deputy board chairman of Latvijas Gaze, Latvia's main gas company, said in an interview that next year Russia could sell natural gas to Latvia at a price 40 - 50 percent higher than the present level.

"Given the current situation, gas procurement price could grow by 40 - 50 percent. But I can say that this will probably be the last big price hike 's it has to be survived, and the rest will depend on the prices of other energy sources," Miheyev told the Dienas Bizness paper.
He stressed that for years Russia has been selling gas to some neighbor countries at a significant discount from what was charged to Western countries.
"In recent years we have raised gas price about three to four times, but the price is still lower than the European average. Now gas prices in Latvia have to be raised to the average price in Europe," Miheyev said. If Gazprom did raise the price of gas, it would likely do so for all three Baltic states at the same time. For Estonia, Latvia and Lithuania, whose economies are vulnerable due to high inflation, large current account deficits and a labor deficit, a sudden, significant boost in gas prices would trigger painful repercussions, particularly for consumer prices.

Latvia is more dependent on gas than its neighbors, as 31.5 percent of its energy consumption is met by the blue flame.
Latvijas Gaze spokesman Vinsents Makaris said on Nov. 26 that prices for household consumers could grow 13 percent next year.
Gas prices fluctuate in dependence on oil prices, though with about a six - 12 month lag. Given that oil prices are teetering on a record $100 threshold, it is inevitable that natural gas will follow upward.
Last week conflicting reports emanated from Moscow that Russia might raise the price for West European gas consumers by some 20 percent, raising eyebrows in the European Union.

According to Miheyev, the price of fuel oil has risen considerably, triggering a hike in gas prices. He said a new formula has been developed that ties gas prices to those of fuel oil. "If oil prices fell, we would not even feel a rise in gas prices. But now, the process is quite painful, and it has to be survived," Miheyev said.
He said Gazprom and Latvijas Gaze, which is 34 percent owned by Gazprom, had reached an agreement on gas supplies, but no deal had been signed. "Our positions are virtually agreed, so I think that there will be no problems," Miheyev said.

After signing the agreement with Gazprom, the Latvian gas utility is set to submit to the regulator a new tariff plan that will contain the planned price hikes. This should take place in the beginning of 2008.
After concluding the gas supply contract, Latvijas Gaze will submit a new tariff plan to the Public Utilities Regulatory Commission, Makaris said.
"[Latvijas Gaze] is going to ask the regulator to raise gas tariffs by at least 30 percent, but the increase might be even higher," the spokesman said.
In May, Latvijas Gaze raised its gas tariffs by 17 percent for residents and by about 30 percent for large consumers.

Meanwhile, in Lithuania the National Control Commission for Prices and Energy estimated that gas prices could surge 70 - 76 percent for households in 2008.
The commission explained that the natural gas import price, which is used to estimate the price for households, is expected to reach 922.3 litas (267.3 euros) per 1,000 cubic meters in 2008, while in July 2006 the price was 432 litas.

The commission is expected to review the new gas prices on Nov. 30.