RIGA - Latvijas Gaze has accepted a new gas supply contract with Russia's Gazprom that calls for increasing prices at which the company buys natural gas to West European levels, a development that, while not unexpected, will put additional pressure on Latvia's frighteningly high inflation.
The agreement covers the period from Jan. 1, 2008 to Dec. 31, 2010, and though the company could not disclose the exact purchase price for a thousand cubic meters of natural gas, it is likely that Latvijas Gaze will see the cost of its gas purchases increase by approximately one-third.
Vinsents Makaris, spokesman for Latvijas Gaze, said the higher price was due to Russia's goal to balance the purchase price of natural gas throughout Europe and rising oil prices, which jumped from $50 per barrel in the beginning of 2007 to over $90 just 11 months later. "One of the price mechanisms in the future will be the price of fuel oil, as well as fuel prices in the European fuel market as it is in other European countries," said Makaris.
This means that, for example, if the average six-month fuel price was $400 - $500 per ton, then the purchase price for a thousand cubic meters of gas could soar some 20 - 50 percent, the company said.
Estonian and Lithuanian gas consumers will also see a similar hike next year, though they are less dependent on gas than Latvia.
Earlier this year Latvijas Gaze raised gas tariffs by 17 percent for residents and 30 percent for large consumers. "At present we cannot tell what changes Latvian customers will see in their tariffs, as it is hard to predict oil prices, and the Latvian Public Utilities Regulatory Commission in 2008 will prepare new methodology for calculating tariffs, and the company's new tariff project will be prepared according to that," said Makaris.
On the bright side, Makaris said that Latvijas Gaze would soon begin selling gas stored at the underground Incukalns facility that had been purchased at a lower price. This will provide a temporary cushion for many energy-intensive enterprises.
"However, from the moment when the direct supply of gas from Russia begins, consumers will have to pay for the full price of gas," Makaris said.
Natural gas accounts for 31.5 percent of Latvia's energy consumption, according to Latvijas Gaze.