New contracts with Gazprom to propel gas prices

  • 2008-01-30
  • By TBT staff
RIGA - Latvia and Lithuania have signed new gas supply contracts with Gazprom that will propel household and industrial gas prices to new highs and apply additional pressure to the Baltics' tenuous inflationary environment.
Officials at Lietuvos Dujos declined to give details, but according to reports Lithuania will pay $353 per 1,000 cubic meters of natural gas, up 35 percent from the $260 average price in 2007.
With Latvia, Gazprom signed a three-year deal that could increase gas bills for Latvian households by 50 percent, according to Latvijas Gaze Chairman Adrians Davis.

Speaking to Baltic News Service, Davis expressed satisfaction with the deal, particularly since it is for three years, compared with one-year supply agreements that Gazprom used to prefer.
"In such a situation it was very difficult for us to draw up a budget. We received the agreement at the end of each year, and how could we draw up a budget without knowing the price of gas," Davis said.
He explained that the new deal with Gazprom contains a set price formula and the gas purchase price would change each month depending on the average price of fuel oil over the past six months.
He also said bills for households will surge by at least 50 percent, which amounts to 4.5 lats (6.4 euros) compared with 3 lats now. "This is less than they pay for waste and cold water," he said.
Latvijas Gaze wants to raise gas tariffs from May 1. The company last raised its gas tariffs on May 1, 2007, by 17 percent to residents and 30 percent to large consumers.

Gas prices are linked to oil prices, which in recent months have approached an all-time high of $100 per barrel, though the price has fallen to below $90 on economic woes in the United States, the world's largest oil consumer.
Lietuvos Dujos is 37.1 percent owned by Gazprom, while Latvijas Gaze is 34 percent by the Russian gas monopoly.
Last year Russia announced it would raise gas prices for East European customers to levels close to what West European nations pay. Belarus, a traditional Russian ally, has also seen its gas bill soar, which is the main reason for the souring of relations between Minsk and Moscow.

Latvia to upgrade gas storage

Latvijas Gaze Chairman Adrians Davis said that the company planned to invest 30 million lats (42 million euros) in upgrading the Incukalns underground gas storage facility by 2010.
He said that the 50 million lats invested to date have not been sufficient and that more funds were necessary. "It's not much considering we have 183 storage wells there," he said.
Incukalns is the third largest natural gas storage in Europe. Investment into a new storage facility 's something the company dreams of given the projected rise in natural gas consumption over the next few years and beyond 's might cost 50 - 70 million lats, Davis said.

Last year the company proposed that Gazprom participate in an expansion, but the company refused.
Davis said that the facility would mark its 40th anniversary this year, yet the equipment had depreciated and was in very poor condition.
He said that it was not possible to do a full overhaul of the complex facility, which has to operate without interruption.
The total capacity of the gas facility is 4.5 billion cubic meters, including 2.3 billion cubic meters of active gas.