Gas Crisis: Experts Analyze the Contract with Gazprom and Estimate How Much the Citizens will have to Pay for It
Moldova and the Russian giant Gazprom have reached a key agreement on the price formula, an audit of the debt formed at Moldovagaz, and the need for further negotiations to establish a debt repayment schedule. Following the negotiations in St. Petersburg, the contract between Moldovagaz and Gazprom for the supply of natural gas was extended for a period of five years, using, according to the Moldovan authorities, the price formula proposed by the Moldovan side.
Andrei Spînu, Minister of Infrastructure and Regional Development, who represented the Government in the negotiations, said that, according to the provisions of the new contract, Moldova will pay about $450 per 1,000 cubic meters of natural gas for November, and less than $400 per 1,000 cubic meters for December, the tariff will vary depending on the price of gas on international stock exchanges.
The pricing formula – a commercial secret
The formula for calculating the price of natural gas, included in the contract signed by Moldova with Gazprom, is a commercial secret and cannot be disclosed by the parties. The Deputy Prime Minister stated that he cannot disclose the calculation formula; he specified, however, that it is based on a certain ratio of market prices for gas and oil.
With the signing of the new gas supply contract, there will be an increase in gas tariffs for consumers. Spînu claims that, in the near future, Moldovagaz will ask the National Agency for Energy Regulation to increase gas tariffs for citizens, and they will be adjusted from November. Speaking about the increase in gas tariffs, Spinu assured that the Government will prepare a package of initiatives to support the citizens and compensate the prices for natural gas.
Currently, the citizens of Moldova pay 4,2 lei for a cubic meter of natural gas, and experts estimate that the price will rise up to 5,6 or even seven lei.
Veaceslav Ioniță: “We are witnessing a mini gas crisis, much weaker than the one in 2012-2014 and very easy to manage.”
Ziarul de Garda discussed with several experts the contract for the supply of natural gas, as well as the gas tariffs that domestic consumers will have to pay after the new contract was signed. Veaceslav Ioniță, an expert at the Institute for Development and Social Initiatives Viitorul, claims that in the fourth quarter of 2021, Moldova will pay an average of $525 for imported gas, which is four times more than the price paid in the first quarter of the year.
According to the expert, to cover import costs, the National Agency for Energy Regulation will have to increase the tariff for the population by at least 30%, which means at least 5,6 lei per 1,000 cubic meters of natural gas for household consumers. “This price is higher than the current one of 4,3 lei, but lower than the maximum tariff of 7,18 lei for 1,000 cubic meters of gas that we had in 2015. In my opinion, we are witnessing a mini gas crisis, much weaker than the one in 2012-2014 and very easy to manage. Intervention instruments are twofold: a gradual increase in tariff to prevent sudden increases, and state compensation for the socially vulnerable (…). This year’s growth is largely due to the price increase in October when Moldova did not have a contract with Gazprom and we purchased natural gas at a price of $790, a record level for us. Also, the new formula applied will make us pay about $450 for 1,000 cubic meters of gas in the last two months of the year,” explains the economic analyst.
Muntean: “Citizens of Moldova might pay 5,5 lei per cubic meter of natural gas.”
Ion Muntean, the energy expert of the Institute for Development and Social Initiatives Viitorul, believes that the formula for calculating the price of natural gas is “quite correct and advantageous in terms of the stability of the energy sector.”
“The price we have now is calculated according to a certain formula. The formula set out in the contract has not been made public. However, based on my calculations and on what I saw in the press, it is clear that it is a mixed formula that includes the weighted marketing price of petroleum products at a reference price, with a share of 30% in the cold period of the year. In the second and third quarters, the spot price for natural gas will be 70%, while the price for petroleum products will have a share of 30% (…). I believe that it is a formula that corresponds to a more secure scenario in terms of stability or reduction of significant fluctuations in procurement prices. From this point of view, it is good for us as consumers. There are Gazprom client countries that managed to obtain other formulas that, at the moment, would be more advantageous. If I’m not mistaken, Hungary signed a contract with the reference price related only to the oil products market,” said Ion Muntean. The expert believes that the citizens of Moldova could pay 5,5 lei for a cubic meter of natural gas.
“Based on the dynamics of natural gas purchase prices in the first three quarters of 2021, the increase in tariffs for end consumers, on average, should be 30-31%. This will mean a tariff of about 5,5 lei for household consumers connected to a low-pressure pipe. If ANRE examines the approval of the tariffs with the average price for the fourth quarter, then, based on that average price predicted and announced by the Deputy Prime Minister, the gas price for end consumers should increase by about 60%. I believe, however, that a more step-by-step approach to tariff approval will be taken. The increase that would need to be made, considering the significantly higher price in the fourth quarter of 2021, could be left for the summer-early autumn period to somehow mitigate this increase, as a result of trends or the purchase price, which is expected to take place in the second and third quarters of 2022. It is clear that now the price of natural gas is influenced by a market anomaly of natural gas products, respectively, it will somehow compensate next year,” said the expert.
Fală: “We will have gas at a relatively good price. The state will certainly intervene to compensate for the increase in tariffs.”
Alexandru Fală, director of the program “Monetary sector and economic modeling” at Expert-Grup, says that citizens should expect an increase in gas prices in the near future. However, the expert claims that “the price we pay is more advantageous than the market price.”
“This is certainly not a negative result (…). People are less interested in Energy Package 3, people want to have gas, and as cheap as possible and they are also interested in debts because it could still be reflected in the price. We have obtained a price that will obviously bring a tariff increase. We cannot avoid price growth, but this increase will not be as large as in the case we were to import gas in winter at market prices. The price is not bad, but, as I said, higher tariffs should be expected. It is good that we have managed to solve the problem in October. In 2009, for example, we were in a similar situation in the middle of winter. We will have gas at a relatively good price. The state will certainly intervene to compensate for the increase in tariffs and support consumers,” said Alexandru Fală. The expert estimates that citizens will pay no more than six lei for a cubic meter of natural gas.
“Our import price has doubled. It is clear that the increase in tariff will be substantial. Even if the tariff is very high, the Government will intervene with significant support and the tariff paid will be much lower. Let’s say they set the tariff of eight lei, the end consumer could pay six lei or even less,” said the expert.
Andrei Spînu: “The government will prepare the package to support the citizens with compensations.”
On October 29, following a series of negotiations, the contract between Gazprom and Moldovagaz for the supply of natural gas was extended for five years “on mutually beneficial terms”. Deputy Prime Minister Andrei Spinu said that the price for Russian gas will be $450 per 1,000 cubic meters, and Moldova’s historical debt will be paid after an independent audit. He specified that Moldovagaz will establish the increase in tariffs for natural gas.
“The price that consumers will pay is currently set by Moldovagaz. Certainly, the price will increase for two reasons – the gas price has gone up, as well as the exchange rate (…). In a few days, Moldovagaz will prepare the package of documents and will go to ANRE to request the increase of the tariff, and the Government will prepare the package for the support of the citizens, will prepare the compensation package. The tariffs will be adjusted from November. (…) In the meantime, the Government will prepare the package for the support of citizens, for the financial compensations,” said Spinu.
In October, Moldova received insufficient gas on the basis of a one-month extension of the contract with Gazprom, for which it paid $790 per 1,000 cubic meters. The difference in volume was purchased during this period on the spot market, at a market price of about $1000 for 1,000 cubic meters of gas. Last year, Moldova paid about $300 per 1,000 cubic meters of natural gas.