Ukraine bans natural gas exports to Hungary (2)

http://www.portfolio.hu/en/cikkek.td...

Tuesday, 28, April 2009 08:35:00 AM

Ukraine has imposed a new restriction on natural gas supplies to Hungary, which are now limited to supplies purchased from Russian energy giant Gazprom. The export ban comes as a major blow to Emfesz, a wholesaler with over 20% market share in Hungary and 100% dependent on imports from Ukraine. Thanks to the warm weather, analysts do not expect the restriction to cause a critical supply scenario in Hungary. Moreover, Emfesz may be able to access alternative supplies, however it is likely that the company will be forced to abandon its current business model, which is based on the inexpensive supplies, Hungarian news portal Index reported.

“Ukraine has pulled the plug on gas supplies to Emfesz," market speculation ran high on Monday afternoon. The move did not comes as a surprise to industry players. Controlled by Ukrainian investor Dmitro Firtash Emfesz First Hungarian Natural Gas and Energy Trade Kft has over 20% market share in Hungary and has been noted for its aggressive winter campaign that promised a 8% price advantage. Until now, the company has relied on supplies from Rosukrenergo, another Firtash affiliate that has been in a permanent conflict with the Ukrainian government recently. (Hungary's number one natural gas importer is E.ON, which buys from Gazprom.)

In an interview with Index, executives at transit operator Földgázszáll&iacu... Zrt (FGSZ) said the notification came from its Ukrainian partner, which informed FGSZ that Ukraine has banned supplies to Hungary with the exception of transit from Russia's Gazprom Export. Based on this notification, FGSZ has adjusted incoming pipeline capacity to the decreased amount and passed on the information to wholesalers. According to FGSZ, the move is not going to cause a supply disruption to consumers in Hungary.

Rosukrenergo had been set up in order to transit natural gas from Russia to Emfesz. The company is 50% owned by Gazprom, the other 50% stockholder is Dmitro Firtash, similarly to the ownership structure of Emfesz. Rosukrenergo has been at the center of natural gas supply disputes between Ukraine and Russia, with Prime Minister Yulia Tymoshenko seeking to exclude Rosukrenergo from the lucrative transit trade and make it a state monopoly.

Market sources believe this conflict may be the rationale behind the Ukrainian ban on exports to Hungary on Monday afternoon. Index has obtained information from various sources that Ukraine simply seized the supplies dispatched to Emfesz. Emfesz CEO István Góczi confirmed that the problem originated in Ukraine (that is, there has been no disruption in supplies from Gazprom), however he emphasized that the scenario is similar to the January supply crisis when lower pressure was the fist sign of the disruption. Like yesterday, Hungary may still receive the full ordered amount, Góczi added.

Emfesz has requested information from the Ukrainian parties involved in the supply chain, including transit company Ukrantransgaz, however there has been no response so far. In Góczi's information, Ukraine's storage capacity operator Naftogaz Ukraine is refusing to make supplies due to Rosukrenergo available to the latter, thus the disruption in delivery to local partner Emfesz. This contrasts with a message from Rosukrenergo to Emfesz around 5 p.m. on Monday, which confirmed delivery of the due amount at the Hungarian-Ukrainian border.

The options available to Emfesz include purchasing from other sources or using storage capacity in Hungary to bridge the disruption, industry sources told Index. Thanks to the warm weather, there is no threat of a supply disruption in Hungary. However the move is predicted to put a dent in Emfesz's sales model, based on the easy availability of inexpensive natural gas that may have to be quickly replaced from a pricier source.