Gazprom Raises Offer for Merger with Ukrainian Naftogaz

The Russian gas company Gazprom persists in the idea of merging with the Ukrainian state energy company Naftogaz, which would cause tectonic shifts in the European gas market.

In its latest move, Gazprom has offered the Ukrainian company certain gas fields with reserves of nearly one trillion cubic meters of gas, provided that Ukraine agrees to contribute its transport infrastructure and gas production assets to the envisioned joint venture. This was stated a few days ago by Gazprom’s CEO Alexey Miller after a shareholders’ meeting, saying that ‘it is already time to discuss the size of the reserves and that the decision on specific fields depends on Naftogaz’s readiness to contribute its pipeline network and production systems and on how their value will be defined.

Additionally, earlier this month, Miller mentioned the possibility of the South Stream system being directed through the Ukrainian rather than the Turkish part of the Black Sea, which would significantly reduce the cost of gas transportation itself, but the condition for this would be the complete merger of the two state companies. Additional advantages that the Ukrainian side would enjoy is that gas for households would continue to be sold at subsidized and regulated prices. 

Gazprom is trying to take advantage of the improvement in political relations between Russia and Ukraine to gain better control over the transport system, as Gazprom transports about 80 percent of gas to European markets through Ukraine. For now, the Russian gas giant shows greater enthusiasm for this idea than its potential Ukrainian partner. However, analysts point to the political risks of this plan for Gazprom itself, as a change in the political leadership and the rise to power of the current opposition, which is strongly opposed to such an arrangement with the Russian gas sector, would likely result in the withdrawal of the Ukrainian side from the entire story. According to them, the Russian side actually only needs a joint venture arrangement, as it would give it access and some control over Ukraine’s pipeline network. (Davorka Zmijarević)