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Friday 23.08.2019 | Name days: Valgudis, Ralfs, Vitālijs

Analyst: Latvia started negotiations with Gazprom too late

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The head of the market analysis division of Parex Asset Management Zigurds Vaikulis states that Latvia had to start to conduct negotiations with the Russian gas concern Gazprom a long time ago. Vaikulis acknowledges that the information on possible changes in Russian gas purchase processes, as a result of which natural gas could cost less for Latvia, is positive; however, he also indicated that Latvia had to start the negotiations with Russia earlier, because similar processes had already been taking place in Europe for some time.

According to the business portal nozare.lv, the analyst explains that after the old scheme, the price of Russian gas for the following periods depends on the nine-month average wholesale price change for fuel oil and diesel oil in Europe. This happens throughout Europe, including Latvia, which has been purchasing natural gas on the same conditions and price as Western Europe. According to him, the purchasers of gas want that part of the Gazprom gas supply is for the price at which the gas is listed on the free market of Europe – for the “spot” or current market price.

As Parex Asset Management has observed the “spot” price remains about 30% lower than the price, which is calculated with the old formula.

«However, Gazprom is ready to go for a compromise, since the competitors from the Middle East and Scandinavian have activated and the Russian market share has declined in the European market,» considers Vaikulis. He also warns that it is not yet possible that gas will be sold for the European “spot” price and we cannot hope for huge reductions in gas price.

According to assumptions of specialists, supply for “spot” price could constitute about 20% of the total supply – the rest of the price of gas still will be determined by the old scheme, which means that on average gas price would decrease by 6%, or in case of Latvia it would be by 3-4% for the tariff of gas and by 4% less for the tariff of heating for private persons. «It is not much, but it is good, especially taken into consideration that we could also save about 4%-5% due to the abolition of the excise tax,» says the analyst.

Latvian Gas (LG) started to conduct negotiations with the main natural gas supplier Gazprom already in the beginning of 2010, in order to discuss changes in the natural gas price formula, which would provide lower prices for gas in 2011. Today it was announced that the excise tax application to gas should be postponed. «The negotiations are approaching a conclusion; however, they will not give any results if Gazprom finds that the gained price reduction is being diverted to finance new taxes,» inform the representatives of LG.

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