In August 2010 Ukraine announced another series of price increases for industrial gas users from US$6.5/MMBtu to US$9.6/MMBtu delivered ex-VAT. Despite the sizeable discount secured earlier in May on the DAF price from Russia bringing it down from US$350/1000m3 to US$250/1000m3 (US$10.9/MMBtu to US$7.76/MMBtu) the weakening finances of the national gas distributor Naftogaz required removal of subsidies on distribution of imported gas.
At the same time the new government also made the decision to return 12 bcm of gas to the energy trading company RosUkrEnergo, from whom the Tymoshenko government seized all gas in storage belonging to the company at the start of 2009. It is not clear if Naftogaz will be able to comply with the latter in practice.
Already the marginal producer, Ukrainian nitrogen companies will need coping strategies to survive under record high gas prices. So far reports consist of rumour that DniproAzot and Cherkassy can access cheaper domestically produced gas, despite it being ring-fenced for residential users. Stirol, which had suffered most during 2009 due to its reliance on low margin ammonia, is also rumoured to imminently come under control of Firtash (owner of Rivenazot) who also has access to cheaper domestic gas. In any case the market is following cash cost closely, as the US$9.6/MMBtu gas cost (at 32.2 MMBtu/1000m3) is equivalent to US$280/tonne urea ExW cash cost plus about US$20 per tonne transport to FOB. Currently FOB Yuzhny prices for prilled urea are following closely at US$280-290/tonne. Until more capacity comes online in low cost regions, cost increase for Ukrainian producers will increase the floor price for the nitrogen market.
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