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. Last Updated: 07/27/2016

Baltic Gas Prices to Rise Most

Gazprom is planning to raise prices for most European customers by an average of 14 percent next year, but the hike will be much steeper for the Baltic countries, national newspapers reported Monday.

Europe may pay an average $293 for 1,000 cubic meters of gas next year, up from $257 this year, Vedomosti reported, citing company documents prepared for a board meeting Wednesday.

The hike simply reflects the growth of world oil prices, which serve as the basis to determine the gas price, said Jonathan Stern, director of gas research at Oxford Institute for Energy Studies.

"What Gazprom must have calculated is that oil prices have already moved," he said by telephone Monday. "Gazprom doesn't decide. It's not Gazprom's guess, it's everybody's guess."

Price increases for the three Baltic countries will probably vary from 30 percent to 54 percent, Kommersant reported. Gazprom will hike their prices to the European average, Gazprom spokesman Denis Ignatyev confirmed by e-mail.

Estonia could pay as much as $260 per 1,000 cubic meters of gas, a 36 percent rise, Raul Kotov, head of sales for Eesti Gaas, told Kommersant.

Latvia is negotiating to pay about $220, a 54 percent increase on this year, Latvijas Gaze spokesman Vincents Makaris said, the newspaper reported.

Lithuania may be charged from $210 to $230, a 30 percent increase, an unidentified Lithuanian government official said.

The higher prices will not cause a standoff with Russia, but will curtail demand, Stern said. "As soon as the gas prices go up, those countries will switch to oil products. The demand would go down dramatically," he said.

Higher gas prices would enable Gazprom to rake in a record $46 billion in export revenues next year, Vedomosti said. Gazprom deputy CEO Alexander Medvedev has said that exports will bring Gazprom $37 billion this year.

Total Gazprom revenues for 2006 will reach $98.5 billion, versus spending of $101.9 billion, Vedomosti cited the company documents as saying.

Expenditures could include $3.75 billion for buying a 20 percent stake of Gazprom Neft from bankrupt oil firm Yukos, Kommersant said.

Gazprom doubled its investment program for 2007, and Stern said it would use some of the higher revenues to develop production and transmission.

Gazprom's board of directors will meet Wednesday to consider next year's budget.

To ensure that Gazprom has enough gas to export, the government will cap its domestic use, Kremlin economic aide Igor Shuvalov said Monday, the Financial Times reported.

The country will instead rely more on coal and hydroelectric and nuclear power to generate electricity until planned investments in gas production kick in, Shuvalov said.

Daniel Simmons, a gas supply expert with the Paris-based International Energy Agency, said Europe was keen to hear what production that investment would yield.

"Gazprom can spend money but it doesn't necessarily mean that it's spending on upstream investment," he said by telephone.

Restrictions on domestic gas use would be a direct result of "not putting prices where they should be," Stern said. Industrial consumers pay $43 per 1,000 cubic meters of gas while production at the Yamal Peninsula and other remote areas costs more than $80, he said.

The government will start seriously hiking industrial gas prices -- a measure to boost production at Gazprom and smaller independent gas producers -- only after the 2008 presidential elections, Shuvalov said.

Gazprom is taking further steps to expand direct sales to Italy, Austria and the Czech Republic.

Vemex, a Gazprom unit set up to trade natural gas in the Czech Republic, signed its second contract in the country, Bloomberg reported Monday.

Under the two contracts, Vemex will deliver more than 100 million cubic meters of gas, the report said. Gazprom's main sales competitor in the country is RWE, which controls more than 80 percent of the Czech gas market.

Medvedev said in an interview in France that Gazprom also wanted to expand in Austria and Italy, Bloomberg reported.

In France, Medvedev attended the opening of Gazprom Marketing & Trading France on Friday, a unit through which it aims to sell 2 billion cubic meters of gas per year directly to customers within three years, the agency reported.