How the Ukraine Russia (RosUkrEnergo) gas deal work

The new Ukraine-Russia gas deal will involve a new company RosUkrEnergo, (background here and here) which will

• import gas from Russia at $230, from Turkmenstan and Kazakhstan at $x (prce for Turkmenistan is set at $65, probably higher for Kazakhstan), annual volumes are 17 and 40 bn cm respectively
  
• own the interests to the pipeline in Ukraine, i.e. earning $1.6/tcm/100km for the 130bn cm gas passing its border
• sell gas to Ukraine at $95 at current price structure, but adjustable as its cost/revenue position changes

I think the formula works roughly at below (where I assumed that x=70, and made some assumption about the length of the gas pipe. The numbers might be slightly different in the deal)

_________________ Russia __Asia _______Total
Volume (bn cm)_______ 17 ____ 40 ________ 57
Price/tcm___________ 230 ___ 70
Total cost ($M)______ 3910 _ 2800 ________ 6710
Avg Price ($/tcm) ______________________ 118

________________ Ukr pipe ___ Rus pipe __ Total
Volume (bn cm)______ -130 ________ 40
Distance (km)________ 800 ________ 500
Price ($/100km/tcm) __ 1.6 _______ 1.6
Total cost ($M) _____ -1664 _______ 320 ____ 5366
Avg Price ($/tcm)________________________ 94

This is a reasonale deal, satisfying the interests of both sides. More importantly, now RosUkrEnergo secures control of Ukraine's pipelines and hence supply to the EU.

Ukraine, now paying a higher price for gas, has more incentive to change its wasteful habit. It will help to curb demand and hence ease some pressure on energy price in the world. As a sidenote, if China would deregulate its price control on oil and gas, we should also see a decrease in demand and hence price in world market.

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