There are a few problems with the Ukrainian-Russian Natural Gas agreement. First, Turkmenistan will need to provide 3.3 Tcf of natural gas exports during 2006 to Ukraine, Iran, Gazprom, and its domestic market. This is 50 percent more than its export level during 2005. Turkmenistans exports during 2005 were only 7.6 percent higher than the previous year. Also, the contracted quantities for Gazproms 1.1 Tcf are included in the 1.4 Tcf that Naftogaz Ukrainy has contracted to buy. In addition, half of the ownership of RosUkrEnergo remains undisclosed. The company will be responsible for the most complex part of the deal, which will involve the mixing of the natural gas volumes from different countries at various prices. Finally, the deal has solidified Russias commitment to a contract price with Ukraine that is below full market value. In addition to shielding needed market signals, the below-market-value prices are causing other countries such as Georgia and Moldova to question their contracts with Gazprom.
The agreement also does not address Ukraines high level of energy intensity or the countrys need for energy diversification. The contract leaves the countrys economy vulnerable to natural gas price increases. Natural gas accounted for 46 percent of the countrys primary energy consumption in 2004. The World Bank forecasts that if gas prices double for Ukraine from their 2005 levels, then the countrys GDP growth rate would fall to -1.8 percent this year from levels of 2.4 percent in 2005.