Towards energy security, the Russia-Ukraine-EU Debate
By Catalina Spataru, on 18 September 2014
Ukraine’s political situation has been dominating headlines in recent months, and its position as a main conduit for energy supplies between Europe and Russia is becoming a critical issue. It was such issues that were the topic of discussion at a recent workshop organised by Dr Catalina Spataru from UCL Energy, in collaboration with partners from UCL ISR, Europe, Ukraine and Russia.
In general, the long-term prospects for the Ukraine as a hub for energy are good according to all experts. In terms of natural gas production, Ukraine has a stable trend of natural gas production of about 21 billion cubic meters per year, its share of production by private companies is starting to increase, and trend of shale gas drilling activities by private companies are also increasing. Speakers also highlighted the potential for renewable energies (solar, wind, bio-energy) that is estimated in the order of up to 30 % of total energy consumption in 2030.
However, critically since May 2014, the energy company ‘Chornomornaftogaz’ no longer belongs to NJSC Naftogaz of Ukraine resulting in a production decrease of 1,650 billion cubic meters of natural gas per year. In addition, the rate of exploratory and production drilling activity by NJSC Naftogaz of Ukraine are is falling. Furthermore, the cooperation with Dutch Shell has now been put on hold due to the political turbulences.
From the Ukrainian perspective, the country is now in a difficult political and economic situation. It can hardly pay off gas debts claimed by Russia, which has continuously increased gas prices in the last years. As Ukraine relies on gas supplied from Russia, the cutoff in mid-June this year hits the nerves of the country. Modernization of energy supply and distribution is stagnating, and efforts to spur energy efficiency would need more backing.
From the Russian perspective, balancing gas customers in Europe and the new markets in Asia through new contracts is key. However a visible decline in gas exports has occurred in July 2014 due to the geopolitical situation as well as European spot price declines, that are partly affected by new supplies from Northern America. The global gas markets are in a period of transition. Even if European consumers may review downwards their future Russian gas supplies, the prospects for winning other customers in East and South Asia are not too bad.
From the European perspective, this crisis affects the long-lasting relationship with Russia, and the security of Russian gas transit through Ukraine. As the Ukraine does not seem capable of paying for past debts and future gas supplies, the EU will be requested to organize financial support through IMF and other financial institutions.
If this dispute is not settled the prospects for the next winter could be grim – for the Ukraine and for countries in South Eastern Europe. For that reason, the beginning of reverse gas flows into the Ukraine from neighbouring countries such as Slovakia is a rational response. But it’s just the beginning and part of a settlement of this dispute.
Considering this strategic debate, the workshop, as part of a wider project, has helped to initiate the development of a roadmap of actions for a potential partnership between Ukraine-Russia-EU in terms of having a secure diversity of energy resources. Notwithstanding the current geopolitical conflicts between Ukraine and Russia, all three parties are considered essential to achieve broader aims related to climate change, energy security and competitiveness. Indeed, the Association Agreement between the EU and Ukraine could also facilitate elements of such energy partnership, but large-scale action needs to happen now.
Work on this roadmap is on going, and the outcomes are set to be published in October this year, but this is certainly a topic of wider significance and one to keep watching.
The ‘Russia-Ukraine-EU energy partnership towards energy security Workshop’ was held at UCL on 11 Sept 2014 as part of a project funded by the British Council between Energy Institute in collaboration with partners from the Ukraine.
Many thanks to the event speakers:
Dr Catalina Spataru, UCL Energy Institute (co-ordinator)
Prof Raimund Bleischwitz, UCL Institute for Sustainable Resources
Prof Michael Grubb, UCL Institute for Sustainable Resources
Dr Tatiana Mitrova, Head of Oil and Gas Department in the Energy Research Institute of the Russian Academy of Sciences
Angus Paxton Principal Consultant atPöyry
Dr Nigel Jollands, Senior Policy Manager, Energy Efficiency and Climate Change, EBRD
Prof Gennady Mishuris Averystwyth, University Wale
Dr Mark Barrett, UCL Energy Institute
Vitalii Fylenko, Department of Alternative Energy Technologies and Ecology V.N. Karazin Kharkov National University and member of the public council under the Ministry Energy and Coal Industry of Ukraine
Prof Kostiantyn Niemchenko, Dean of the School of Physics and Energy V.N. Karazin Kharkov National University
Tetiana Vikhtynska, Vice-Dean of the School of Physics and Energy of V.N. karazin Kharkov National University Ukraine
Ivan Karpenko, Co-director Petroply Research & Consulting Ltd
and all other participants in the event.