Looking for a way out of the gas problem

The government is looking into the ways to get rid of the gas dependence on Russia. This is the impression one gets after analyzing the recent statements about the gas problem made by Ukrainian officials.

In 2014, Ukraine will be buying 12 billion cubic meters of gas. This big statement was made by Ukraine’s Fuel and Energy Minister Yurii Boiko on the channel Inter. “This year, we are buying 40 billion cubic meters of gas from Gazprom. Next year, we’ll only be buying 27 bcm,” he said adding that Ukraine had already applied for 27 bcm of Russian gas to be bought in 2012. Boiko then went on to say that in three years Ukraine would be buying 12 bcm of gas, 5 of which it would be getting from Azerbaijan, and another 7, from the Russian Federation.

Minister Boiko was able to radiate such energetic optimism due to the launching of the national program for lowering of gas consumption, as well as to the increase of domestic gas production. The latter is supposed to minimize another grave threat from the decrease in purchases of Russian gas, fines for Ukraine for insufficient tapping of gas. “We are prepared to buy 33 [billion cubic meters. – Author], but then we are going to resell our gas in the markets of Europe. I am convinced that our Russian partners will look into this situation before they come up with instructions for this particular case,” Boiko said as he revealed a possible resistance scenario.

Boiko went on to say that in 7 to 10 years Ukraine would turn into an exporter of shale gas. The conservative assessments of Western consulting firms estimate its deposits in Ukraine at nearly 5 trillion cubic meters, while those of coalbed methane are even greater. We would like to remind our readers that Ukrhazvydobuvannia, a subsidiary of Naftohaz, has discovered several areas with potential shale gas fields. TNK-BP has already volunteered to invest 1.8 billion dollars into shale gas mining projects in the following six or seven years. Shell also wants to look for shale gas in Ukraine. Thus, there are enough resources and volunteers to develop them.

“Shale” scenario is indeed interesting. However, it will only start working in several years at the earliest, as it involves long-term investments. So it is necessary to look for another, quicker solution to Ukraine-Russia gas problem.

Experts believe that one of the most probable solutions may be a consortium between Ukraine, Russia, and the EU for the management of the Ukrainian gas transportation system (GTS). There is another fact suggesting high probability of this course of events: on September 29, 2011, Kyiv is to host a European Commission conference on the upgrading of the Ukrainian GTS.

Another way to break loose from the expensive Russian gas is to cooperate with Turkmenistan, experts say. But the absence of direct pipelines still remains the major obstacle on the way of the Turkmen gas to Ukraine. It is not worthwhile to expect Russia to allow the transit of Turkmen gas across its territory, since in this case its gas monopoly will suffer considerable losses. The implementation of this project requires the construction of the Trans-Caspian Gas Pipeline.

Thus, today there are several solutions to the gas problem. The next few days may become revealing about the way which the parties in the gas negotiations will take. A meeting of Ukraine’s and Russia’s presidents is scheduled on September 24. So far, The Day has asked experts which solutions they find most optimum for Ukraine.

COMMENTARIES

Mykhailo HONCHAR, director of energy programs, Nomos Center:

“Industrial production of shale gas is a long-term investment, and Poland’s example is very illustrative here. This EU country started to look into the shale issues early in 2009. Today they have made a minimum progress in this respect: only a few exploratory wells have been drilled. According to Polish experts, the industrial production of shale gas will be feasible in 2017. Ukraine addressed shale gas issue at least two years later than Poland, so there will be no rapid progress.

“The talk of reduction in imported gas purchases suggests only one question on my part: Why no progress has been made here sooner? In my opinion, if no progress has been made hitherto, it is highly probable that none should be expected in the next three years. The current situation is certainly favorable for reducing the consumption of Russian gas. But no radical steps can be taken in such a short time.

“As far as the export of Ukraine’s own gas is concerned, this scenario looks quite feasible. Ukraine did sell gas at a certain point in time. However, the gas agreements of 2009 include a paragraph which rules out the re-exporting of Russian gas. And now any export transactions by NJSC Naftohaz Ukrainy will be interpreted by Russia as the re-export of their gas. To avoid this, Ukraine must create a firm outside NJSC Naftohaz Ukrainy, which will quietly enjoy selling gas abroad.

“Ukraine’s prospects to get gas from other sources seem pretty unreal. And so they will remain until independent reception infrastructure is created. There are two solutions to the problem: the construction of the White Stream gas pipeline and of the LNG terminal on the Black Sea coast. However, these two projects depend not on Ukraine’s desire alone. For one, the White Stream also depends on Azerbaijan’s decision, which is first and foremost interested in supplying gas to Turkey, Greece, and Italy, so Ukraine is not top priority.

“Therefore it is virtually impossible to drastically reduce the purchase of Russian gas in just three years, as the government is planning to do. Ukraine could have bargained this question before the Kharkiv agreements were signed. But now that all the trumps are in Russia’s hands, there is only one way out. Ukraine must take the question of amending the gas agreement signed by Yulia Tymoshenko to arbitration. But it should have sound arguments to do so. Besides, being the vulnerable party, Ukraine should secure the support of a stronger partner (the EU in this case). And this is where membership in the European Energy Community will help us.

“The European Commission should monitor Ukraine-Russia gas relations. To secure this, Ukraine should address a request to the European Commission. Then, Ukraine will have to reveal its gas contracts to Europe. Meanwhile, Gazprom shuns from multi-lateral negotiations. That is why I think that Ukraine, being a member of the European Energy Community, must ask the European Commission to audit its gas agreement with Russia. Europe will agree to this only if Ukraine explains that without amending this agreement it is Europe that will suffer at the end of The Day.

“It is necessary to show that the fundamental problem in Ukraine- Russia relations in the gas sphere is not confined to the gas contract alone. The problem is also Gazprom’s intention to take over the NJSC Naftohaz Ukrainy. That is to say that the solution to the gas agreement problem should be found through arbitration rather than through takeover. Otherwise this transaction will harbor danger first of all for those EU countries which border on Ukraine in the west. The threat is that when Gazprom takes over Naftohaz, it will open hostilities against the gas markets of the neighboring countries. Therefore Ukraine must make the most of its membership in the Energy Community in order to oppose Gazprom.”

Valerii BOROVYK, president, Alliance “Nova Energia Ukrainy”:

“There have appeared totally unrealistic talks of the pipe conservation, the twofold increase of domestic gas production, or the reduction of purchase of imported gas up to 12 bcm. All this is just wishful thinking. People take steps they shouldn’t have taken. These steps reveal that neither Ukraine’s government nor the leadership of oil and gas sector in particular has a clear-cut strategy of breaking the deadlock.

“In my opinion, the optimum strategy in this situation lies in the development of shale gas mining, the construction of the LNG terminal, and the promotion of implementation of alternative energy production technologies. At the same time, Ukraine should be consistently seeking a gas compromise with Gazprom. It is up to arbitration to decide what prices should be fixed in the gas agreement. This is what Italy has already done. We should not be bossed around by Russia. Ukraine’s gas diplomacy should mature and switch to the language of weighty arguments.”