Since Ukraine gained independence it has failed to enact reform of its energy market, resulting in monopolisation and inefficient use of scarce energy resources.
Energy reform is critical for the Ukrainian economy, as energy constitutes 30 per cent of GDP with turnover of 400bn hryvnia ($17.5bn) a year. Ukraine’s biggest monopolies are concentrated in the energy sector, so wise state regulation, demonopolisation and competitive rules are essential to make the market efficient and to eliminate corruption. Read more
By Tim Gosling of bne in Prague
Slovak gas pipeline operator Eustream has pledged that it will have a route feeding EU gas to Ukraine running at full capacity ahead of the winter heating season, meaning that “Ukraine stands a chance of lasting through the winter”.
Once work has finished on reversing the flow through the Vojany pipeline, it is booked to ship upto 10bn cubic meters of gas per year (cm/y) from Slovakia to Ukraine until 2019. The route is part of an EU-backed plan to alleviate Russian pressure on cash-strapped Kiev by supplying cheaper gas from other EU states.
Moscow cut supplies to Ukraine over its unpaid bills in June. That leaves the EU exposed, with Ukrainian pipes carrying around 40 per cent of Russian gas to the region. If Kiev finds itself short of gas used for heating in the winter, it may be tempted to siphon some off the Russian supply to the EU, as it did in the previous “gas wars” in 2006 and 2009. Read more
Although the violence in Iraq has so far had a muted impact on global oil markets, if prices continue to rise there could be some nasty consequences in store for the more fragile of emerging market economies (see chart below).
And while a spike would hurt countries that rely on energy imports, it won’t necessarily translate into quick and easy economic gains for EM hydrocarbon exporters, say analysts. Read more
Getting caught up in a war zone ranks among the worst-case scenarios for an oil company. This has happened to Royal Dutch Shell in eastern Ukraine, where heavy fighting between pro-Russian separatists and Ukrainian military forces continues.
Shell has a hydrocarbons production-sharing agreement at the 8,000 sq km Yuzivska field, which lies across Donetsk and Kharkiv regions. A map of the field shows it covers Slovyansk, the heart of the pro-Russian military uprising.
Such proximity has affected Shell’s Ukraine operations, but only up to a point, according to the company. Simon Henry, Chief Financial Officer said on Bloomberg TV in early June that the oil giant is taking “time out on the actual drilling activity on the ground”, for security reasons. Read more
A wave of patriotism is sweeping Russia following the annexation of Crimea. But will the euphoria last long enough to have Russians invest in the Black Sea peninsula and support the local economy by holidaying there? Dmitry Medvedev, Russia’s prime minister, chaired a government meeting on Monday to discuss how to make Crimea a going concern.
It sounds like a daunting task. The Kremlin took a huge risk when it redrew the map of Ukraine last week and took possession of Crimea. Western powers have condemned the move as a land grab and are threatening Russia with painful sanctions and decades of international isolation. Read more
Ukraine’s cash-strapped government may have secured short-term relief for its ailing economy by landing a 30 per cent discount on Russian natural gas imports prices late last month through a broader $20bn bailout agreement.
But recognising that Russia’s leadership could hike prices up again in the future, the administration of President Viktor Yanukovich does not appear to be dropping long-term plans to diversify gas supplies, crucial in breaking the energy inefficient economy’s longstanding heavy dependence on Russian fuel. Read more
Firtash: solving problems
Ukraine’s parliament stuck the Yulia Tymoshenko to-do item into the “later” basket on Tuesday, putting off until Thursday a vote on legislation that could set in motion the release of the jailed opposition leader. Her freedom is a key condition set by the EU to sign historic free trade and association agreements next week in Vilnius. Tick, tock.
Yet while Ukraine’s handling of this case of “selective justice” drags on, there was also news out of Ukraine on Tuesday reinforcing the view that Russia – which is pressuring Ukraine to back away from the EU agreements – is meddling in the Ukraine gas market somewhat “selectively”, too. Read more
Not so efficient
Ukrainian government officials say they are pushing ahead with a several-pronged plan to wean their energy-intensive economy off increasingly expensive Russian natural gas.
Luring in multi-billion-dollar investments from the world’s top energy companies – such as Royal Dutch Shell, Chevron, ExxonMobil, Eni and EDF – to explore the nation’s potentially vast hydrocarbon reserves is one long-term solution. In the interim, the country is looking to diversify supplies from the EU. But there’s another way: get efficient, and use less gas in the first place. Read more
The Kremlin, and Russian gas giant Gazprom, must be watching events in Ukraine with a bit of concern.
Not only is Kiev calmly defying Russia’s bullying, steadily moving closer to breaking free of its eastwards geopolitical pull by looking to sign historic free trade and association agreements with the EU in late November, but it is also pushing two new energy deals which could cut sharply the reliance on imports of Gazprom’s gas. Read more
Foreign media coverage of Ukraine has been dominated over the past year by the European Union’s repeated warnings: the signing of historic bilateral association and free trade agreements is conditional on the release of jailed opposition leader Yulia Tymoshenko.
But lost in the Tymoshenko buzz is a desperate plea from Kiev to Brussels: help us import more gas from EU markets at lower prices than those charged by Gazprom, the Russian gas giant. Read more
Ukraine appears to be shooting itself in the foot again. The stated goal of Viktor Yanukovich, president since 2010, has been to diversify away from increasingly expensive Russian gas imports, partly by boosting domestic production with the help of billion-dollar foreign investments.
But will the big energy companies be put off by allegations that existing energy producers are being coerced into stockpiling gas by the government? Read more
By Riccardo Puliti of the EBRD
The use of nuclear power generates at least as much debate as electricity.
This is especially true in the case of Ukraine, where in 1986 the Chernobyl accident happened. The events demonstrated that in nuclear power generation safety always must be the utmost priority – from the first moment of operation to long after the active life of any nuclear reactor. Read more
Courtesy of Ukraine's Cabinet of Ministers
From the PR viewpoint, things went terribly wrong for Ukraine during an energy deal signing ceremony on Monday, intended in part to demonstrate to Russia’s Gazprom that Kiev was moving fast to build its first LNG terminal, and had big backers – and thereby give the country leverage in negotiations over gas prices.
Tragically, the much-sought-after leverage evaporated after a Spanish “negotiator” Jordi Sarda Bonvehi breached authority by signing a non-binding co-operation agreement with Ukraine on behalf of Gas Natural Fenosa, causing all sorts of bother, as reported by beyondbrics. Read more
Courtesy of Ukraine's Cabinet of Ministers
Ukraine’s government on Monday rolled out the red carpet for a highly-publicised signing ceremony for a landmark energy deal.
But the event, attended by Prime Minister Mykola Azarov and Energy Minister Yuriy Boyko, quickly spiralled into a fiasco, with denials and confusion over what has actually been signed – and by whom. Read more