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Krzysztof Nieczypor

Gas Illusions of Ukraine

Foreign policy of a country is a result of its true political and economic potential, but also of skill in creating illusions about its power and abilities. Using efficiently the latter is what we call the art of diplomacy. A great example illustrating this stratagem is Kiev announcing diversification of gas sources. Is the planned building of energy security in Ukraine an actual attempt to free Ukrainian economy from being dependent on Russian deliveries, or perhaps it is just a bargaining card used during ongoing talks about decreasing price of gas?

Palnik gazowy, autor: bufivla, źródło: flickr.com

Gas burner, autor: bufivla, source: flickr.com

The National Security and Defence Council of Ukraine, debating on 20 January 2012, announced its taking complex actions aimed at diversification of gas delivery and energy-saving technologies. This declaration is another act of Ukrainian-Russian gas argument. The Ukrainian side demands lower price of gas transfer, which, in its opinion, is inflated. The tactics adopted by Kiev is to convince Moscow that Ukraine has alternatives, besides Gazprom monopoly, and is going to decrease import from Russia. Ukrainian efforts look more like putting up mock-up vehicles within a combat zone to bluff enemy than actions that could in reality put adequate pressure on the Russian partner. Promoting mediagenic ideas about diversification of energy sources does not in fact offer a likely possibility for Ukraine to gain energy self-sufficiency.

Watch coverage in Ukrainian television [UA]:

Solutions for becoming independent from Russian gas, presented by Ukraine, are focused on two methods: gaining new suppliers, and adapting country’s economy to making use of alternative energy sources. Both of them are incapable to threaten Russia’s position as a gas transfer monopolist. The main obstacles on this path are limited (or, right now, nonexistent) ability of Ukrainian power plants to adapt technology of coal gasification, and, furthermore, political and economic factors conditioning fulfilment of plans regarding new gas routes from other countries to Ukraine.

The black alternative

One of the most highlighted methods of making Ukraine self-sufficient is switching its heat and power plants to utilization of its own coal resources instead of Russian gas. Minister of Energy and Coal Industry Yuriy Boyko announced that these resources could replace imported fuel in a year (read: Coal instead of gas). The minister also said that using the gasification process is a condition for investors in relation to the privatization of power plants taking place in 2012. According to Boyko, this year the gas demand will be lowered by about 6 billion cubic metres through using this method.

Yet experts have hammered the minister’s reasoning.”If right now we started switching the energy system to coal, then, perhaps, we would finish it in seven year’s time”, director of Kyiv-based Energy Studies Institute Dmytro Marunych commented, not without some irony. In his opinion, the calculations presented by the ministry are extremely utopian, and the costs of such an operation will amount to, at least, USD 10 billion which are not included in this year’s state budget. Of a similar opinion is Serhiy Diachenko from Razumkov Center, who points to the costs of technology alteration as well as changing the entire communication infrastructure: “Coal is not gas, which can flow through pipes. Coal must be transported, stored and completely processed. It is an extremely difficult task”.

The process of burning syngas (technology used in the 1960s by USSR, among others), which result is energy produced from coal, meets with ardent protests of ecologists. “Coal is the dirtiest source among other fuels. The gas burning itself has a negative influence upon the atmosphere, and if we are to use coal, then it will become polluted even more”, as representative of the National Ecological Centre of Ukraine Aleksey Pasiuk commented on this new method. Dmytro Marunych also indicates the direct risk of the technology to people: “Regardless of any cleaning system (which costs are additional USD 3 billion – author’s note) citizens will be exposed to environment degradation and, in particular, respiratory diseases”.

Watch coverage in Ukrainian television [UA]:

A ghost terminal

Another solution for decreasing energy dependence is building an LNG terminal that would allow to deliver liquefied gas by sea. One of the problems is the fact that said terminal – which would be established near Odessa on the assumption of taking in 10 billion cubic metres of gas per year – is yet to be built. The plan of creating a gas port is nothing new – back in 2005, the contemporary head of Naftogaz Alexei Ivchenko predicted an opening of the terminal in 2008. The current authorities are coming back to this concept, which is raising the very same question as before: from whom exactly Ukraine would get the gas.

President Yanukovych has indicated Azerbaijani deposits as one of the first regions that would be considered while searching for alternative gas source. The project of Ukrainian authorities assumed trilateral cooperation among Azerbaijan, Turkey and Ukraine. Gas would flow from the former through Georgia to the Black Sea, and then would be transported by tankers to Ukraine.

The talks, already started between Ukrainian and Azerbaijani sides, were to have been finalized during the World Economic Forum in Davos, where signing of a suitable agreement by presidents Viktor Yanukovych and Ilham Aliyev was planned. The pact was to stipulate establishing of a joint company operating as a supplier of liquefied gas from Azerbaijan to Ukraine, and, in consequence, delivery of 2 billion cubic metres of gas in 2014, and 5 billion – in 2015.

However, the meeting of the two heads of state in the Swiss resort ended in failure, and the talks on gas collaboration were stopped. As Nezavisimaya Gazeta informed, the reason for breaking negotiations on an almost ready agreement was selling Ukrainian weapons to Armenia, with whom Azerbaijan is in conflict. “[At the Davos conference] problems not connected with gas supplies raised; it’s sheer politics: in summer and autumn last year, the Ukrainian side received several stark warnings from Azerbaijani authorities to cease selling arms to Armenia. Yerevan buys firearms, combat aircrafts and trainers from Kiev. Despite the absence of an official international ban on arms trade with Armenia, Baku’s discontent is understandable”, said an anonymous representative of Ukrainian governmental administration.

Selling weapons by Ukrainian armaments plants is only one among many political obstacles to realization of cooperation with Azerbaijan. Ukrainian experts indicate the specific of conducting negotiations with Azerbaijanis, who are not exactly honest partners in such situations. Serhiy Diachenko points to the fact that at present Azerbaijan has no free gas source. Dmytro Marunych is of a similar opinion: “The policy the Azerbaijani government is following is simple: sign a memorandum on gas output higher than possible with everyone you can; and then analyze prices and market conditions to choose the most profitable option”.

Azerbaijan is not the only alternative for a Ukrainian LNG terminal. Other regions under consideration are countries of North Africa, but this direction is troublesome as well. First, Turkey’s stand on ships transporting dangerous materials via the Bosporus – gas tankers are allowed to pass by day only, which results in a wait 2-5 days long. Second, the situation in oil market is unstable, and no one can guarantee that the share price fluctuation would still be beneficial to Ukraine, even with a high price of Russian gas. All these factors are known by the Ukrainian side, as well as Belarusians, who a year ago announced their plan to deliver gas from Venezuela. Yet the costs of this operation dampened down Lukashenko’s enthusiasm for the diversification.

Watch coverage in Ukrainian television [UA]:


Other directions

There are also other directions from which Ukraine could import gas: Turkmenistan and the European Union. The first one does not exclude Russia’s participation – currently no transport can bypass its territory, therefore, the concept is doomed to failure. The incident from 2009 – when Gazprom suddenly reduced amount of gas, causing explosion and damage of a pipeline – is food for thought while considering similar propositions. (One of possible scenarios points to Russia, who – due to the crisis – limited its internal gas consumption and this way decided to aid its local suppliers and at the same time to eliminate competitors from Turkmenistan).

The gas purchase in EU spot market, announced by Minister Yuriy Boyko in mid January, involves change of transfer direction; although it is technically possible, the practical side of this plan has at least few weak points. “Ukrainian and Russian gas transfer systems are synchronized to transport the resources to Europe. In order to launch the project of reverse transfer, one part of a route ought to be stopped, and then switch to the other direction, disturbing a transfer schedule. Calling Russia’s reaction “raising many questions about this operation” would be a bit of an understatement. Besides, I haven’t so far seen any plans of Polish and Ukrainians synchronised transfer systems”.

A Stratfor expert speaking about other possibilities for diversification of gas delivery [EN]:


Conclusions

Analyzing the plans of gas delivery diversification for Ukraine, presented by National Security and Defence Council of Ukraine, forces to take the announced realization of this project with a pinch. The Council’s declarations are Russia’s attempt to generate pressure on ongoing negotiations regarding lowering price for its resources. The upcoming parliamentary elections in Ukraine – planned for October this year – are not without significance either. with the economic crisis in the background, Ukrainian authorities are trying to present the gas conflict as a sign of their caring for national interests as well as citizens’ wallets, forced to pay inflated price for gas. Charges against Yulia Tymoshenko and her imprisonment for gas contracts with Russia in 2009 allow Yanukovich’s team to gain more points in the internal political game: to eliminate the opposition’s leader from the said game and to point her out as directly responsible for dire economic situation in the country. The elections to the Verkhovna Rada are to take place on 28 October 2012.

Not enough information? Watch a programme about the gas conflict [in Russian and Ukrainian]:

[mappress mapid=”1073″]

Translated by KD

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Krzysztof Nieczypor
Editor at Eastbook.eu

Absolwent stosunków międzynarodowych na Wydziale Politologii UMCS w Lublinie, Międzywydziałowych Studiów Wschodniosłowiańskich UW oraz podyplomowych Studiów Wschodnich w Studium Europy Wschodniej.

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