Matiyeshyn on Europe, through a Ukrainian eye

The first step of Ukraine on the path to an effective power balance is a restructuring of its economy. We should start with ourselves. The second move should be related to reduction of the Russian gas dependence in the following 3-5 years.

The Soviet technological cooperation influences economy of all post-Soviet countries already for 20 years. Russia tries to sell her gas at the most expensive price. It is her right.

The main reason why the Ukrainian economy undergoes losses lies not so much in high gas prices, but in high power inputs of enterprises. The Ukrainian economy has one of the world’s highest power inputs. GDP creation in Ukraine takes almost three times more energy, than in Germany. According to the World Bank, power inputs in Ukraine also exceed the level of neighbors – Russia, Belarus and Moldova. According to experts, 11 Ukrainian industrial giants consume about 40 % of the total amount of gas used in Ukraine.

When analyzing power relations between Ukraine, Russia and the EU, we will proceed from the assumption that there will be no new «gas warfares» between Kyiv and Moscow. Ukraine will sign a Free Trade Area agreement with the European Union, and Russia will uphold the existing contract with the highest gas prices in Europe. In particular, the Ukrainian government has already built a price of 414-416 dollars per thousand cubic meters of the Russian gas into the draft budget of 2012.

Starting to extract shale gas would be one of the important ways of replacement of the Russian gas consumption by Ukraine. For example, a company “PGNiG” in the neighboring Poland has already begun technical extraction of shale gas with a planned commercial level entry in 2014.

In October, 2010 the Ukrainian parliament granted search, exploring and extraction operations exemption from licensing, leaving control to subsurface use permissions. Shale gas also was included here. The government plans to conduct a number of auctions in the near future in order to attract some American companies, a Dutch «Shell», an Italian «Eni» and others to the extraction of shale gas.

The large-scale extraction of oil and gas at the Ukrainian Black Sea shelf also gets started more actively. For this purpose the Ukrainian government has already purchased a drilling platform and announced a tender for another one now. Negotiations with companies Shell, ExxonMobil and others regarding cooperation are underway.

Additional energy can come from alternative power (wind, solar, bioenergy, small hydroelectric power stations, etc.) and construction of a terminal for receiving natural compressed gas in the south of Ukraine.

The Minister of Energy of Ukraine Yuriy Boyko voiced dreams of the government – to reduce consumption of the Russian gas by 10 billion cubic metres in 2012, and reach the level of altogether 12 billion cubic meters per year within 5 years. But, firstly, such a reduction of amounts of the Russian gas purchases won’t correspond to the existing gas contract with Russia. Secondly, it won’t be possible to receive a real alternative to at least a half of the Russian gas already in 2012. For example, experts claim we need 5 years in order to increase amounts of extraction of the Ukrainian gas from 20 to 27 billion cubic meters. We also could recall that only in 2010 the Ukrainian government increased amounts of gas purchased from “Gazprom” from 33 to 40 billion cubic meters.

Undoubtedly, it is possible to reorganize the economy in a format of the maximum energy saving and use of local power resources. But we must clearly understand that Russia will do its best to keep great amounts of sales of her gas at the Ukrainian market which is one of the largest in Europe for “Gazprom”. And this is also her right.

Also we should be aware that the development of a real strategy of an energy independence of Ukraine is impossible without a political will of the President and the government of Ukraine. 7-10 billion dollars investment would make it possible to avoid energy dependence on Russia solely from the investment point of view. Participation of Ukraine in the Energy Community Treaty with Europe will be helpful, as well as the fastest possible implementation of the European transparent rules of the game in the energy markets of Ukraine.

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