Energy Emergency in Ukraine

Russia, Ukraine’s main supplier of gas as well as natural gas for Europe via Ukraine, cut off supplies to the ex-Soviet republic on June 16 in a dispute over unpaid bills. Ukraine’s parliament gave preliminary approval on Friday to a draft law that would allow the Kyiv government to exert tighter control over the energy sector in the face of dwindling natural gas supplies after Russia cut off exports last month. The parliament also approved, in a first reading, a bill that would allow consortiums with European or U.S. companies to operate Ukraine’s aging gas distribution system and storage facilities.

There is fear over possible retaliation from Russia if it were not given the same access to Ukraine’s gas infrastructure as would be offered U.S. and European firms. Russia is trying to tighten as many screws as possible on Ukraine.

Gazprom CEO Alexei Miller said last week it was "extremely likely" that Ukraine would start illegally sucking Europe-bound gas from the transit pipeline in the fall. However, deputy head of Ukraine’s Naftogaz company Alexander Todiichuk said earlier Wednesday that Ukraine had enough gas in its underground storage facilities to last until November. Kiev currently charges Moscow about $3 per 1,000 cubic metres of gas per 100 km of transit.

Prime Minister Arseny Yatseniuk told parliament, urging it to give his government the right to declare a state of emergency" in the energy sector as the Ukraine is on the brink (of energy collapse. It is quite evident that it is a retaliatory trade measures against Ukraine over its signature last month of a free trade deal with the European Union.

Now Ukraine has cut the gas consumption by approximately 6 billion cubic meters for the season that is 20 percent to get through the incoming winter season. Government may sell gas domestically at a fixed price and force Ukrainian energy companies producing gas from domestic wells to send half their supplies into Ukraine’s storage facilities. After the winter the companies would have access to the gas and be able to sell it to customers of their choosing.

Naftogaz said it was willing to resume talks with Gazprom on gas transit. The company was seeking to change the existing gas transit pricing which ties transportation fees to the cost of the fuel components, inflation in Europe and Russian gas price for Ukraine.

The Ukraine Govt. has sought cooperation from European or U.S. companies in operating the Soviet-era gas pipeline system; this would bring structural modernization essential for Ukraine. The new law opens ways to Ukraine to become an energy player. The proposed legislation appeared to apply to private gas companies as well as the state gas and Oil Company. The draft laws are expected to go to parliament for a second reading at the end of July or in August. Parliament initially rejected the government’s energy proposals, but resumed discussion and took a vote on the two draft laws on 4th July, 2014 after speaker Oleksander Turchynov warned that without them many homes could be left without heating in winter.

Russian energy giant Gazprom has estimated that Ukraine owed it $4.46 billion. On June 16 2014, Gazprom switched to the prepayment regime for gas supplies to Ukraine following failure of talks mediated by European Union Energy Commissioner Guenther Oettinger.

Ukraine, whose gas transit network already operates below capacity, is also seeking to prescribe in the contract a minimum annual volume of gas it transports to Europe from Russia.

According to Russian estimations, Ukraine has accumulated 14.2 billion cubic metres of natural gas in its gas holders. The country needs at least 18.5 billion cubic metres of gas to survive the fall and winter and to ensure smooth gas transit to Europe. Now There is a question of survival for Ukraine. Russia had previously offered to buy into Ukraine’s gas distribution system in return for cheaper gas. The draft laws on possible "state of emergency" powers would give the government the right to dictate to gas companies to whom they should supply gas and for how much, irrespective of supply obligations under existing contracts.


1. VOA News;




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