Ukraine Asserts Energy Independence from Russia

Ukraine snubs Russia’s Lukoil for a gas deal with ExxonMobil and Royal Dutch Shell.

In selecting the American and Anglo-Dutch energy companies ExxonMobil and Shell to develop a hydrocarbon field in the Black Sea, Ukraine asserted its independence from Russia last week. Kiev passed over Russia’s Lukoil for the $8.1 billion project.

The Skifska field in the Black Sea is estimated to contain more than two hundred billion cubic meters of natural gas and slated to produce five billion cubic meters per year. Exploitation of the area by Western energy conglomerates, who will work in tandem with Romania’s OMV Petrom and the Ukrainian state oil company Naftogaz, is further evidence that policymakers in Kiev seek to distance themselves from neighboring Russia.

Ukrainian prime minister Mykola Azarov in May urged European leaders not to isolate his country over the ill treatment of former prime minister Yulia Tymoshenko who was found guilty of abuse of office in October of last year and incarcerated. Tymoshenko’s alleged abuse in prison prompted outrage, particularly in Germany where President Joachim Gauck canceled a visit to Yalta.

Azarov told The Wall Street Journal that his country will expand domestic gas production by 25 percent in the next three years. Hydraulic fracturing technology holds the key to “covering all of Ukraine’s needs,” he said.

The United States Energy Information Administration estimates that Ukraine has the third largest shale gas reserves in Europe at 1.2 trillion cubic meters, some twenty times its annual needs.

Ukraine last year imported the equivalent of forty billion cubic meters of natural gas from Russia, two-thirds of the country’s total gas consumption. Ukrainian environment minister Eduard Stavitsky told the Reuters news agency that domestic energy production projects are supposed to wholly replace that dependence in the near future.

Twice in recent years has Russia shut off gas supplies to the West amid price disputes with Kiev. Russia’s Transneft said in February that it was in talks with the Czech Republic and Germany to bypass Ukrainian export infrastructure entirely. Gazprom blamed Ukraine’s siphoning of gas supplies for shortages in Europe last winter.

By keeping supply below demand and oil and gas sales overpriced, Moscow hopes to force the Ukrainians to trade more of their industrial assets for energy and accelerate a process of economic reintegration that stalled under the previous, pro-Western government.

However, even the incumbent president Viktor Yanukovich, who is highly skeptical of European Union membership, is reluctant to give Russia more control over his gas transit system because it is the only leverage he has against the Kremlin.

Germany, meanwhile, Europe’s largest gas consumer, appears to seek independence of Ukraine’s energy infrastructure with the Nord Stream pipeline in the Baltic Sea and Transneft’s new connection via the Czech Republic.

The projects symbolize a shimmering Central and Eastern European fear that Germany will sacrifice pan-European interests to its own. If the Germans are able to import gas from Russia directly, the thinking goes, they can balance their relations with Moscow at the expense of other European Union member states in between. President Gauck’s Ukrainian boycott this year could also be seen in that light. If Berlin wasn’t easing its dependence on Ukraine, it might be more conservative in its criticisms.

The European Commission, on the other hand, is heavily invested in plans to import gas from the Caspian Sea region which could thwart a German-Russian condominium. The Trans Caspian and Nabucco pipelines, financed by a consortium of Central European and Turkish energy companies, are designed to deliver Azerbaijani, Turkmen and possibly Iraqi gas to Europe, rivaling Russia’s South Stream pipeline across the Black Sea.