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24 December, 2014  ▪  Mykhailo Honchar

Fueling Energy Independence

Russia’s energy war and devaluation of hryvnia will force Ukrainians to use gas and electricity differently

2014 loomed as a major test for Ukraine’s energy system. Widely regarded as fragile, inflexible and inefficient, it was expected to operate under extreme conditions of war and deficit of fuels. The winter of 2014-2015 has not been extremely challenging thus far, and most Ukrainians are prepared to endure the cold months in hope that the situation will improve in spring. However, the test will continue beyond winter.

Two things confirm this. Firstly, Russia is not going to stop using energy as weapons or undermining Ukraine’s energy and transit infrastructure. Secondly, Ukraine has not saved much gas in 2014, despite even the government-imposed 30% cut in gas consumption. The latter fact will encourage Moscow to continue offering Kyiv obscure gas deals as a leverage, and leave Ukraine with few options for coal, between buying it from Russia or from the Russia-controlled parts of the Donbas.   

On top of the gas blockade and coal diet of 2014, Ukraine might face the deficit of petroleum products in 2015. Ukraine’s biggest supplier is Belarus. Russia might force it to curb exports to Ukraine by cutting the supplies of cheap oil to Belarus.

The vital energy formula for Ukraine in 2015 should be “reforms + reserves”. The key to survival in the winter of 2015-2016 will be reserves of gas, petroleum products, coal and nuclear fuel accumulated in the warm period. Ukraine’s financial crunch will make the task very challenging. What will the Ukrainian government choose: yet another murky gas deal from the Kremlin or a reform-oriented approach to gas consumption? Will coal barons continue to set their rules and milk the taxpayers by getting privileges from the state, or will the government launch painful reforms and close down most loss-making mines?

READ ALSO: Alan Riley: Ukraine has enough potential to turn itself into the center of gas trading for Central Eastern Europe and Baltic States

With energy and economic difficulties, Europe might once again act as an unreliable partner of Ukraine. It might utter as many declarations of support as ever, but offer less assistance unless the US pushes it to act differently. Many European politicians will be eager to turn a blind eye to the deals Moscow could offer, if only to see the “Ukrainian-Russian crisis” over and to go back to business-as-usual with Russia. The Kremlin, however, sees the Europeans differently. It will once again crash their illusions shaped by the pre-WWII status quo, but will hardly be resilient itself.

Russia might try to take over more Ukrainian territory where vital energy-generating facilities are located in order to ensure energy supply to the new quasi-states in the Donbas and to deal an energy blow to Ukraine.

In 2015, and especially after the winter bills, most Ukrainians will install gas, electricity and heat meters. Energy efficiency and diversification will be the top priority for households in 2015, while autonomous energy generation and independence from the clumsy central systems will be the task for years to come. After the cold months of 2014-2015, “energy performance certification” and “thermo-modernization” will no longer be alien words to Ukrainian consumers. Gas and electricity bills and devaluation of hryvnia will boost energy efficiency.  

Biomass will be used more widely as fuel in the coming years. The legislative foundation laid in 2014-2015 will give rise to the beginning of diversification from gas and coal. Ukraine has huge agricultural capacity. Its growth will result in the increasing amount of biomass. It would be wise to benefit from this while remembering that it is not a panacea. Ukraine’s energy survival in 2015 depends on its survival in the hybrid war unleashed by Russia. It looks like Ukraine has a good chance to stand and win it, often counter rather than thanks to the efforts of those in power.

 


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