Alan Riley: «Ukraine could be the main gas storage facilitator for the East-Central Europe»

14 March 2016, 10:10

Is there a way in which Ukraine could help the EU enhance energy security, except for being a transit country?

The EU is increasingly creating a single interconnected gas market. But the greatest actor that has most used EU rules to help itself is not any EU company. It is Naftogaz with the reverse flows. Ukraine is using hardly any Russian gas. Can Ukraine help the EU? My argument is: sure, and not just as a transit country.

Let’s look at the map. Currently, Eurasian gas goes through Ukraine to Turkey. It could be possible for your country to bring gas from Europe into your network, and then reverse-flow it into the Balkan pipeline network. The issues are the capacity, interconnectors, Gazprom hogging the line. But the potential is significant. The other element of this is storage facilities. Storage facilities in Western Ukraine are about 32bn cu m and they can be upgraded up to 50bn cu m. It would make the transition into a liquid trading hub much easier—in case you liberalize the energy market, and don’t use Russian gas. Potentially, Ukraine could effectively not merely provide for its own resources, it could be the main gas storage facility for Central-Eastern Europe—and it could be an exporter. That would make Kyiv the main trading hub for the whole region, setting the price for Russian gas for it. This would upset Russia greatly.

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But corruption stands in the way. One of the things about corruption that puzzles me here is that Ukrainian businessmen who are corrupt would actually make more money if the market were more liberal. If one operates in open and transparent system, the value of the company goes through the roof.

Is now a good time for Ukraine to develop unconventional energy sources?

There are lots of interesting questions about what Ukraine could do. The issue is not to make mistakes that Europe made. We in Europe are very enthusiastic about renewables, and we created pricing systems which are oversubsidized. Given the fact that Ukraine does not have much money right now, that is probably not the way to go. You should focus on energy efficiency instead. It is a lot cheaper than renewables.

The EU is developing the Energy Union project — and it could be a solution for the security problem. Are there forces within the EU which oppose it?

There are formally very few people against this project within the EU itself. Obviously, some energy companies don’t like it because it involves market integration, connection upon the networks, and supply security. There is Gazprom, everyone knows about the Gazprom in Ukraine. But in each of the European countries there are mini-Gazproms. These companies were traditionally integrated to provide the supply—so they have dominant power positions and they are threatened by this wave of integration. Those companies on the whole are opposed—but the EU has forced the regulation about the prosecution to accept the EU rules.

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On the other side, in Central-Eastern Europe there are many countries which say: «Russians are terrible». And the Russians may or may not be terrible, but a lot of the problem is not about them. These companies just use them as an excuse to protect their dominant position. We can’t build interconnectors because of our problems with Russia and Gazprom contracts, they say. But the reality is that they’ve got very nice deals with Gazprom and they want to keep them. One example: Bulgaria has been offered EU money to build interconnectors and reverse flow, but very little money has been taken—and none of the planned projects delivered yet.


Professor Alan Riley is a British political analyst, law scholar, international writer on energy and competition issues, and Professor of Law at the City Law School, City University, London. He is also Senior Fellow with the Atlantic Council’s Global Energy Centre; Associate Senior Research Fellow of the Institute for Statecraft, and a regular guest columnist on competition and energy law issues with the Wall Street Journal, the New York Times, and the Financial Times. 

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