As the days go by, the crisis between Russia and Ukraine is getting more worrisome, with what looks like a Civil War brewing in Ukraine, and Russia and the U.S. perhaps coming to blows. Readers of the LongTailPipe blog will know the backstory is Russia’s desire to remain in a dominant position over Russia by being the primary natural gas supplier, Europe’s desire for energy security from Russia, and Ukraine’s potential as a natural gas supplier a few years from now after Chevron and Royal Dutch Shell begin full scale fracking operations in Ukraine, as well as Romania, Poland and the Baltic Countries. Enough is going on that it’s worth catching up with the news, not of military maneuvers around Ukraine, but natural gas plans in Ukraine.
Earlier today I wrote a companion post about the current status of fracking in Romania. This post will focus on Ukraine.
The tensions between Russia and Ukraine are now risking another shutdown of natural gas supplies to Europe. Europe’s worry over energy security stems from the two times over the last 10 years when earlier troubles between Ukraine and Russia caused Russia to suspend natural gas supplies to Ukraine. And because a large portion of Europe’s natural gas comes from Russia, but delivered through Ukraine, that meant Europe was cut off from natural gas.
Currently the problem is the ability of Ukraine to pay its debts to GAZPROM (Russia) over natural gas Ukraine had bought in the past. Ukraine was already in a deep financial crisis before Pres. Yanukovych was toppled from power. The Kyiv Post claims the IMF is arranging $2.4 Billion for Ukraine to use to pay Russia. The Christian Science Monitor reports that trilateral talks held in Poland last week broke down, leaving European Ministers scrambling to replace Russian natural gas. They’re expecting that Russia will follow through with threats to shut off natural gas at the end of May, assuming Ukraine is unable to make any payment. Another CS Monitor report says the IMF approved a $17 billion loan package to Ukraine.
On April 1, GAZPROM raised the price it charged Ukraine from $268.50 per thousand cubic meters to $485.50 per thousand cubic meters, the highest price GAZPROM charges any customer. Starting on June 1, GAZPROM is requiring that Ukraine pre-pay for natural gas deliveries. There’s a likelihood Russia will then cut off natural gas supply to Ukraine, triggering another natural gas blackout in Europe.
are a number of European countries that are extremely dependent on
Russian gas. Europe
has to reduce that dependence, to improve its connectivity, to look at
encouraging more diverse sources of supply of gas … and more generally
to encourage indigenous sources of production of at least shale gas.” He also told Bloomberg News, “We have to ensure that we do maximize our indigenous
resources. We can’t be reliant on dodgy parts
of the world.”
However, it’s not a complete replacement for Russia’s natural gas supply. Europe requires 250 billion cubic meters of natural gas per year, and the amounts we just reported to be available through Turkey are a drop in the bucket.
Iran is hoping to escape the sanctions placed upon them over their nuclear ambitions, and have offered to ramp up natural gas and oil supplies to Europe.
During 2013 Ukraine signed deals first with Royal Dutch Shell and then with Chevron allowing both companies to begin exploratory drilling in Ukraine’s shale deposits ahead of fracking operations. You might think that work on those plans would be suspended given the unrest in Ukraine, but you would be wrong. Not only are both companies moving forward with plans, Exxon wants to get into the game drilling for natural gas in the Black Sea off Ukraine’s coast.
If that pans out, it’ll take several years to develop those fields. In the meantime Ukraine’s planners are scrambling to secure natural gas supplies for next winter.
As I noted in the report on Romania written earlier today, all this scrambling around is preserving fossil fuels as the primary “energy” supply. There could be an investment into renewable energy sources, but instead the powers-that-be are working hard to secure fossil fuel sources.
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