Russian gas giant Gazprom may lose the European energy marketm, since Europe can buy 160 billion cubic meters of gas from alternative sources – the exact amount it purchased from Gazprom in 2013, according to Carlos Pasqual, the former U.S. ambassador to Ukraine (2000-2003) and the State Department’s Special Envoy for Energy Affairs.
Energy analysts believe the European Union’s initiative on reducing reliance on Gazprom is serious.
Paqual, speaking during a press conference at the Ukrainian Crisis Media Center on March 21, estimated that over the next several years “at least 80-90 billion cubic meters of gas could enter the European market through new sources from Australia, Mozambique, Algeria, and other countries, while the U.S. government recently approved six new drilling licenses that could add yet another 80 billion.”
Last year Gazprom’s share of European gas demand reached 30 percent, though usually it does not exceed 25 percent.
The former U.S. ambassador came to Kyiv for a meeting of the U.S.-Ukraine Working Group for Energy Security.
Energy & Coal Industry Minister Yuriy Prodan represented Ukrainian side during the talks on diversifying energy resources and making Ukraine energy independent by 2020.
To help diversify its gas imports, Pasqual explained: “Ukraine could start to receive reverse flows of gas from new sources in Poland and Slovakia.” However, additional key steps Ukraine needs to take is to incentivize energy efficiency in order to reduce consumption and ramp up domestic production.
Concerning the threat of the Kremlin using gas supply as a diplomatic tool to gain geopolitical advantage over Ukraine as it did in the past, Pasqual said: “Europe has applied effective leverage against Gazprom when negotiating prices via the market. The growing number of players on the European gas market has offered more options to consumers, lessening the need for distant and unreliable Russian gas. Should Ukraine successfully diversify its gas supply, it would wield this weapon too.”
In fact, Pasqual mentioned that in 2012 European consumers successfully got lower gas price from Gazprom because of these positive changes to the market.
Ukraine consumes an estimated 55 billion cubic meters of gas per year, but only produces around 20 billion domestically, while Pasqual says that this figure could rise by as much as 30% in the next few years. Most of the rest is imported from Russia.
The current price Ukraine pays for the Russian gas is $269 per 1,000 cubic meters, while Prodan expects the price to increase again to $400 in the second quarter of 2014 as Russia is willing to put additional pressure on Ukrainian economy, since it strongly dislikes the government of Oleksandr Turchynov and Arseniy Yatseniuk.
Moreover, Russian Prime Minister Dmitry Medvedev on March 21 said that Ukraine may lose the $100 discount for Gazprom’s gas, which was implied by the so-called Kharkiv agreements in 2010 between the ousted administration of President Viktor Yanukovych and Russian leaders.
The discount was made as compensation for the Russian Black Sea Navy’s fleet’s stay in Crimea, but since Russia has occupied the peninsula its government sees no point to keep providing the price cut.
Kyiv Post business journalist Evan Ostryzniuk can be reached at [email protected].
