The life of Ukraine's fuel and energy complex in 2013 was full of ups and downs, but after December 17 all these events seem secondary. The agreement between the authorities of Ukraine and Russia, achieved in the midst of the internal political crisis, will be the determining factor for the development or degradation of the energy industry in 2014.
THE GAS MARKET: CHEAPER vs MORE EFFECTIVE
The decrease in the gas price for Ukraine to $268.5 per 1,000 cubic
meters is really a historic event. It will influence the cost of almost
all goods produced in the country and will allow to reduce the deficit
of NJSC Naftogaz Ukrainy.
However, there is the other side of the coin. It is obvious that
after the reduction of the price for Russian fuel gas reverse from
Europe loses economic sense. And without really working reversible
routes, primarily through Slovakia, the idea of implementing the
Eastern-European gas hub on the basis of Ukrainian underground gas
storage facilities becomes unrealistic. The project of the construction
of a floating LNG terminal for Ukraine becomes more and more elusive.
In addition, the “discount” on gas could seriously affect energy
modernization projects. Thus, according to the statement by the Ukrkoks
association of coke chemical enterprises, the introduction of the
technology of pulverized coal injection at steel mills might be
suspended for an indefinite period as “investment in modernization could
be economically unfeasible.” It is needless to say about the
deterioration of the economy of national mining companies.
A new round of negotiations with Russia on the future of the
Ukrainian gas transportation system (GTS) will start in 2014. Russia has
repeatedly stated that it considers the rule of free access to
pipelines, foreseen in the European and Ukrainian legislations, unjust.
At the same time, the preservation of such a norm is important for
attracting large investors in gas production in Ukraine. However, it is
still not clear what way this dilemma will be solved, even if the
parties agree on price.
