In the immediate future, it is clear that Russia’s offer for cheaper gas prices is very tempting. But gas prices are Ukraine’s strongest dependence factor on Russia. It is in this context that Ukraine needs to ask itself of the advantages of the Energy Community.
The Energy Community member countries are progressively integrating into the EU’s energy market by working towards economically viable, competitive, transparent and sustainable energy markets that are able to attract the necessary investments.
The EU is convinced that Ukraine’s Energy Community membership is very much in its own interest for four main reasons:
First, deep structural reforms ensuring economic and financial viability of the Ukrainian energy sector will enable Ukraine to attract much needed investment into the energy sector and thereby develop its significant domestic energy resources.
The energy sector reforms have already attracted a number of foreign energy investors to the country, not only in the gas exploration area but also for gas supply and renewable energy projects. The signing of a production sharing agreement with Shell on Jan. 24 is a good example. It is now important that Ukraine makes sure that these investors are able to do business as envisaged. In this perspective Ukraine should continue the reforms in line with Energy Community commitments, also with regard to non-discriminatory access to the gas transmission system.
Second, gas sector reforms in accordance with Energy Community rules will give Ukraine access to the huge EU gas market for Ukraine’s own gas production. The EU seeks a balanced trilateral EU-Russia-Ukraine solution on future gas flows to the EU and is willing to enter into tripartite consultations on gas transit. The Commission stands ready to continue both its active support to the Ukrainian energy sector reforms and, together with international financial institutions (European Investment Bank, European Bank for Reconstruction and Development and the World Bank), to support the upgrading of the gas transit infrastructure in Ukraine to ensure that it remains a key part of the pan-European energy network.
Third, Energy Community membership means developing supply diversification jointly with the EU and improving Ukraine’s energy independence as well as short and long-term security of supply. Ukraine is already making good use of this possibility. Since November 2012 Ukraine has been receiving gas from Germany through Poland (physical reverse flows) at apparently cheaper prices than it is paying for gas directly from Russia. Ukraine is also developing two additional routes of reverse natural gas supplies from from Slovakia and Hungary.
The development of a gas hub in Ukraine would further improve the security of supply and encourage investment in domestic production.
In the future, Ukraine should be able to access not only surplus Russian gas in Western Europe but also international markets. The EU is willing to explore the possibility of establishing a «gas corridor» to bring more long-term diversification options for Ukraine using, inter alia, existing pipelines in Western Ukraine that link to Romania, Hungary, Slovakia and Poland. To make such projects work, all the countries involved will need to cooperate and make sure that their operational controls for gas flows are in line with their legal commitments under the Energy Community Treaty and/or the internal market rules of the European Union. The Ukrainian gas network and its storage potential (31 bcm compared to 95 bcm for the EU as a whole) could continue to attract investment and be of great value if gas could be supplied to Ukraine from the EU for consumption or storage.
Fourth, the progressive integration into the EU energy market will help improve the competitiveness and sustainability of the Ukrainian energy market and bring long-term competitive and affordable energy prices in Ukraine. This will also bring incentives for energy efficiency improvements and protect Ukraine’s energy security by ensuring a diversification of supply sources.
In conclusion, continued commitment to reform in line with the Energy Community Treaty is good for Ukraine’s energy security and independence.
Günther H. Oettinger is the European Commissioner for Energy in the European Commission.
