Ukraine faces a risk to its position as a major energy transmitter from Russia to the European Union after 2019. What does this mean for both Ukraine and the EU? Are there any solutions in energy policy that can bring economic benefits for both Ukraine and the EU whilst contributing positively to regional stability and security?
For many years Ukraine was responsible for the transmission of a huge share Russian oil and gas provided to the EU, with no clear alternative. 13 EU member states received all of their Russian gas through Ukrainian territory in 2013 (59.8 bln c.m.) and 2014 (47.86 bln c.m.); 3 states received some part of their Russian gas through Ukraine in 2013 and 2014 (48.2 and 44 bln c.m. correspondingly). Indeed, there was a lack of capacity to bypass Ukraine: about 70 billion cubic meters of gas had to be transmitted through Ukraine from Russia to EU countries.
EU dependence on the Ukrainian transmission of energy resources, supplied by Russia, was a multilateral issue of vital importance: the EU was deeply interested in stability in Ukraine (in peace and preventing full-scale warfare, which could destroy energy supply routes, mainly pipelines) in order not to maintain supply; Ukraine, correspondingly, had protection and support from the EU; Russia, in turn, couldn’t unleash total war in Ukraine in order not to lose profits from selling energy to the EU. It’s clear, therefore, that Russia was interested in decreasing the importance of Ukrainian gas transmissions, particularly following the shift of Ukrainian foreign policy towards a pro-western direction. Building pipelines additional pipelines, particularly the North Stream 2 and Turkish Stream projects, and trunk-railways (used to deliver coal from Russia to the EU) bypassing Ukraine is the way to achieve this aim for Russia.
The EU is currently facing a particularly difficult political environment. Besides existing challenges, such as Brexit, rising populism, terrorism and the migrant crisis, Europe may face new challenges in the field of international relations and security. Relations between Turkey and the EU have become increasingly complicated, and in some areas Turkish policy can be considered as Russian-friendly and contradictory to EU interests. A pro-Russian president has been elected in Moldova, which may mean deteriorating relations with the EU, incurring new challenges at the EU border and unpredictable events in Transnistria. Russian actions in Georgia regarding the frozen conflicts in South Ossetia and Abkhazia and sovereign parts of the country remain unclear, especially after the adoption of a decision by the European Council on a visa-free regime regarding for that country. The president of Kosovo has also highlighted a risk that Northern Kosovo may be annexed by Serbia using the same method by which Russia annexed Crimea.
Future US policy towards Russia still remains unclear, sanctions against Russia demonstrated a lack of clear policy rather than strength, so future Russian actions remain undeterred and unpredictable. The cyber-attacks on EU members and Russian military aircraft violating EU borders, hybrid aggression against sovereign states demonstrate this unpredictability well. In such circumstances increasing energy dependency from Russia (what is expected in the case of North Stream 2 and Poseidon pipeline construction and usage, and corresponding to expectations of gas demand rising in Europe during upcoming decades) appears to be a contradiction. Moreover, existing high levels of energy dependency from the single state do not meet requirements for energy independence and security, especially in the case of a country with an aggressive policy towards other states.
In other words, the EU is not protected from the violation of the security system in which it exists and the international order more broadly, including Russian provocations and hybrid aggression. It is clear that, considering the numerous risks for EU security and integrity, attention to the Ukrainian problem has decreased. But besides current problems, the EU faces multiple new challenges at its borders (related to those described above), as such it is certainly not the best time for the EU to lose existing partners. Ukraine is in effect a kind of buffer separating the eastern borders of the EU from the encroachment of the Russian World, whilst delivering contributions for EU security and development in energy field. Furthermore, Ukraine could still be a reliable international partner (despite a huge range of internal problems) that shares European values and has a strong desire to cooperate with the EU. Cooperation between Ukraine and the EU can be an issue of mutual benefit.
So, what does Ukraine need now, what can form the basis of a new strategy for self-protection under conditions of Russian aggression and at the same time to provide a common good of benefit to the European Union? Realistically, not much. Just a demonstration of good-will by the EU to inspire people to continue reforms. What does this mean for the energy sector? A particularly important issue of internal and foreign Ukrainian policy.
The best way to demonstrate stability would be maintaining the status quo, retaining Ukraine’s position on energy transit (last year European officials stated that Ukraine was a reliable energy transmitter), but the rapid development of Turkish Stream and North Stream 2 pipelines bypassing Ukraine, other plans to construct pipelines in Europe to connect to those mentioned (e.g. the Greece–Italy pipeline, named Poseidon, which will deliver Russian gas from Turkish stream to Italy) is likely to cost Ukraine its strategic position as an energy transmitter. As such Ukraine must develop new areas of interdependency between Ukraine and European countries, which can bring contributions to both sides and at the same time will demonstrate to Russia Ukraine’s importance for the EU.
It’s clear that the EU is not united in its positions and decision making – different countries have different opinions regarding the future of Ukrainian energy transit, construction of new pipelines etc; tensions within the EU regarding the future of North Stream 2 (Poland with some other states is still opposing its construction, and Germany is interested in the project) demonstrates this well. That’s why the building of any new interdependency must be done first of all with those states that share fears of Russian aggression, and primarily it is Poland – big and fast growing economy in the EU, Ukrainian neighbor and closest “international friend”. Steps in this area have already started.
In the field of energy, within the scope described above, an extremely important task is integrating Ukrainian and European gas and electricity grids and markets. The construction of a gas pipeline connecting the Ukrainian and Polish gas grids is integral to this. Integrating these can bring benefits for both Ukraine and the EU in general, not only for Poland. Connecting the Ukrainian and Polish pipelines means providing wider access for Ukraine not only to the Polish gas market, but to Europe as a whole, including separate LNG terminals. That means wider possibilities for securing gas supplies and the strengthening of energy independence and energy security for Ukraine and a new big market for European gas trading companies. Ukrainian underground gas storage sites are the biggest in Europe and, since Ukraine has decreased gas consumption, there are more possibilities to use these for storing gas owned by European gas traders. The situation with the electricity markets is similar: last year Ukraine increased its export of electricity by roughly 10 %, primarily to the Polish market. Ukraine also has huge nuclear energy capacities which can even be increased to export energy to the EU.
Ukraine, struggling against Russian-backed militants, needs support. Not only in terms of funding, but also in international diplomatic support, direct foreign investment, consulting, and strengthened economic ties, including in terms of energy. Reforming the Ukrainian energy market legislation is on track: changes to energy market legislation and liberalization could provide easy access for foreign companies to operate in those markets. This is a key precondition for strengthening energy ties between Ukraine and the EU.
So, under the conditions of decreasing international interest in Ukraine and its problems, the country must make all attempts to avoid becoming an object of international energy policy and instead become a policy maker. The integration of the Ukrainian and European gas and electricity transmission networks is an important task for building interdependency and gaining mutual benefits. EU and Western countries shouldn’t repeat past mistakes, as with Moldova, despite huge funds donated to that country it failed to carry on reforms and doubts are cast upon future relations of the country with the West.
The opinions articulated above represent the views of the author(s), and do not necessarily reflect the position of the European Leadership Network or any of its members. The ELN’s aim is to encourage debates that will help develop Europe’s capacity to address the pressing foreign, defence, and security challenges of our time.