October 23, 2013 (Investorideas.com newswire) Though Norway in June overtook Russia in total exports of natural gas to Europe, the balance of Russian gas to Europe comes through Ukraine, which itself is dependent upon Russia for 60% of its current gas consumption.
While Ukraine controls the transit of 90% of its gas to Europe, Russia is consistently trying to use its gas exports to Ukraine to gain greater control of the Ukraine transit system, which itself deems a strategic asset. The struggle for control of export to Europe and Ukraine's own struggle to increase domestic production and move closer to Europe, with an European Association Agreement set to be signed in November this year, has put extreme stress not only on the energy independence of Ukraine but of Europe as a whole.
From an energy geostrategic standpoint, Europe needs Ukraine to move closer to Europe, "but for all its planning, Europe also knows retribution, in the shape of an energy squeeze, is likely from Russia .
Moscow, which has a long-standing disagreement with Ukraine over gas, has said it will raise Ukraine's gas prices and officials do not rule out it doing the same for the EU, which gets nearly 40% of its gas from Russia . "The EU should not look at Ukraine as a business opportunity alone, particularly in light of currently lagging gas demand, but should examine the long-term future of European energy security and the key role Ukraine will continue to play in it. Partnership with the EU is not a silver bullet for the troubled Ukrainian energy sector, but it is certain to reduce the volatility of future pricing disputes and is perhaps the only solution that does not leave Ukraine's fate entirely in Russian hands," according to an article by Richard B Andres and Michael Kofman.
Ukraine has also done much in the past 18 months to increase its energy independence. Recent shale tenders with Shell and Chevron and with Exxon for the development of the Ukrainian Black Sea have the potential to greatly reduce the dependence Ukraine has on Russian exports and potentially for Europe as well. "While the full picture of unconventional gas is expected to be assessed in the coming years, the key to success, as is the case of Ukraine , is infrastructure. If the future of shale gas exploration is to be bright, a new infrastructure will have to be built to link the sources of unconventional gas with the grid to allow for the commercialization of the gas.
"To ensure that the Energy Community brings results, once operationalized the shale gas opportunity should be extended to the Eastern Neighborhood. It would allow the Eastern Neighborhood, in particular Ukraine, to create stronger bonds between the EU and the region and, as a result, galvanize stronger energy interdependence between the EU and Russia by stabilizing Ukraine's internal energy supply," according to a policy paper from the Black Sea Trust for Regional Cooperation (BST).
Published at the Investorideas.com Newswire - Big ideas for Global Investors
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