Russia’s grip on Europe’s oil supply threatens Ukraine’s energy independence

May 5, 2017

Kremlin’s iron grip on much of Europe’s oil and gas supply threatens Kiev’s bid to become self-sufficient

The fields around Grabova and Debaltsave came to international attention as the crash site of Flight MH17, the Malaysia Airlines aircraft Ukraine’s separatists were accused of shooting down. But along the roads, on the scarred landscape, is another reminder of the civil war, one which continues to pose a great problem for the government in Kiev.

These are coal mines which are now in the Russian sponsored Donetsk Peoples Republic, lost to Ukraine. To the south Crimea, annexed by Moscow, is another piece of territory lost, and with it has gone a maritime zone with underwater energy resources, which analysts say may rival the North Sea.

To the west the town of Slovyansk, scene of bitter fighting not long ago, sits part of the country’s shale gas reserves of 1.2 trillion, the third largest in Europe, yet reserves which have remained largely unexplored due to the strife.

All this has contributed to Ukraine facing an energy crisis which makes it dependant on gas from Russia with a source of friction over the terms of trade to add to the bitter political enmity between the two states.

It is not just Ukraine which is dependent on Moscow for energy, but a lot of Western Europe. One reason Boris Johnson’s recent attempt to toughen sanctions against Vladimir Putin’s government so abjectly failed was because of the thirst of German industry for supplies from the east.

An international conference in Houston, Texas, starting on Wednesday will examine how Ukraine can become energy self-sufficient and, in the future, can even start exporting to the West.

Ukrainian companies and the government of Petro Poroshenko insist this is something highly achievable. Vadym Pozharskyi, advisor to the board of directors of The Burisma Group, the country’s largest private gas concern, said: “A major part of our objective, our strategic goal in the coming years is energy independence.

“The fact is that the energy sector is a key source of revenues for the Ukrainian budget, we are not only providing the country with domestic gas, but also investing billions in production and state of the art exploration and drilling technologies.

“Of course Ukraine lost sources of energy in the east, but there are other sources with significant potential.”

Mr Pozharskyi continued: “We have always encouraged the government and market players to reform the gas market based on European best practices. It is absolutely crucial that market players, infrastructure investors and also Ukraine’s international partners see our country as a reliable partner if we are to reach that potential.”

Allegations of corruption and inefficiency continues to bedevil Ukraine four years after the Maidan protests overthrew the government of Putin ally Viktor Yanukovych. Burisma and other companies in Ukraine’s private energy sector complain that the gas regulator had imposed bureaucratic restrictions which is hindering the aim of self-sufficiency.

But Burisma has also been involved in court proceedings with its president, Nikolay Zlochevski, a former government minister, facing criminal charges over alleged misappropriation of assets. However, after two lengthy trials, in Britain, where the assets were held, and Ukraine, the charges were dismissed.

The company hired a former US District Attorney General, John Buretta, as counsel. He is among a number of Western figures with ties to the company including Hunter Biden, the son Joe Biden, the former US vice-president and Joseph Cofer Black, an ex- director of counterintelligence at the CIA.

Mr Buretta wanted to point out that the High Court in London and the court in Kiev had totally exonerated Mr Zlochevski of charges. He said: “I have extensive experience with assessing allegations of corruption, both from the government side while serving in the Department of Justice, and from the private side.I have served as an expert witness in proceedings outside the US in such matters and have handled a broad range of matters for companies and individuals involving various countries.

“Regardless of the country, it is important that prosecutors follow the law and the evidence the law and evidence dictates; then the rule of law flourishes.”

While Burisma and Ukrainian gas companies try to drive the country towards self-sufficiency and a future exporter, there is acrimony within the EU over Russian gas. Berlin has publicly acknowledged the need to be less reliant on Moscow, but, at the same time, it is engaged with the Nord Stream 2 project which will pipe Russian gas from the Baltic to Germany.

This has led to protests from member states in eastern Europe. Polish Prime Minister Beata Szydlo maintained “this project is not an economic one, it’s a geopolitical one”. But Nord Stream 2 is going ahead.

Moscow remains convinced that its strategic advantage, “asymmetric interdependency”, will continue. As a member of the “silovki”, the officialdom of the security sector, declared recently: “Russia can live at least one year without any European investment and technology. But Europe cannot survive for even 30 days without Russian gas.”