Ukraine has to reduce its energy dependency on Russia by integrating into the EU gas pipeline system, an expert has said as Russia hikes gas prices for Ukraine to new heights.
Focus on domestic gas development, particularly on shale gas, demand reduction, energy efficiency and closer EU integration could save Ukraine from a widespread energy crisis, said Michael Bradshaw, Professor of Global Energy at Warwick Business School and expert in energy security in Europe.
His comments come in reaction to the decision of Russia’s energy giant Gazprom to increase prices of gas delivered to Ukraine by 40 per cent, basically withdrawing the discount agreed in December 2013 as part of a package designed to lure Ukraine to turn away from the EU and reinforce its ties to Russia.
Ukraine will now have to pay $385.5 (£232) per 1,000 cubic metres of gas in the second quarter, which is more than the average price for clients in the European Union but around the level Kiev had expected.
“It really comes as no surprise that Gazprom has put its prices back up,” Bradshaw said. “The real problem is Ukraine’s inability to pay its gas bill; this was behind previous gas crises in 2006 and 2009. The West will need to provide the Ukrainian government with financial support to pay its debt and finance future purchases to avoid providing Russia with the pretext for cutting off the gas.”
Cash-strapped Ukraine hopes to offset some of the effects of the conflict with Russia with money received as part of the $18bn loan from the International Monetary Fund. In the longer term, it was suggested, the country should take advantage of the improved energy situation in Europe. Currently, Ukraine covers about 50 per cent of its gas consumption with Russian supplies
“Gazprom or the Kremlin know that gas reserves in Europe are high and although some parts of southern Europe are still vulnerable, less gas flows through Ukraine than was the case in the past and gas demand is depressed in Europe,” Bradshaw said.
Gazprom's Chief Executive Officer, Alexei Miller, said the increase was justified because Ukraine's debt for unpaid gas bills now stood at $1.7bn.
"The December discount for gas cannot be applied anymore," Miller said, adding that the transportation tariff for Gazprom's gas to Europe via Ukraine was increasing by 10 per cent, in line with earlier agreements.
Before the December discount, Ukraine paid a price of around $400, which Kiev said was unaffordable for its fragile economy.
Gazprom has suggested a new conflict over gas payments and supplies - like disputes in 2006 and 2009 that halted supplies to Ukraine and onward to Europe - could break out, though it has said it has no interest in a resumption of such disputes.