The meaning of Ukraine in Energy cooperation between Russia and EU with an example of natural gas: Case study Ukraine.

Transcription

1 The meaning of Ukraine in Energy cooperation between Russia and EU with an example of natural gas: Case study Ukraine. Freie Universität Berlin PhD candidate: Marat Oganyesyan Supervisors: Prof. Dr. Lutz Mez Prof. Dr. Peter W. Schulze Prof. Dr. Helmut Weidner Dr. Behrooz Abdolvand Dr. Matthias Adolf

2 Contents: Theory 1 Facts about Ukrainian gas sector 1.1 Production 1.2 Consumption 1.3 Transit and storage 2 Geopolitics of natural gas 2.1 EU-Russia relations 2.2 EU-Ukraine relations 3 Ukraine-Russia relations in terms of gas conflicts 3.1 Lasarenko s case 3.2 Timoshenko s case I 3.3 Yanukovich, Kharkov-Agreements 3.4 Timoshenko s case II and the New Deal 4 Research Questions and Hypotheses Q & A

3 In terms of the global power structure Ukraine is an important second regionally state. ( ) The dynamics of the global power structure have led the United States to maintain or to develop close relations with second regionally powers ( ) Both countries have an interest in ensuring that Russia does not expand and once again become a superpower, dominating its neighbors. ( ) In terms of the global power structure Ukraine is uniquely situated to be an important partner of the United States in maintaining an effective balance of power in Eurasia. Samuel Huntington

4 Theory I: Realism, Neo-Realism, Geopolitics, and Geo-economics Geopolitics is closely connected with energy, access to natural resources, industrialization, military competition. During the WWI and WWII mainly the reach to energy determined the outcome of the events. After the WWII the ECSC was created, as the dominant control on natural resources by one of the states was seen as a possibility for a new aggression in Europe.

5 There are subjects and objects of geopolitics. USA Still, the best to analyze geopolitics is on the basics of small states, as since the nuclear weapons were invented the big powers prefer not to directly confront with each other. EU Ukraine (Gas Sector) RUSSIA Mackinder: who rules East Europe commands the Heartland; Who rules the Heartland commands the World Island; Who rules the World Island commands the World. Good example: gas for naval base agreement.

6 Theory II: Interdependency Interdependencies complex transnational connections between states and societies. Interdependencies, particularly economic ones, are increasing, while the use of military force and power balancing is decreasing (but remains important). The decline of military force as a policy tool and the increase in economic and other forms of interdependence increase the probability of cooperation among states. The crucial attribute of interdependence, according to Keohane and Nye, is the criteria of emerging costs.

7 1 Facts about Ukrainian Gas Sector The peak of gas production was reached in Ukraine in 1975 at a level of 68,7 bio. m³. Today Ukraine has its own production of approximately 20 bio. m³ annually. In % of gas demand was covered from Ukraine s own production. 1.1 Production

8 1.2 Consumption In 1991 consumption of Ukraine was at 118,1 bio. m³ (third place in the world after USA and Russia). In 18 years of independence the consumption fell at about 55% and in 2009 was 51,9 bio. m³. Moreover Ukraine has the most energy-intensive economy in the world.

9 1.3 Transit and Storage Ukrainian gas pipeline system includes over 37,000 kilometers of trunk gas pipelines including a developed support system such as compressors, pumping stations and gas storage facilities. Ukraine has Europe s largest (except the Russian Federation) system of underground storage of natural gas: 13 storage facilities with the active capacity of 30 BCM and maximum daily efficiency of 254 million.

10 The Puzzle: why is the transit decreasing? *The prognosticated reduction of transit through Ukraine in 2012 is at about 30% to the year of Source:

11 Source:

12 2 Geopolitics of natural gas EU USA Ukraine (Gas Sector) RUSSIA Main trends: 1) Development of an integrated global gas market 2) Shift to a global market will make each major consuming or producing region vulnerable to events in any region 3) The role of governments in natural gas market will change 4) Russia and other big producers will still play a pivotal role in price formation in this new, more flexible and integrated global natural gas market

13 2.1 EU-Russia Relations Appr. 40% of natural gas comes to EU from Russia (Norway (25 %) und Algeria (19 %)). Some countries in EU such as Slovak Republic, Estonia, Finland are totally dependent on Russia. After enlargement in 2004/2007 EU became more dependent on Russia then ever before which led to activation of anti-russia slogans sich as fighting Energy terrorism by creating an Energy NATO. On July 30, 2009, Russia decided to withdraw its signature under the Energy Charter Treaty.

14 Gasprom s gas export routes to Europe

15 2.2 EU-Ukraine relations Ukraine doesn t have a clear EU perspective but should be a part of European (gas) market and must be integrated in European smart grid projects (Günther Öttinger). Ukraine is already integrated with Eastern Europe because of its soviet history. In other words Ukraine with its gas pipelines (and electricity grid) is already a part of Europe s energy system. EU (together with Russia) doesn t show interest in investing into Ukrainian gas pipeline system or into the electricity grid which lets Kiev think that Moscow and Brussels have other priority projects.

16 The meaning of Ukraine s gas transit system to EU and Europe

17 3 Ukraine-Russia relations in terms of gas conflicts reduction of gas deliveries to Ukraine at the juncture of ; reduction of gas deliveries to Ukraine in March 2008; cut of gas deliveries to Ukraine and the EU at the juncture of PS: gas consumption in the EU in January-February, 2009, fell by only 2.4% while Gazprom s exports in the 1st quarter fell by 39%.

18 3.1 Lasarenko s case 7 th Prime Minister of Ukraine (28 May July 1997) Before entering government, Lasarenko made a fortune on the criminalized natural gas trade in the Dnipropetrovs'k region. Being the first deputy prime minister, Lasarenko s primary task was to allocate gas quotas to private companies. At his time as a prime minister of Ukraine, the monopole to sell gas in Ukraine was given to "United Energy Systems of Ukraine, owned by Timoshenko and her husband. In August 2006, was convicted and sentenced to prison in the United States for money laundering, wire fraud and extortion. The most scandalous episodes connected with the company United Energy Systems of Ukraine disappeared from the final accusations.

19 3.2 Timoschenko s case I Head of "United Energy Systems of Ukraine, founded in 1991 Deputy Prime Minister for heat and energy complex under prime minister Yushenko from 30 th December th January th February 27 March 2001 imprisoned on accusation on smuggling of Russian gas to Ukraine and for tax evasion at the period of being the head of "United Energy Systems of Ukraine in one of the leaders of the Orange revolution 11 th and 14 th Prime Minister of Ukraine (24 January September 2005 and 18 December March 2010) 2010 candidate to President of Ukraine with 45% support, which she lost to Yanukovich who got 3% more.

20 3.3 Yanukovich & Kharkov-Agreements 21 st April 2010 Russian Ukrainian Naval Base for Gas treaty widely known as the Kharkiv Accords Lease of naval facilities in Sevastopol is extended beyond 2017 by 25 years (to 2042) with an additional 5 year renewal option (to 2047) in exchange for a multiyear discounted contract for natural gas (appr. 20% discount)

21 3.4 Timoschenko s case II and the New Deal On October 11 th 2011 the Court in Kiev sentenced Timoshenko to seven years in prison after she was found guilty of abuse of power at the signing the gas agreements with Russia in January 2009 Additional accusations on smuggling of Russian gas, tax evasion and the $ 405,5 million debt of Ukraine to the Russian Department of Defense are reanimated once again Russia-Ukraine New Deal in 2011/2012?!?

22 Research Questions I: Why Ukraine is losing its positions as the main transit country of natural gas from Russia and Central Asia to Europe? Are these only economic factors influencing it? What is the geopolitical and geo-economic framework around the Ukrainian gas sector and in particular Ukrainian gas transit? What are the particular interests of such geopolitical actors as USA, Russia and European Union in transit system of Ukraine?

23 Research Questions II: What are the current trends on gas market (gas price, unconventional gas, LNG) influencing Ukrainian gas transit to EU? Which projects in gas sector exist or planned to bypass Ukraine? What is the role of Ukrainian and Russian business elites in European gas trade? What is their role in declining role of Ukraine as wells as the worsened image as a transit country?

24 Hypotheses I Ukraine is an important state in geopolitical competition between EU, Russia and US mainly because of its size, almost exclusive geographical position between Europe and Asia, and because of its gas sector having a direct impact on Russia and EU s foreign and economic policies. The producers (Russia) as well as consumers (EU) are not interested in having the majority of their natural gas business depending on a single transit country (Ukraine). As the geographic position of such a transit country (Ukraine) makes it to a natural monopole and gives the opportunity directly to intervene the political and economic relations of producers and consumers the last try to avoid such dependence with finding new routes.

25 Hypotheses II The EU s liberalization process towards its gas market influences the EU-Ukraine-Russia relations in the way that it s trying to make EU less dependent mainly on Russia as the biggest gas supplier and thus on Ukrainian gas transit. Since collapse of the Soviet Union Ukrainian gas sector has became an important tool of manipulation in hands of Ukrainian politicians and businessmen regardless of their affiliation. A possibility of a new conflict on natural gas between Russia and Ukraine effecting Europe remains high even after the all made agreements sighed with Russia by Timoshenko in 2009 and by Yanukovich in 2010.

26 Thank you for your attention!