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Page added on February 16, 2015
Ukraine has a $1 billion plan to wean itself off Russian gas
Ukraine announced plans to spend $1 billion to build up a strategic gas reserve in order to reduce its reliance on fuel imports from Russia.
Prime Minister Arseniy Yatsenyuk said on Saturday that the country would borrow the money using government guarantees in order to shift the country to European suppliers of natural gas, according to The Moscow Times.
Gas imported from Russia accounted for 58% of Ukraine’s total consumption in 2013, while the country’s state-owned company Navtogaz also generates large revenues from fees it charges to transport Russian gas to Europe. In 2011 Navtogaz received transit fees equivalent to 1.9% of GDP.
The latest plan to diversify Ukraine’s energy supply comes following repeated threats by Moscow to recall a $3 billion loan made to the previous administration in Kiev. Under the terms of the deal, former President Viktor Yanukovych committed to capping Ukraine’s national debt at 60% of GDP.
However, with the ongoing civil war in the east of the country and a stand-off between its two major trading blocs in Russia and the EU, its debt ballooned to around 72% of GDP in 2014 and could reach over 80% this year.
And now President Vladimir Putin wants his money back — by requiring the immediate repayment of the $3 billion loan.
Negotiations over gas deals have proven a source of continuous friction between Kiev and Moscow in recent years. In 2006 Gazprom, Russia’s state-owned gas company, cut off supplies to Ukraine in a row over accusations that Kiev was syphoning off gas destined for European markets to supply its domestic market. The move led to shortages in France, Italy, Germany and Poland.
And Gazprom turned off the taps again in 2009 over a dispute over non-payment of debts by its Ukrainian partners. The deal brokered between then Ukrainian Prime Minister Yulia Tymoshenko and Putin to get gas flowing again in the aftermath of that crisis would ultimately cost her a sentence of seven years in prison and a bill of $200 million.
ReutersMap of Europe showing planned gas pipelines in the region. Includes proposed Gazprom pipeline to Europe through Turkey.
These gas standoffs have tended to occur during periods where there have been administrations in Kiev that lent towards Europe and away from Russia. Following the election of pro-Russian President Viktor Yanukoych in 2010, the Russian government had a sudden change of heart and decided to cut gas prices to the Ukraine by 30% in return for an extension of the lease on its Sevastopol naval base to 2042, at a cost of some $40 billion in revenues over a decade.
Ukraine’s reliance on its neighbour for fuel offers the Kremlin a powerful political lever that it can pull whenever it deems necessary. As such, diversifying its domestic suppliers is a necessary, but not sufficient, step in achieving political independence from Moscow.
However, the other problem for Yatsenyuk’s government is the country’s ruinous gas subsidy for households. Prices in Ukraine are 4 to 9 times lower than in neighbouring gas-importing economies and almost half what they are in Russia, the region’s largest gas exporter. The subsidies are estimated to have cost the country around 7.5% of GDP in 2012 (and with the sharp contraction of GDP over the past year are likely taking up an even larger share of output now).
As the IMF puts it (emphasis added):
The policy is proving financially and economically unaffordable. It drains government finances, sustains energy over-consumption, dampens investment in delivery systems, and undermines incentives for domestic production expansion into gas reserves that could significantly reduce Ukraine’s need for gas imports.
These reforms are a key condition for the IMF continuing to extent financial support to the government in Kiev but they will also come at a political cost. Whether the government is strong enough to see them through where so many previous administrations have failed is likely crucial to its long term independence. At the moment, the jury is still out.
12 Comments on "Ukraine has a $1 billion plan to wean itself off Russian gas"
Rodster on Mon, 16th Feb 2015 5:54 pm
I was reading an article today which says that Ukraine has basically spent it’s IMF bailout money on fighting the Russian separatists. It’s the same IMF who encouraged Ukraine to kick ass and kill any uprisings.
Typical MO by the banster elite. They loan a country money who they know won’t pay it back which really is money to payoff other debt obligations so the people see only a fraction of it. Then the IMF and the Banksters go in and raid the country of all it’s assets.
And you wonder why I smile when I read of a bankster who OFF’d him/herself with a nailgun before jumping off a 40 story building.
Makati1 on Mon, 16th Feb 2015 6:25 pm
Rodster, you see the picture clearly. The Ukraine is another failed state on the long list of failed states the US has created.
If it isn’t the match that starts a hot WW3, I will be pleasantly surprised. After all, war is good for business and profit. The old men who run the world don’t give a damn about us.
dissident on Mon, 16th Feb 2015 9:04 pm
The lunatic regime in Kiev thinks that Russian gas imported via Poland or elsewhere is no longer Russia gas. LOL. Poland already had its demands for more supply from Russia denied by Gazprom. Yetsenyuk and pals should use the CH4 coming out of their rear ends.
Speculawyer on Tue, 17th Feb 2015 6:56 am
Creating a temporary reserve that you’ll just (literally) burn through is no way to solve a problem. What they need to do is develop their own resources (wind, solar PV, fracking, etc.) and reduce their needs (insulation, conservation, etc.)
Makati1 on Tue, 17th Feb 2015 9:09 am
Spec, “alternates” require government subsidies to survive. The Ukraine is bankrupt. They will conserve by the same means coming to the UFSA … need.
When you cannot get something, you do without. You can survive without a lot of oil. The Filipinos use a pint per day, per capita. The average American uses 2 1/2 gallons per day, per capita. Twenty times as much. Yet the average Filipino is happier and less stressed out than any American.
Davy on Tue, 17th Feb 2015 9:47 am
Cat Piss Makster, you have no idea what is going on in Millions of minds in either the U.S. or the P’s. Your comparison of the P’s is another erroneous per capita cat piss. Look at the GDP contributed by the U.S. compared to your insignificant P’s. One must also consider 100MIL people in a space of Arizona. That shows a massive population overshoot. There is little chance such a dense poor population could use the same per capita oil consumption.
Davy on Tue, 17th Feb 2015 9:50 am
I am sure you will respond from one of your agenda friendly sites with another cat piss link to show how happy your people are and how sad the Americans are. Same old large scale studies that goal seek and have little resemblance to reality just as your senile brain operates.
JuanP on Tue, 17th Feb 2015 10:07 am
The consumer gas subsidies are hard to believe. I wonder if there are any Ukrainian homes that have any insulation on the walls, it seems unlikely.
Ukraine is the first white European bankrupt failed nation state. The first of many. This story will repeat itself all over Europe and the world for the rest of our lives. It is a musical chairs game between nations, and Ukraine just lost its chair. I wouldn’t call it entertaining, but it definitely is fascinating to observe. I prefer it to the TV.
The show must go on!
msnfanboy on Tue, 17th Feb 2015 12:05 pm
When you cannot get something, you do without. You can survive without a lot of oil. The Filipinos use a pint per day, per capita. The average American uses 2 1/2 gallons per day, per capita. Twenty times as much. Yet the average Filipino is happier and less stressed out than any American
Mak…
That’s like arguing a child born to slavery is happy because the child has never experienced freedom.
Would you rather be a happy slave or a unhappy free man.
Bob Owens on Tue, 17th Feb 2015 1:36 pm
This is a failed plan before it begins. They are trading dependence or Russia for dependence on Europe. They would still have to pay for gas with money they don’t have. They would still have no fuel of their own. And they would still be spending money on subsidies. Doesn’t make any sense at all. How about tapering off the subsidies and using the resources they have to insulate and conserve? That is the only viable option they have. Solar is out for them but conservation isn’t. The war expenses would have to end also. Way too much to ask of a rabid Nazi government that is not about to recognize their failures.
BobInget on Tue, 17th Feb 2015 1:48 pm
All ‘world wars’ need what is called a ‘casus belli’.
It just so happens Ukraine’s much touted ‘cease
fire’ has ceased.
Late breaking:
http://www.huffingtonpost.com/2015/02/17/ukraine-rebels-debaltseve_n_6697084.html
Here’s a spy boss comment:
http://www.bbc.com/news/uk-31496933
Obviously, V.Putin’s strategy is going to plan.
Just guessing here but his next move could be to check mate the king. IOW’s deny the West the oil needed to conduct any meaningful reaction.
To do this Putin simply needs a big explosion or two in all the vital places.
Watch for hit and run attacks on various oil
shipping locations. None will leave any return address. Most will be blamed on ‘terrorists’.
Mind you I’m guessing. V. Putin could try something we have not envisioned.
Oil prices will react quickly. Saudi Arabia is not Libya. Guessing again I’m calling for a ten percent rise weekly for balance of February.
What;s happening today is what’s known as ‘short covering’. This has a tendency to feed on itself as
traders, hedge funds recon the game is up.
BobInget on Tue, 17th Feb 2015 2:03 pm
Board readers, contributors:
Any major confrontation between Russia and NATO, minus Turkey. Will consume at least two million barrels (oil) per day. The world don’t got
even one extra million.
Almost certainly we are headed for much more difficult relations with Russia and China. Both
are in the process of denying the US, Europe, Mideast and African oil. Russia by stealth, China by out foxing the smartest ‘men in the room’.