Ukrainian energy projects’ prospects remain uncertain

Baku, Azerbaijan, March 6

By Aygun Badalova -Trend:

Politics and the economy are not the only uncertainty in Ukraine. The current political climate is also threatening the future of the energy projects.

Ukraine is a large gas consumer. At the same time the country is a key transit country for energy resources from Russia to the EU. Some 20 percent of gas consumed in the EU is transited through Ukraine.

Since Ukraine largely imports energy resources from one country, it is naturally keen to diversify its sources and reduce its dependence on Russia. The country repeatedly stated that the diversification of energy supplies to Ukraine as well as to European countries is in the country's interest.

Ukraine imported some 28 billion cubic meters of gas from Russia in 2013.

Analysts believe that the prospects of energy projects in Ukraine, in particular those which aims at reducing dependence on Russia, remain uncertain.

"The prospects for energy projects in Ukraine remain very uncertain at this time and will depend on the eventual outcome of the / instability," Julian Lee, Senior energy analyst at the Centre for Global Energy Studies (UK) told Trend.

He believes that if the government in Kiev is able to bring stability to the country, then the situation is likely to favor projects that reduce Ukraine's dependence on Russian gas.

"The biggest energy problem for Ukraine, though, is going to be its ability (particularly the ability of its population and its industries) to pay the inevitably higher gas prices that they will face," Lee said.

If Russia succeeds in undermining the new government and Ukraine ends up with another pro-Russian government, then the prospect for projects that reduce dependence on Russia are less positive, according to Lee.

Overall, he believes that for potential investors in energy projects in Ukraine, the current situation is very worrying, "not just because of the immediate uncertainty that it causes, but also because it sends them a very clear message that Russia will not tolerate a truly independent Ukraine."

The short term consequences for most of Ukraine's energy projects are negative, Andrej Tibold, editor-in-chief at Eurasia Energy Observer believes. "The combination of political and economic instability will scare of the investors," he told Trend.

"Of course, the current Ukrainian government will again try to decrease the share of Russian gas, in particular if Russia again decides to raise the price above 400 dollars. Ukraine will look for alternative suppliers, but unfortunately its options are limited," Tibold said.

Russia said it would increase the gas price for Ukraine to its previous level prior to Jan. 1, 2014 -- or approximately 400 dollars for one thousand cubic meters. The new price will go into effect on Apr. 1 and is certain to motivate Ukrainian leaders to continue the previous government's drive to decrease overall gas consumption and diversify supplies, International Oil daily reported.

Diversification of sources of natural gas supply to Ukraine, in particular, is considered in the context of new gas pipeline projects directed on the European gas market.

One of these projects, which can assist Ukraine's goal for diversification, is the project on LGN terminal in Ukraine. The project "LNG Ukraine" involves construction of a LNG regasification terminal located in Yuzhny, on the Black Sea coast of Ukraine. The terminal is supposed to re-gasify the liquefied natural gas imported from various sources, including Azerbaijan.

Ukraine and Azerbaijan reportedly discussed the issues of the implementation of joint projects for the Azerbaijani liquefied gas supply to Ukraine, in particular the construction of the LNG terminal in Ukraine and Ukraine's participation in the Azerbaijan-Georgia-Romania Interconnector project and the use of the Ukrainian gas transportation system for the Azerbaijani gas supply to Europe, planned to be made by using the Trans-Anatolian gas pipeline.

As for the transit of Azerbaijani gas through Ukraine to Europe, Tibold believes that the EU would welcome more Azerbaijani gas.

"However, I doubt whether EU politicians will be willing to back this idea, at least for as long as the situation in Ukraine remains unstable, as it would not be considered as a contribution to the security of supply," Tibold said.

"The overall risk is that the situation in Ukraine will turn into a stalemate or worse, into a frozen conflict. In that case it will be very hard to find political and financial support for such projects," Tibold added.

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