The Current Dependency on Russian Gas in Ukraine
While it is often claimed that Ukraine no longer relies on Russian gas, the truth is more complex. The nation, like the rest of Europe, indeed depends on Russian gas, particularly for industrial and residential needs. However, a shift in the geopolitical landscape is reshaping this dependency.
A Complex Relationship with Russian Gas
In recent years, Ukraine faced a choice to either continue as a transit hub for Russian gas to Europe or align with the United States in an effort to pressure Russia. This strategic move, however, caused Ukraine to lose its previous privileged position as a transit country. Currently, the contract with Russia is set to expire in 2024, leading to a reduction in Russian gas flow through Gazprom.
Decreasing Dependency and Increasing Resistance
Ukraine has proposed a 50% discount on gas for higher transit volumes, reflecting a willingness to negotiate. Nevertheless, Russia is only willing to fulfill its existing commitments to European contractors, particularly until North Stream 2 is certified. This certification marks a crucial turning point in the energy dynamics between Russia and Europe.
The Role of Ukrainian Oligarchs
Ukraine's energy sector is not owned by the state itself, but by private individuals, such as Rinat Akhmetov. These oligarchs made their fortunes through the privatization of gas fields, often through bribes to state officials. This has created a situation where Ukrainian-produced gas is heavily marked up, leading to higher costs for Ukrainian consumers.
Supply and Demand Dynamics in the Ukrainian Market
The high markups on Ukrainian gas have led to its sale on the European spot market during summer months, where profits are lower, rather than to the Ukrainian populace. This practice has led to a cheaper but less accessible supply of gas for Ukrainian consumers, contributing to affordability issues in regions like Nikolayev/Mykolayiv oblast.
The Virtual Reverse Scandal
A recent scandal has shed light on a complex scheme involving a shell company in Slovakia. This company is responsible for booking volumes of Russian gas that will eventually pass through the Ukrainian territory, but only for domestic consumption. Ukraine then withdraws this volume from the transit, even though it physically does not reach Slovakia, leading to a financial markup of 15%.
Impact on Ukrainian Consumers
The sophisticated financial schemes and strategic positioning have resulted in a situation where Ukrainians cannot afford gas in regions such as Nikolayev/Mykolayiv oblast. This highlights the broader issues of energy policy and affordability in the country.
Forward to a Sustainable Energy Future
To address these issues, it is crucial for Ukraine to align with the Minsk Protocol for peace, which would ease tensions and potentially improve its relations with Russia. Additionally, opening North Stream 2 could provide Ukraine with more flexibility and security in its energy supply, reducing dependency on Russian gas.
Ultimately, a more transparent and equitable distribution of energy resources is necessary for Ukraine to ensure that its population can afford and benefit from these resources.