February 25, 2015

Ukraine needs to concentrate on the energy efficiency

10 million of US dollars – that is how much Ukraine pays Gazprom each year. The dominant part of those costs is generated by individual users. Industry is based mainly on the national exploration, which can be reasonably boosted. But it is not what is most important nowadays. What are the priorities of Kiev’s energy policy and how the EU mechanisms and structures can help Ukraine? – Anna Bulakh from Tallinn based International Centre for Defence and Security discussed those issues with Biznes.pl.

10 million of US dollars – that is how much Ukraine pays Gazprom each year. The dominant part of those costs is generated by individual users. Industry is based mainly on the national exploration, which can be reasonably boosted. But it is not what is most important nowadays. What are the priorities of Kiev’s energy policy and how the EU mechanisms and structures can help Ukraine? – Anna Bulakh from Tallinn based International Centre for Defence and Security discussed those issues with Biznes.pl.

Marcin Gaweda: At the end of March the short term contracts for gas supply to Ukraine have expired. Is there any chance that things can be renegotiated at this point?
Anna Bulakh: Ukraine should aim at renegotiating the contract. It is an important moment, as Ukraine also needs to refill its supplies held in storages. The negotiation is the moment when Ukraine could use external help, lets call it assistance, from the West.
MG: And what are your prognoses?
AB: One can effectively negotiate with Gazprom. Lithuanians are a good example. When the LNG terminal became operational they negotiated a serious discount up to 100 dollars for 1 thousand cubic meters. It is a lot.
MG: How else can we help Ukraine?
AB: By creating a proper infrastructure that will bridge Ukraine with the West. A good example is Slovakia that has its own independent infrastructure. In Autumn Gazprom has reduced the supply to Slovakia and to Poland and by doing this limited the possibility that those courtiers would support Ukraine. Now it is important that LNG revolution expands in this part of Europe. When Poland will have its own LNG terminal and Slovakia will expand its transfer capacities, Ukraine could, at least psychologically, become a part of European energy system. The closer are we to reach this aim, the greater is our advantage in the negotiation process with Gazprom.
MG: Ukraine has a unique position in gas transfer systems. We can experience it each time there is an energy crisis.
AB: Of course, Ukraine is a part of European energy system. It would be good if there is a political will in Brussels that would strengthen Ukraine within this system and, from time to time, stimulate for example Poland or Slovakia to strengthen its energy ties with Ukraine. Not on the political but business basis. It is possible – for example in Slovakia a political project has been implemented by business and has a solid business support. Last but not least, attracting foreign investors is crucial.
MG: How to do that?
AB: European companies still don’t understand that Ukraine has been a part of Europe for a long time. Ukrainian parliament has just introduced a law that makes it easier for foreign investors to operate in Ukraine. Energy sector will benefit from it enormously. Additionally, Ukrainians work on the whole package of solutions, for example environmental ones. European companies will be able to access Ukrainian transfer systems. It will enable to modernize it but also it will end speculations about gas thefts. It will become more transparent. And the closer the EU we are, the sooner it will become Ukrainian reality.
MG: Do you think Ukraine will become a part of shale gas revolution?
AB:It is too early to determine that. Europe currently debates if it is a right direction, or not. Ukraine still doesn’t know what resources it has. There is not enough boreholes. Western Ukraine is analyzed as a potential place where shale gas can be found. But at this point it is too early to say anything. We need to focus on short and medium term goals.
MG: Which is energy efficiency?
AB: Exactly. The issues of energy consumption and energy efficiency are at this point Ukraine’s priority. It has been neglected for many years. Gas for households was subsidized for many years. The disproportion between what Ukraine pays to Gazprom and what average consumers pay has been too big. It will be a major change in Ukrainian mentality, as so far Ukrainians haven’t paid much attention to energy prices. And the truth is that gas for households is the major challenge in Gazprom problem. Industry is based mainly on the domestic exploration
MG: And how does the situation look like when it comes to domestic exploration of gas?
AB: Currently Ukraine explores approximately 20 billion of cubic meters of gas. The whole problem with boosting the exploration are outdated technologies. It needs to be modernized. Another thing is energy efficiency, which is extremely important. It is not that the exploration should be much bigger, but it should be better managed. Last year, instead of planned 50 billion, Ukraine used 40 billion cubic meters. It is a good sign.
MG: But the reason for that is industry slow down…
AB: This year we will have a totally different face of Ukrainian energy when it comes to the gas consumption. The government has also adopted a strict program that enforces household consumption of gas. And these are the right steps – to introduce legislative solutions that limit gas consumption. Another thing is to raise the investment in modernization and new technologies. It is perhaps easier to produce more gas, but it is more profitable to enhance energy efficiency.

Look at the original interview: Economic Forum

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