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Ukraine should become a key stakeholder in Central and Eastern European energy security

Europe is currently faced with a dilemma in its energy policy. While sanctions against Moscow have ended supplies from Russia, the EU and many member states are transitioning to more green energy sources. Given the current uncertainty facing the continent, a stronger energy partnership with Kyiv may be just the remedy.

September 6, 2023 - Jozef Hrabina - Articles and Commentary

Gas terminal in Volovets, Ukraine. Photo: Yanosh Nemesh / Shutterstock

Europe’s industrial engine has been slowing down in recent years due to Russia’s war against Ukraine, the subsequent crisis in energy prices, and the EU’s green policies. While Ukraine fights for liberal values and the geopolitical future of Europe, the EU is trying to tackle climate change. Although both battles are vital to our future, we, Europeans, tend to forget why the EU is considered one of the global centres of power – its economy.

The EU’s decreasing industrial output and energy demand are not reasons to celebrate, as these correlate with economic slowdown. Contrary to popular opinion, the economic crisis Europe has found itself in is not a temporary phenomenon. The continent will encounter all sorts of hardships if European industry does not produce and business does not sell.

With the IMF projecting higher GDP growth for Russia than for Germany this year, a worrisome reality emerges. Yet Ukraine’s energy reserves offer an answer as to how to bring back the cheap energy needed for our factories to remain globally competitive manufacturers.

Ukraine as a stakeholder in European energy security

As of 2023, Ukraine’s hydrocarbon reserves are estimated at nine billion tonnes of oil equivalent. At the same time, natural gas reserves are estimated at 5.4 trillion cubic metres, with proven reserves of 1.1 trillion cubic metres of natural gas, more than 400 million tonnes of gas condensate, and 850 million tonnes of oil reserves.

With continued rising demand, despite high reserves, Ukraine still relies on imports to fully satisfy demand, which has been exacerbated by the loss of Crimea and the destruction of the Donetsk region. Nevertheless, significant reserves are still located in the Dnipro-Kharkiv-Kyiv triangle, waiting to be extracted.

Given its geography, Ukraine also has significant gas transit infrastructure, with Belarusian, Slovak and Czech transmission operation companies all forming part of the ecosystem. To avoid purchasing from Russia, Ukraine purchases from western companies as part of their agreement to transport supplies through Ukraine.

In 2021, Ukraine consumed 27.3 billion cubic metres (bcm) of gas, producing about 19.8 bcm. Imports amounted to 2.6 bcm, while 4.9 bcm of gas was taken from underground storage. Households used 32 per cent of the consumed gas, while heat producers used 24 per cent. Industry, the army and other consumers also used 44 per cent. If Russia maintains gas transit through Ukraine and transit gas pipelines remain operational, Kyiv is able to provide the population and industry with gas.

What should be done?

The main question is how to get Ukrainian energy to Central and Eastern European factories, as the region forms a key part of Europe’s industrial powerhouse and shares a large portion of the EU’s energy consumption. With existing pipeline infrastructure, transport should not be as problematic as the extraction itself. With large swathes of Ukrainian territory under Russian occupation, the country has lost control over some parts of its gas and oil fields. However, there are resources behind the frontline in the Kharkiv and Poltava regions, as well as some in Western Ukraine.

Against the backdrop of the crucial need to supply itself and its potential to become a key player in the European energy market, Ukraine’s government has been suspending licences since the beginning of the invasion. One of the targeted companies, Smart Holding, has been extracting gas all across the Ukraine.

Due to the suspension of special permits for hydrocarbons, by the end of 2023, the company’s figures will amount to over 1.4 billion hryvnia in taxes and 135 million cubic metres of gas, as stated in the company’s press release from May 2023.

Ukraine and the EU’s green transition

In the green transition, countries like Germany have bet on replacing coal with gas in their energy production. The sheer gas consumption of Germany is heavily impacting energy markets in poorer regional countries like Hungary and Slovakia. Therefore, letting Ukraine’s gas into the EU energy markets would significantly help in mitigating surging gas prices against the backdrop of the green energy transition. Ukraine could either send gas to the region directly or through a policy of self-sufficiency that would unburden its European allies.

Furthermore, Ukraine is not only rich in hydrocarbons but also the second-largest European country after Russia, as it covers more than 600 thousand square metres. This land can be used for solar, biomass and wind energy generation. It is estimated that the country’s potential energy generation today stands at 667 gigawatts (GW), with 251GW coming from offshore wind. To give context, today Ukraine’s total installed power generation capacity is around 60GW, of which only 6.5GW is renewable. It has the capacity to export three to four GW of energy with its power infrastructure at normal levels. This is enough energy to power three million homes.

Despite the Ukrainian government being preoccupied with fighting for its survival, the state of the Ukrainian economy is also a part of this dilemma. Therefore, as multiple crises are unfolding, it is up to Kyiv how it deals with the necessity to kickstart its economy. The country would not just benefit economically from increased energy production as it could also send energy commodities to the EU and help mitigate an imminent crisis. Undoubtedly, such an unburdening would greatly boost Central and Eastern Europe’s economy in the long term.

Jozef Hrabina is a lifelong devotee of international relations. His research focuses on strategic security, great power relations in the 21st century, multipolar systems stability, Eurasia, geopolitics, geoeconomics and interconnection between geopolitics and trade. Holding PhDs, he is studying international relations on both academic and commercial levels. Jozef now runs his own consultancy, GeopoLytics, dealing with geopolitical, macroeconomic and political risks intelligence.

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