26 Dec 2017
Expert Opinions Economy Analytics Andrian Prokip

US-Ukraine energy security plan: towards a win-win strategy

  • Comments: 0
  • Views: 3201
US-Ukraine energy security plan: towards a win-win strategy
US-Ukraine energy security plan: towards a win-win strategy

US-Ukraine energy security plan: towards a win-win strategy

Author: Andrian Prokip
26 Dec 2017 12:31

Both Ukraine and USA are interested in strengthening of Ukrainian and European energy security, what at somehow means decreasing influence of Russia and thereafter contributing stability to the region. Current conditions are favorable for participating US companies in extracting energies in Europe, beside exporting those from America. This can provide profits to US investor and local actors, make European market less concentrated and contain Russia by decreasing its energy incomes leverage. Section №257 of recently adopted “Countering America’s Adversaries Through Sanctions Act” is dedicated to, strengthening Ukrainian energy security and reducing its reliance on Russian supplies. One of the most important plan of the plan should investments’ search to boost energy production in Ukraine.

US and Ukrainian energy interests in Europe

US impact on European energy market, by efforts of decreasing Russia’s share, is the way of containing and withstanding further destabilization that provides gaining profits. Hence, among main US energy interests in the Europe are:

  • Exporting energies and creating new jobs in the US (as in mentioned in Sec 257 of the sanctions act).
  • Decreasing Russia’s role in European energy supplies in order to support US allies. That will promote deconcentrating of European energy market. Thereafter, it will bring to decreasing Russia’s revenues and its leverage for destabilization the region in future.
  • Participating in energy extraction, production and trading directly in Europe, that in some cases (eg., gas) is more profitable comparing to delivering resources from America. This still can contribute to support of US allies in Europe, as well as export of energies from America.
  • Containing China from accessing scarce resources’ stock in Europe (e.g. lithium).

Current Ukrainian energy interest consists of strengthening internal energy system from inside (e.g. achieving self-sufficing) and achieving deeper interdependence with the EU (e.g. increasing bilateral energy trade), to scale down Russian leverage to destabilize situation in Ukraine.

In this scope, main Ukrainian interest include:

  • Achieving energy self-sufficiency by boosting resources’ production. The country is in the top-Europeans list by stock of energy.
  • Promoting usage of Ukrainian energy infrastructure to cover European demand.
  • Withstanding cyber threats in energy and strengthening of information security to cope cyber-attacks on energy infrastructure and efforts to undermine energy reliability if the region, that Russia is suspected to be involved in.

Considering main Ukrainian and US interests, framework of the energy security plan, some interests of mutual benefit for US and Ukraine are clear: joint activities on supplying energies to Ukraine and other European states. Main preconditions for such (see more detailed informational and justifications below) US-UA cooperative activity are:

  • Existing reserves of energy resources in Ukraine.
  • Developed energy infrastructure, interconnected with the European one (which however has to be renovated)
  • Lower cost of producing energies in Europe, including Ukraine, comparing to transporting those from America.
  • Opportunity to decrease Russia’s role and its further possible destabilizing activity in the case of less concentrated European energy market.

Key benchmarks and indicators of investing in Ukrainian energy and investors’ benefits

 

Existing preconditions

Necessary tool

Expected gains

 

Natural gas

1) Available gas stocks of 924 bln bcm1.

 

2) Amended legis­la­tion to stimulate gas extraction and trade.

  • $3-3.5 bln investments within 3-5 years*.
  • unconservation of gas wells (5.000 units of PJSC «UkrGasVydobuvannya» are conserved, 270 wells can be reopened within 5 years)1.
  • Introducing new technologies.
  • $14 bln investments in oil extraction within 5 years*.
  • $2-2.5 bln investments in refining within 2-3 years*.
  • “Energy Bridge Ukraine-EU” to export electricity from 1GW NPP unit – $50 mln4.
  • Construction of new NPP units - 1,5 GW will need $5 bl investments*.
  • Total investments needs for developing nuclear energy in Ukraine during next 10-15 years will $20-25 bl*.

 

1) Decrease of Russian exports $3.4-4.5 bln annually* since 2021 (at current prices $225) at the expense of:

  • 11-15 bcm annual decrease due to turning Ukraine to 100% self-sufficient;
  • 4-5 bcm annual decrease due to turning Ukraine to gas exporter supplying neighboring states.

 

2) Profitability of gas extraction in Ukraine can reach 30-40% now* (what is much higher to non-favorable conditions for supplying US gas to Ukraine through Poland; low gas prices in the EU can turn those supplies to unprofitable)

Activity should be supervised and advised by:  Ukrainian prime-minister, Ministry of Energy, US-UA energy plan implementation supervisor

Oil

1) 200 bln t reserves of oil and condensate accumulation

2) Amended legis­la­tion to stimulate oil extraction and trade.

 

1) Reduce of Russian supplies and full Ukrainian self-suffi­cien­cy within 5 years* (in 2016 oil and petroleum import amounted $3.4 bln, including $0.75 bln from Russia and $1.8 bln from Belarus3)

 

 

Electricity exports

1) Strong and developed nuclear industry

2) Integration with European Network of Transmission System Operators for Electricity is on the track

 

Starting projects:

 

1) Additional initial growth of electricity exports will amount 15-17 bl kWh annually (current export price - $44 per MWh; expected revenue – $660-750 mil)*. Further growth will be possible in the case of putting new energy generating capacities into operation;

2) Deeper interdependence of the EU and Ukraine, working as a protection from Russian influence

Gas storing

1) The biggest in Europe underground gas storages and developed gas transmitting system

New companies responsible for storing and trading gas in both  EU-UA directions

1) Better reliability of gas supplies for European countries.

2) Deeper interdependence of the EU and Ukraine, working as a protection from Russian influence.

Nuclear fuel

Biggest in Europe reserves of uranium

  • $500-600 mln of invest­ments for constructing the nuclear fuel fabrication plant

 

 

References:

* Assessments and evaluation of Ukrainian Institute for the Future.

1 BP Statistical Review of World Energy.

2 Information of PJSC Ukrgasvydobuvannya.

3 Statistic Service of Ukraine.

4 Information of National Nuclear Energy Generating Company “Energoatom”.

5 according to previous assessment of the cost joint construction with Russian TVEL.

Subscribe to news