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Possibilities and risks of the variants of diversification of the import of natural gas to Ukraine

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  • I. Chukaeva, V. Lier, V. Ramazanov

Abstract

The authors consider the problem of the diversification of the imports of natural gas to Ukraine in the context of the European policy energy security. The problem of the diversification of sources and ways of the supplies of imported natural gas was, in one or other form, posed in all important strategic documents related to the national energy policy. However, in practice, main attention was given to the economy (replacement) of the consumed volumes and the negotiations about the price for the critical imports of Russian natural gas. The economic nature of the differences in the prices for Russian gas for different European countries suggests about the presence of additional non-economic factors. Unfortunately, neither the Energy Charter Treatyno the membership in European Energy Community gave Ukraine any symmetric effects and did not become a guarantee of the national energy security under the dictate of the Russian gas monopolist in the region. The authors analyze the main factors, which will affect the solution of the problem the diversification in the context of the further progress of Ukraine's European integration. The authors analyze the potential of Ukraine's natural gas deposits and the tendencies of the change in the shares of natural gas in the national energy structure. During the recent decade, Ukraine's oil and gas industries have been characterized by general stability of the extraction. However, the possibilities of the expansion of oil and gas extraction are limited because the main deposits are greatly exhausted, and the explored reserves are not mastered because of the lack of sufficient investment resources. Since 2006, due to the sharp increase in the contract price, there has been a clear tendency towards decrease in the consumption and imports of natural gas in Ukraine. However, even now 66% of the imported natural gas comes from a single supplier, which is Gazprom. Ukraine's gas transmission system is the second in biggest in Europe and one of the biggest in the world. But its technological level is in a constant decline. By expert estimates, the modernization of the gas transmission system would cost about 3 bln USD. However, due to the political uncertainty, despite the declared intentions, no investments have ever come to the modernization of the gas transmission infrastructure. The authors have carried out a comparative analysis of technological and economic characteristics of different variants (projects) of the diversification of supplies of natural gas to Ukraine. Among the possible variants of the diversification of sources and routes of natural gas import to Ukraine, which are now most often discussed in the expert circles are the following: reversible supplies from Europe through the system of LNG-terminals; Ukrainian LNG-terminal; expansion (construction) of a LNG-terminal in Turkey; the Trans Anatolian Pipeline. The authors define the main possibilities, problems, risks and effects from the realization of the alternative projects. It has been established that all possible variants of the diversification of natural gas import to Ukraine involve certain economic and political risks. The main factor of success of the diversification of natural gas import at the European level is not even the availability of proper infrastructure, but a certainty of prospective availability of sufficient volumes of liquid natural gas supplies from the main exporters, including USA. Unfortunately, the absence of a contract platform (in the form of a framework agreement) between all main participants of the regional natural gas market prevents the investors from being sure in the profitability of diversification projects on the European market as a whole and in Ukraine in particular. That is why Ukraine should conduct a more active policy as to the realization of potential strategies of the diversification of natural gas supplies and avoiding the above mentioned risks.

Suggested Citation

  • I. Chukaeva, V. Lier, V. Ramazanov, 2014. "Possibilities and risks of the variants of diversification of the import of natural gas to Ukraine," Economy and Forecasting, Valeriy Heyets, issue 2, pages 36-48.
  • Handle: RePEc:eip:journl:y:2014:i:2:p:36-48
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