Over the last few decades, Ukraine was dependent on gas supply, primarily from Russia.
Since 2014, gas supply diversification has become absolutely crucial to national security. Addressing Ukraine’s energy needs as well as following energy independence goal, Ukraine should be prepared to reality with any scenario due to Russian projects Nord Stream 2 and Turkish Stream. While Ukrainian leadership is focused on creating favorable conditions to increase domestic production, experts’ calculations confirm that Ukraine would remain highly dependent on gas imports for the next years. The solution should be found as soon as possible. While pipelines still remain the most widespread option for gas transmission due to its costs, liquified natural gas — or LNG — had challenged this status quo, ensuring an additional source of supply.
In the face of expiration of the 2009 gas contract with Gazprom, energy security concerns are being systematically voiced by Ukrainian as well as European politicians. The country enters a critical period to secure its transit to Europe, seeking a new deal with Russia after Dec. 31, 2019. This deadline requires to approach strategically and pragmatically to the issues of Ukraine’s transit status for a long-term perspective.
Cautious activity of the European Union partners in the context of recently adopted amendments to the gas directive suggests that European concerns on Ukraine’s energy security are rather limited. In the other extreme, Ukraine has witnessed U.S. practical support in achieving resilience of national energy complex, including via diplomatic efforts on international area.
Ukrainian and European energy security is viewed by U.S. President Donald J. Trump’s administration as in the national interest. In recent years, Ukraine had received numerous assurances that U.S. is a reliable partner when it comes to the geopolitics of gas and Russian energy dictatorship in the region. Taking into account that Russia would continue to behave unpredictably towards the regional energy market, the U.S. Congress seems to use legal tools in order to help states to overdue the Russian energy blackmail.
After the entering into force, H.R.3364 “Countering America’s Adversaries Through Sanctions Act of 2017” with separate Sec. 257 dedicated to Ukrainian energy security, strategic partnership between our states were strengthened, demonstrating readiness to seek common political solutions of Ukraine’s energy dependence. After that, several initiatives were introduced in Congress.
Recently, the H.R.1616 “European Energy Security and Diversification Act of 2019” had been passed the U.s. House of Representatives. This law could help to unlock the LNG project on the Black Sea coast.
Maritime diversification seems to be a good option, especially, considering Ukraine to be a maritime state with well-developed port infrastructure. The country has the most powerful port potential among all countries of the Black Sea region even after Russia’s illegal annexation of Crimea’s ports. Actually, the most important Ukrainian ports are those of Odesa, Yuzhniy, situated in the northwestern part of the Black Sea.
The LNG terminal is not a new idea. The main argument in favor of the terminal is real diversification of supplies. At least four years ago, when the topic of diversification of fuel supplies was more urgent than ever, the TIS Group company had declared its plans to build a floating terminal. The LNG import project could be developed in two phases. For a first stage, the FSRU-terminal could be setting up, while the second phase entails the construction of a land-based LNG import facility. The use of new technological methods of construction, in particular, a floating platform would be cheaper as well as ecologically-friendly.
Both this and that option imply the presence of internal infrastructure in the port (high-pressure pipe connected to the gas transportation system), sufficient depth for gas carriers to enter (on average, from 12 meters). The only difference is in volumes the terminal can handle, and, accordingly, its cost. For comparison, the similar projects in neighboring Poland with LNG terminal in Świnoujście and Lithuanian independence in Klaipeda could be taken into account.
At the same time, based on geo-economics, Ukraine has a significant infrastructural potential to become Eastern European Gas Hub. Having one of the most powerful and flexible gas transmission system in the world, Ukraine’s underground gas storage facilities with total active capacity of 31 billion cubic meters, and the Ukrainian gas distribution system, with a total length of 292,000 kilometers, creates necessary conditions for ensuring European security of supplies from a technical point of view. Both Ukraine and the EU promote increasing mutual interconnectivity in order to improve the dynamic of reverse flows.
However, the stumbling block remains the issue of passing gas carriers through the Bosphorus. For the past six years, Ukraine has been unable to reach an agreement with its Black Sea neighbor, Turkey, to get its permission for passing vessels with LNG on board through the strait in Istanbul. International marine law has restrained Turkey to interfere formally into this particular case because of the Bosphorus Strait’s status as an international transport artery. Turkey is obliged to comply with the provisions of the Montreux Convention of 1936 on the freedom of navigation in the Black Sea straits. And for vessels no longer than 300 meters, additional clearance is not necessary. However, according to the ports of Ukraine, it is now again important to “intensify diplomatic efforts” in order to solve this issue.
Dependence on Russia’s Gazprom has repeatedly turned into large financial losses for Ukraine. Thus, the country remains interested in the possibility of supplying American LNG to its market through the Black Sea, but so far this project has been hampered by Turkey’s reluctance to allow LNG tankers through the Bosphorus. Restrained hope exists that the new U.S. diplomatic efforts could solve this problem.
From a geopolitical perspective, LNG can affect Central and Eastern Europe by decreasing dependence on a single monopoly source of gas supply, to prevent occurring of two problems: political pressure and high energy prices, restraining economic growth.
Obviously, Ukraine should have alternative options of gas supplies in case of Nord Stream 2 construction and the volumes of transit will be cut and/or fully stopped. Ukraine could benefit from recent changes in global natural gas development. The LNG terminal idea as an option to be revived is likely to draw Ukraine on the regional energy map, strengthening its energy subjectivity within international energy markets, ensuring Ukrainian consumers with natural gas supplies.
