As the construction of Russian gas pipelines to Europe and Turkey are going full throttle ahead, keeping transit through Ukraine is a priority for the European Union, Vice President of the European Commission Maroš Šefčovič said on Sept. 15 at a panel at the Yalta European Strategy meeting in Kyiv.
Russia’s two new pipelines – Nord Stream II and TurkStream – that will deliver Russian natural gas to Europe have been strongly opposed not only by Ukraine but the Baltic states which will be bypassed by new routes and deprived of transit fees. For Ukraine, losses from the Nord Stream II pipeline are estimated at $1 billion annually.
TurkStream will run from the southern Russian region of Krasnodar across the Black Sea to Turkey. From there, Russian gas will further on go through Central Europe to Austria. And Nord Stream II will connect the Russian city of Vyborg to Germany via the Baltic Sea.
Šefčovič, who is in charge of the Energy Union at the European Commission, admitted that the EU has a strong commercial interest in both projects but said he had never seen such strong opposition on a political level. In his words, the EU understands the importance of continuing gas transit through Ukraine.
“We [the European Commission] ask our countries to give us a mandate to negotiate with Russia and make sure transit routes are preserved.”
At the same time he underscored that although the EU is committed to helping Ukraine and supporting sanctions against the Kremlin for the occupation of Donbas and the annexation of Crimea, they would make sure the EU’s energy interests stand first as well.
“Europe benefits more from trade with Russia than the United States. The EU is a huge market, and we need to diversify our energy supplies and encourage competition,” he said on Sept. 15.
The U.S. has also eyed the European market, and the first tanker with the American liquid natural gas (LNG) arrived in Lithuania this month.
The panel, however, veered into a discussion of renovating Ukraine’s gas pipeline system after a question from Olha Bielkova, a member of the Ukrainian parliament who used to be on the executive management team in Victor Pinchuk Foundation in the past.
Karl-Georg Wellman, a member of the German parliament, replied to Bielkova’s comment from the audience, saying that Ukraine “desperately needs to modernize its pipeline system.”
Victor Pinchuk, the conference’s organizer and sponsor, made his fortune with Interpipe, a steel pipe and wheels manufacturer. The company could stand to gain from a renovation of Ukraine’s gas pipeline system.
Andriy Kobolyev, CEO of Naftogaz, Ukraine’s state-owned oil and gas company, agreed that for Ukraine keeping its gas transit routes with adversary Russia is a strategic task. He said that the negative effect from the Nord Stream II and TurkStream can be mitigated by increasing domestic production.
“This is the matter not only of economy but also energy security,” he said. “ But to increase domestic production we have to improve the regulations and develop zero tolerance to corruption.”
Kobolyev also described the recent increase in Ukrainians’ gas prices as an element of the country’s national security.
“Gas was given to households at a low price, a small fraction of the market price,” Kobolyev said, partly in response to a question of whether Naftogaz’s transition from $8 billion in losses to $1 billion in profits under his tenure was a product of the elimination of waste or corruption.
Kobolyev said that the policy had two consequences: declining domestic gas production, with increasing domestic gas consumption, forcing Ukraine to increase imports from Russia.
“So [the Kremlin] killed two birds with one stone,” he said. “They kept Ukraine weak and poor, and totally controlled.”
Kobolyev then proposed a free, transparent gas market as a potential solution to the problem.
Šefčovič supported the idea: “Develop the market, improve your legislation so that Western investors could come to Ukraine.”
He didn’t say anything, however, about the retaliatory measures that the EU had threatened to take earlier in response to the new package of U.S. sanctions against Russia imposed in August.
The U.S. Congress unanimously voted for more economic punishment for Kremlin’s alleged interference in the 2016 presidential elections which helped Donald J. Trump become a president. The sanctions would primarily hit Russian oil and gas companies and those firms in Europe which support energy export pipelines by Russia, and were designed in a way that makes it difficult for the president to waive them without the Congress’s prior approval.
Read more: Victory Abroad: Congress trumps Trump on Russian sanctions
And Condoleezza Rice, former U.S. Secretary of State, encouraged Ukraine to use the brief window of time it has to eliminate corruption and reform its energy sector and governing institutions in a pro-EU manner.
“Don’t sit and wait for the international community to isolate Russia forever,” she said. “It won’t happen.”
Kyiv Post staff writer Josh Kovensky contributed to this report.
