Kiev is feeling emboldened by the successful election of a new Ukrainian president
and a bloody surge against separatists in the east, but in just a few days,
Russia says it will twist the gas spigot, and there's very little Kiev can
do to stop that.
On June 3, Russia plans to reduce the gas supply to Ukraine -- and hence,
to Europe -- if Kiev has failed to pay in advance for next month's gas deliveries,
the price for which has been doubled as a result of the political crisis.
Interim Ukrainian Prime Minister Arseniy Yatsenyuk is trying to play hardball
with Moscow, suggesting that gas talks cannot move forward until Russia addresses
the issue of $1 billion in gas
it stole when it annexed Crimea.
Yatsenyuk may be riding high on the sense of stability the recent presidential
election has brought, not to mention the unleashing of the Ukrainian military
on pro-Russian separatists in Donetsk,
but the "stolen gas" gambit is a losing one--a bunch of bluster that certainly
won't make Moscow go away.
Ukraine owes $500 million just for May gas deliveries, on top of a whopping
$3.5 billion in outstanding gas debt (according to Moscow). If at least part
of this debt is not paid, there won't be any negotiating over price. Gazprom
says Ukraine had agreed to pay $2 billion of its debt this week, but Kiev is
instead talking about stolen Crimea gas.
What is promising in all of this is the election of Petro
Poroshenko as Ukraine's new president, by a wide margin and with more
than 60 percent voter turnout. Ukraine has new, legitimate leadership that
Russia, the United States and the European Union have all agreed to recognize.
The new president immediately pledged to deal with the separatists in Donetsk
and Lugansk, establish a working relationship with Russia and hold early parliamentary
elections, which undoubtedly is an attempt to capitalize on the current political
good will and further weaken a parliament dominated by former Regions
politicians, Fatherland and business interests.
What the presidential elections give Kiev is a bit more strength and a more
united force to deal with its energy crisis, as well as with Moscow.
In the coming days, Russia will recognise Poroshenko's legitimacy and remind
him that June 3 is right around the corner. By next week, we could see the
disruption of gas supplies to Europe, Russia's largest and most profitable
market.
If this happens, an acute energy crisis in Ukraine is all but certain. Ukraine
stockpiles its gas supply for the winter heating months during the summer.
With current low supplies and higher prices expected for this summer, Russia
will walk all over Kiev.
Short of handing Gazprom a cashier's check, there is no way to avoid the present
crisis.
In the medium-to-long term, however, some hard decisions are going to have
to be made--decisions that former Ukrainain vice prime minister and energy
minister Yuri Boyko would have liked to make some time ago. These include selling
off the state-run gas companies, Ukrnafta and Ukrgasproduction.
So we find ourselves reliving 2006 and 2009, when Russia cut off gas supplies
to Ukraine and Europe. And if Ukraine hopes to stop reliving these desperate
years over and over again, it's going to have to start selling off assets and
rolling out the transparency.
The trick will be for Poroshenko and a newly appointed energy minister to
work with both Russia and Europe to secure new pricing and to foster energy
independence while at the same time being mindful of one very important fact:
Ukraine's westward drift toward the EU is what led Russia to annex Crimea in
the first place.
Russia will continue to use Russian nationalist movements in eastern Ukraine
to stir discontent and to sow chaos, striving to keep Kiev off balance as Moscow
works to use gas as a weapon to ensure a compliant Europe. It's a hard balance
to maintain, especially as some Central European countries are seeing the light
at the end of the independence tunnel.
Poroshenko is a highly pragmatic businessman, which is what Ukraine needs.
But neither he nor those around him know energy, or Russia. From the energy
crisis standpoint, it is the appointment of a new energy minister that will
change the real balance of power.
There are very few figures in Ukraine who know the West, Russia and enough
about energy to do what needs to be done. Because of that, Poroshenko's pick
for energy minister should be the smartest choice, not the most popular one.
Source: http://oilprice.com/Energy/Energy-General/Ukr...ts-in-June.html
Commentary by Robert Bensh, special to target="_blank" Oilprice.com
