Ukrainian energy officials are in a race against time to secure funding for natural gas imports to heat homes and power businesses this winter as Russia continues its grinding military offensive in the Donbas. Top energy executives from Ukraine are pitching Washington and other Western capitals on a raft of potential solutions to secure supplies to last through the upcoming winter and boost domestic production.
This includes proposals to secure international financing to buy natural gas from major exporters in the Middle East and North Africa, developing alternative supply routes, and a possible “lend-lease” agreement with Washington to import US liquefied natural gas (LNG).
As Ukraine’s industry has shrunk due to the war and 7 million people have fled the country, demand for gas has actually decreased — but so too has the country’s ability to pay for imports amid rising prices and a government shortfall of US$5 billion per month. Naftogaz CEO Yuriy Vitrenko, who was in Washington last week for meetings with the Biden administration, said Ukraine needs US$8 billion in financing to fund the import of 6 billion cubic meters of gas before the winter. Before the war, Ukraine consumed 30 billion cubic meters of gas per year, a third of which was imported. Some 90% of Ukrainian homes are reliant on gas heating, and gas serves as a backup source of energy for many of the country’s power plants.
Washington has committed almost US$54 billion in military, humanitarian, and economic aid to Ukraine and the wider region since Russian forces invaded in February. While discussions on support for the Ukrainian energy sector are in the early stages, Vitrenko acknowledged that the Biden administration had been “super helpful”.
“They have a very clear mandate to provide necessary assistance to Ukraine. We want to structure it in a smart way so that there is no burden on the US taxpayers,” Vitrenko said.
The push from Ukraine for energy lifelines comes amid a broader effort by European governments to wind down their reliance on Russian energy imports. Despite sweeping global condemnation and devastating international sanctions, Europe is still reliant on Russian energy, a point of geopolitical leverage that Moscow holds over the West as well as a source of funding for its continued military invasion of Ukraine. Europe imports about 40% of its natural gas from Russia and a good part of its crude oil as well. Europe is already facing a looming energy crisis as prices spike, gas storage facilities remain unfilled, and a skittish market braces for further supply disruptions from the war in Ukraine.
There’s a broad fear, particularly among Eastern European governments, that Russia could disrupt or cut off gas exports to punish Western governments for supporting Ukraine and try to weaken European resolve. On Tuesday, Europe got a hint of more disruptions to come, as Russia’s state-owned gas giant, Gazprom, announced it would cut its daily gas deliveries to Germany under its Nord Stream 1 pipeline by 40%, purportedly due to technical difficulties.
“Europe’s very reliant on Russia for energy, but they’re trying to reduce that reliance very quickly,” said Emily Holland, a scholar at the US Naval War College and an expert on European energy issues. “The next one to two years is going to be quite challenging for Europe in terms of trying to transition away from Russian gas.”
Gazprom has already cut off gas supplies to Finland, Poland and Bulgaria for refusing to pay for gas in rubles instead of euros or dollars — a policy Moscow put in place to try to keep the Russian currency from collapsing after launching its invasion of Ukraine. Now top European Union leaders are working through contingency plans in the event of a full supply disruption.
Wealthier European countries can likely weather the storm in the interim, even if it’s costly, but Ukraine, which faces harsher winters and severe economic constraints from the war, would be more vulnerable to any disruption in gas supplies.
“They’re trying to shore up a way to get enough supplies from Western traders at prices they can afford because prices are through the roof and Ukraine’s economy is in pretty bad shape,” Holland said.
One of the new proposals floated by Ukrainian energy officials is to secure energy supplies under a lend-lease agreement, which would see the United States provide Ukraine with 6 billion cubic meters of LNG, delivered to terminals in Europe — Ukraine doesn’t have any LNG terminals — before being shipped via pipeline to Ukraine. Kyiv would repay the United States in two years once domestic production of gas is ramped up.
“They were surprised to hear such an idea, but it was well received,” Vitrenko said.
The US Energy Department referred to the National Security Council when asked for comment on the proposals. A spokesperson for the White House said, “We remain committed to Ukraine’s energy security and will continue to work closely with the government to identify effective solutions.”
The first Lend-Lease Act, passed during World War II, enabled the US president to sell or lease military hardware to countries deemed critical to US national security. The legislation was also used to send items ancillary to the war effort, such as blankets, boots and food. A similar law, providing for the lease of weapons to Ukraine and allies in Eastern Europe, was signed by President Joe Biden in early May — a model that Ukrainian officials and energy executives are hoping to replicate on the energy front.
Another proposal Ukraine is exploring is to secure funding from the US International Development Finance Corp (DFC), a US government development bank, to help pay for gas in the short term as global gas supplies tighten and prices increase. Pooja Jhunjhunwala, a spokesperson for the DFC, declined to comment on ongoing discussions with Ukraine but said, “DFC is working within our statutory authority to help address Ukraine’s and Europe’s unprecedented energy crisis and erode Russia’s domination of European energy supplies, by seeking to support energy and energy-related infrastructure investments.”
Ukraine has already secured similar help from the EU, however. On Tuesday, the European Bank for Reconstruction and Development (EBRD) announced that it would lend up to 300 million euros (A$447 million) to help compensate Ukraine for disruptions to its domestic gas production caused by the war.
Naftogaz “will use the initial €50 million tranche disbursed by the EBRD for emergency gas purchases, which are urgently needed to prepare Ukraine’s gas system for the next heating season,” EBRD said in a statement.
Moscow’s renewed invasion has also fueled efforts to boost domestic gas production in Ukraine. In Canada, Washington and Houston, Ukrainian energy executives are seeking to woo their Western counterparts to invest in Ukraine and help the country tap further natural gas deposits through horizontal drilling as the war has precipitated a shift away from Russian energy.
The war has also placed a renewed emphasis on the potential of renewable energy in Ukraine. “There are some pilot projects that we managed to do during the war,” Vitrenko said. In May, construction was completed on a hydroelectric plant in the western Ukrainian city of Lviv, which is projected to replace an estimated 800,000 cubic meters of gas annually, enough to power several hundred households.
“Ukraine is really positioned to be a monumental clean energy exporter into Europe and can contribute significantly to the European Green Deal and meeting its climate goals,” said Olga Khakova, the deputy director for European energy security at the Atlantic Council’s Global Energy Center.
The Biden administration banned imports of Russian oil in March, while the latest round of EU sanctions is projected to reduce imports of Russian oil by 90%, with a view to depriving Russian President Vladimir Putin of energy revenues to fund the war. Reaching a similar agreement on Russian gas is expected to be an uphill, and potentially elusive, battle.
While Europe is securing gas from other suppliers, including LNG from the United States, it’s not possible to do so at the volumes it would need to completely replace Russia’s supplies, said Alex Munton, the director of global gas services at the Rapidan Energy Group, an energy research firm.
Munton also said it’s unclear whether the natural gas industry can keep up the current pace of LNG production to continue exporting to Europe at current volumes. Demand in Asia could go up, further boosting prices and diverting some volumes away from Europe, while US domestic LNG production, primarily based in the Gulf of Mexico, could be interrupted by severe weather during the upcoming hurricane season. A fire at a major US LNG terminal in Texas last week is also expected to squeeze exports to Europe as the site will be offline until at least September.
“There’s a false sense of security in Europe,” Munton said. “The last five months, where Europe has had a relatively smooth path in being able to access the LNG volumes it’s needed, is not the most reliable basis for estimating how things are going to unfold over the next five to six months.”
All of this spells trouble for Kyiv, even months away from the onset of winter, absent an intervention from Washington and its allies in Europe.
“Even if Russia doesn’t cut off gas supplies to Europe, there’s still going to be an energy crisis with gas in Europe,” Holland said. “Ukraine needs to prepare for a very difficult winter.”
An entire article from an international affairs perspective which never mentions the weird peace. Russian “ chokehold” and other emotive expressions to demonise Russia and praise the Ukraine government. The usual refusal to concede how things got to this sorry pass or to assess whether it would be better to make peace an absolute priority rather than “ we’ll do peace when we’ve got our enemy over a barrel “. Most Ukrainians would be relieved to wake up tomorrow and be able to afford heat, power and food. The rest is arm wrestling. Don’t forget that as late as 2019 Ukraine was reckoned as the most corrupt polity in Europe. That hasn’t changed sadly ?. Steve Carey
Surely this is a mission for Hunter Biden.
You know, all that vast experience he gained whilst on the board of Burisma Holdings, the Ukrainian natural gas company, who were the subject of criminal investigations, up until VP Joe Biden pressured the government into firing the prosecutor who was leading the corruption inquiry into Burisma Holdings.
Yep, Hunter’s definitely the man for the job…
Fascinating how people in far away places offer Orwellian commentary on how good Putin’s Russia is, blaming Ukraine for invading itself, and the old chestnut, the Hunter Biden laptop conspiracy?
It does not say much for Australian media either, when similar was promoted by 9F’s Washington Correspondent (at least as a talking point?) in ‘First dismissed, Hunter Biden’s laptop scandal gets rebooted’ (1 April ’22, or was it an April fool’s joke?) by citing Murdoch’s NY Post and coincidentally repeating the Bulgarian based Zero Hedge’s claims of conspiracy; the latter has been described as Kremlin supported, while Putin & Trump good vs. Obama, Clinton, Merkel & EU bad.
How did modern day Ukraine come about Drew?
You tell me, you claim to know everything, but why modern, let’s go back to late 10th century for the roots of modern Ukraine, and especially Kyiv and how it relates to Russia and Turkey; two sub-empires?
What did I claim Drew. The areas of the Donbas right around to Odesa were gifted to Ukraine by the Bolsheviks in 1922 annexed from Russian lands, while Crimea was annexed by the Soviets in 1955 all without any legal justification. Not a single brick was laid in Odesa by a Ukrainian and there isn’t any war cemeteries in Crimea. These areas described have been waiting since 1996 to be liberated from Kiev. The 10th century is Russia became Orthodox and after the collapse of the Byzantines Russia became the protector of the faith. No mention in history about Ukraine Drew.
Imperial revisionism:
‘The 10th century is Russia became Orthodox and after the collapse of the Byzantines Russia became the protector of the faith. No mention in history about Ukraine ‘
Neither a Russian nation nor empire, let alone ethnicity even existed then. Prince Vlad of Kyiv, beguiled by the beauty of the Aga Sophia Church in the 2nd Rome, Constantinople, then adopted it; Russian Orthodox Church originally came from Kyiv.
Further, Russians were also the ethnic and cultural product or mash of other old empires including Swedish, Polish, Lithuanian, Ottoman, Slav, Mongol and/or Central Asian.
Aren’t Russian Orthodox Church partners happy while Russia relies on Hungary’s Orban to support the Russian Patriarch (vs. many priests & counterparts who do not)?
Russia resorts to blackmail, war, false history and old empire of Peter the Great to justify the invasion of Ukraine; Turkey to an extent too but not Belgium, Netherlands etc. who got over it?
No different to the West using blackmail, threats, war, false history etc to justify its many, many invasions across the globe.
No, that’s just glib ‘whataboutery’ used to deflect from present events & confuse, very popular with nativist conservatives of both left and right to justify doing nothing….. maintaining the status quo.
As Eric Draitser of the left outlet Counter Punch described his counterparts in the US as ‘sh*theads’ & ‘fake anti-imperialists’ for doing the bidding of Putin and taking easy shots at Ukraine…..
“Whataboutery” quite correctly highlights the hypocrisy of those demonising Russia, in this instance, for doing exactly what “the West” has done for hundreds of years with nary a thought that “the West” was the “bad guy” yet alone illegal “sanctions”. NATO consistently refused to even acknowledge Russia’s legitimate security concerns and as a result, we are where we are. The hypocrisy and sanctimoniousness the Western attitude is unparalleled.
The Ukraine deserves the same level of “support” that the West traditionally provides to any country invaded by the West ie: nothing whatsoever.
Ukraine and Russia are as bad as each other and this conflict would have been done and dusted by now had “the West” not seen an opportunity for a proxy war with Russia (now where have we seen that before?).
We’re focused on Russia – Ukraine, where Russia invaded Ukraine, a much smaller sovereign nation; known as bullying.
No, ‘whataboutery’ is not an analytical prism but an old PR ‘rhetorical device’ used by power to deflect from their own transgressions i.e. Putin’s Russia, by blaming the weak i.e. Ukraine, which has been invaded and then being blamed.
Bollocks. Ukraine made its own bed with the help of NATO. When the US, UK and Australia are held to account for their invasions, war crimes and atrocities then you can whine about Russia.
Sounds like the analysis from grifters of ageing nativist right libertarians & lunatic left; Putin is a great guy and simply a victim of some mythical Ukraine aggression, NATO, UK, US & Australia.
Easy to do when people in the region bordering Russia number 200 million but their voice, interests and defence does not count, why? Because they disagree?
What no “libertarian Koch think tank” responsible for a change? Dismissing the Wests invasions of Sovereign Nations, when it suits the West, is typical of a Western white denialist position.
John Mearsheimer disagrees with you and has for over 6 years. He is far more qualified than either of us to analyze the causes and he is firm that this is the fault of the West.
This entire conflict is a result of the US, EU and NATO refusing to acknowledge Russia’s legitimate security concerns since 2008.
We should not be surprised that unlike the rest of Europe, France is not suffering so much from a shortage of gas supply. In the 1970s France engaged in serial production of nuclear reactors. Consequently France has an indefinitely large energy storage, invulnerable to Russian disruption. By a steady production of reactors they became cheap and reliable. Most of the reactors being built in China today are based on the main French design. In contrast, Germany exposed its industry and home supplies to the lunacies of the “Energy Revolution”, which required most of its power to be provided by coal and gas, increasingly Russian gas.
Currently, any claim to reduce someone’s National Grid to “100% renewables” relies on the invisibility of the gas that provides the majority of its energy. The Australian grid is surreptitiously being converted from coal to gas, with an ostentatious display of renewables to distract attention. Occasionally, the more honest of the believers will refer to energy storage. But the history of energy storage shows that the renewables industry has not taken the challenge seriously, instead relying on a never-ending supply of fossil fuels to convert their intermittent supply to on-demand electricity.
From the FT 30 May ’22: ‘Power plant shutdowns hinder France’s ‘nuclear adventure….Half of France’s 56 reactors are offline — a record — with 12 of those shut down because of corrosion inspections.’
Where does France source its uranium from?
Historically, France got its uranium fuel from West Africa. That includes the famous natural reactor at Oklo, that ran for a few hundred thousand years, generating and burning its own plutonium. Since then uranium has been found all over the world and its price has declined near to the cost of mining it. Australia supplies uranium to anyone who conforms to the IAEA rules and monitoring – which includes France.
The Flamanville reactor in Normandy came on line a decade late and double budget? That earlier lead France to drop its nuclear target from 75% to 70%
There was no deadline and no such fixed budget. The giant new-generation reactor at Flamanville is a prototype, the second of its kind. The third and fourth EPRs were built much quicker and at much less cost, but critics prefer to weave a much more disparaging story. We have to include nuclear in the mix if we are to eradicate all use of fossil fuels. The worst imagined consequence of using nuclear electricity is nothing compared to the certain consequences of accelerating climate change.
Waste of time, the Kiev NAZI regime wont be around by winter.
Any word on the 70,000 tonnes of coal Scummo promised to ship to the Ukraine, way back when?
Becalmed off the storm tossed coasts of Bohemia, methinks.
Thanks for the laugh about the US ‘lending’ 6B cu/mts of LNG to the Ukraine which “…Kyiv would repay the United States in two years once domestic production of gas is ramped up.”
Currently scheduled for the 32nd of Never, 2099.