Options for Ukraine to Diversify its Energy

by Sara Westfall

This article was first published by Foreign Policy Blogs.

The current crisis in Ukraine has pitted the United States and its allies in Europe against Russia. Russia has demonstrated the will to use political and military force to pressure Ukraine and the West, but its most effective method of coercion may still be targeting Ukraine’s dependence on Russian natural gas. Ukraine’s proximity and cultural links to Russia inevitably assure a political role for Russia in Ukraine, but the question of energy relations is decidedly more open. It is clear that to ensure its long-term energy security and sovereignty, Ukraine must diversify its supply away from Russia. Unfortunately, there are no short-term solutions, but there are several long-term solutions that are promising.

Crude oil tanker comes through the channel into Adzhalykskyi liman, Odessa Oblast, Ukraine. Photo Credit: Minami Himemiya

Crude oil tanker comes through the channel into Adzhalykskyi liman, Odessa Oblast, Ukraine.
Photo Credit: Minami Himemiya

Approximately 25 percent of Ukraine’s energy needs are met with Russian sources. In addition to being a large consumer of natural gas, Ukraine is also an important transit point for gas from Russia and Central Asia heading to European markets. The EU gets 24 percent of its natural gas from Russia and about half of its supply from Russia passes through Ukraine.

Natural gas plays a major role in Ukraine’s energy supply, but it is not its main source and constitutes only 40 percent of its energy consumption. Sixty-three percent of this natural gas comes from Russia, with the rest being domestically produced. Recently discovered shale gas deposits in Ukraine may offer a way to diversify its natural gas supply. According to the U.S. Energy Information Agency, Ukraine’s shale gas reserves are the third largest in Europe. In total, these reserves are estimated at 42 trillion cubic feet, which is over 500 times Ukraine’s annual consumption rate. The government has already signed deals with Shell and Chevron to develop these reserves. However, the conflict in eastern Ukraine has already forced Shell to stop operations in the Yuzivska shale reserve.

The rest of Ukraine’s energy supplies primarily come from uranium and coal. Ukraine currently has 15 Soviet-era nuclear reactors producing about half of its electricity consumption. Still, it receives most of its nuclear fuel and services from Russia. The new Ukrainian government hopes to end this dependence. This new government has confirmed that it wishes to keep the targets set by the previous government, which include continuing to generate half of the country’s electricity from nuclear energy and increasing output each year to keep up with demand. Ukraine’s energy minister in June stated that a new concept for the development of nuclear power, which will lay out plans for construction on new power units, including a western-designed reactor in southern Ukraine, will be adopted by the government before the end of the year.

Clean coal, coal that is processed in a way to reduce the amount of carbon dioxide that is emitted into the air, is also a potential source of energy. While coal currently makes up 28 percent of Ukraine’s energy consumption, U.S. energy company Babcock & Wilcox claims that it would be relatively easy with U.S. assistance to convert the five largest thermal plants from natural gas to clean coal within two to three years.

Only one percent of Ukraine’s energy comes from renewable energy sources, but the International Energy Agency thinks there is a huge potential here. While Ukraine lags behind other countries’ use of renewables, it has expanded its hydropower, biomass, wind and solar energy sources over the last 20 years. As of 2012, renewable energy sources had the potential to produce 25 terawatt-hours (TWh) of electricity and 2 million tons (Mt) of biofuels. Furthermore, Ukraine’s agricultural sector produces large amounts of agricultural waste which could be used to produce enough biogas to replace 2.6 billion cubic meters (bcm) of natural gas each year.

Yet another endeavor that would immensely help Ukraine’s energy sector is not exploiting a new source of energy, but rather tackling the endemic corruption in its energy industry and regulatory system. Ukraine’s oligarchs have for years made fortunes by using their political connections to buy cheap gas from Russia’s Gazpom and selling it for high prices. Furthermore, no monitoring system was ever set up to measure how much gas enters Ukraine from Russia, allowing Ukrainian and Russian businesses to sell some of the gas through Ukraine’s shadow economy.

While little can be done in the short-term to solve Ukraine’s energy crisis, there are options for diversifying its energy sector in the long run. Its shale gas reserves offer huge untapped potential, as does renewable energy. Coal and nuclear energy can also be expanded to keep up with electricity demands. The U.S. and other countries can help Ukraine with developing technical expertise to use new energy sources. They should also continue to encourage the new government to curb the corruption that that brought down the Yanukovych government in the first place.

Sara Westfall is an Energy Security Research Fellow with Young Professionals in Foreign Policy. Follow Sara on Twitter @srw628 and YPFP @YPFP.