IHS CERAWeek: Russia, West will have to cooperate to resolve Ukraine issues

Russia’s Energy Minister Alexander Novak cancelled his Mar. 4 appearance at IHS CERAWeek given rising tensions between Russia and the Ukraine, and conference panelists discussed the emerging geopolitical situation and what it might mean for energy.

Thane Gustafson, IHS senior director of Russian and Caspian energy, said an interim government is going to have to maintain order in Ukraine and to find candidates for an upcoming presidential election.

“Ukraine needs fixing,” Gustafson said, adding that he believes “Moscow and the Western countries have to work together” toward a peaceful resolution.

Angela Stent, Georgetown University professor in Washington, DC, and an author on US-Russian relations, said, “This isn’t the Cold War…but it has the feel of a Cold War.”  She noted “a huge difference” between Russia and the defunct Soviet Union.

“This is the worse time in relations between Russia and the West since the collapse of the Soviet Union,” Stent said. But she added that Russia is part of the global economy and realizes the potential consequence of its actions. She spoke to the conference via webcast from Washington.

Daniel Yergin, IHS vice-chairman, told reporters on the sidelines of the conference that Russia sees the value in being seen as a reliable supplier of oil and natural gas.

Following bloodshed and turmoil in Kyiv, Ukraine’s Parliament recently voted to remove President Viktor Yanukovych from office, and a presidential election is planned for May. Meanwhile, Russia is assembling a military presence in Crimea.

Previously, Russia threatened to cut off gas to Ukraine (OGJ Online, Feb 14, 2008). In early 2009, OAO Gazprom resumed flow of gas supplies to Ukraine in a deal brokered by the European Union (OGJ Online, Jan. 12, 2009).

Andrew Neff, IHS senior energy analyst, wrote a February commentary saying that the changes in Ukraine “will have wide-ranging ramifications for the country’s energy sector, raising a number of questions about near-term challenges and medium-to-long-term changes in policy, as well as the country’s relationship with Gazprom, with the European Union, and with Western energy companies.”

Neff said Yanukovych’s ouster created a political vacuum in Ukraine, although Oleksandr Turchynov was installed as interim president. A coalition government is being formed.

“The pro-European tilt of Ukraine’s new leadership in the aftermath of the recent political developments calls into question Russia’s response to the new Ukrainian order and how this will impact on Russia-Ukraine energy relations,” Neff said.

Unanswered questions remain, however, including what will happen regarding Russian gas transit via Ukraine to Europe, the gas price for Naftogaz Ukrainy, implementation of gas market reforms, and a closer look into the previous energy asset privatizations under the Yanukovych administration, he said.

Contact Paula Dittrick at paulad@ogjonline.com.

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