Russia-Ukraine gas confrontation raises major questions, experts say

The confrontation between Russia and Ukraine in January over natural gas raises questions not just for Europe, but also for the United States, experts indicated at a Feb. 23 seminar at the Heritage Foundation.

The confrontation between Russia and Ukraine in January over natural gas raises questions not just for Europe, but also for the United States, experts indicated at a Feb. 23 seminar at the Heritage Foundation.

"Russia's energy influence extends all over the world, including the United States. The importance of its gas is that its European customers are tied to the pipeline and can't replace supplies from elsewhere," said Marshall I. Goldman, emeritus professor of Russian Economics at Wellesley College and a senior scholar at the Davis Center for Russian Studies at Harvard University.

Edward C. Chow, a senior fellow in the energy and national security program at the Center for Strategic and International Studies, said that the Russia-Ukraine gas confrontation was not surprising. The agreement which the two countries signed on Jan. 19, which was supposed to be 10 years, will be lucky to survive 10 months, he predicted. "This is not over, not by a long shot," he added.

Jonathan Elkind, a senior fellow at the Brookings Institution's Foreign Policy Program and Energy Security Initiative, agreed. "It's a dynamic situation and it's not over yet. A key requirement of the Jan. 19 sales agreement is that Ukraine stay current on its payments. If it doesn't, then it starts paying on a month-ahead basis," he said.

Laslo Deak, political counselor from the European Commission's delegation to the United States, said that Europe is trying to take a dispassionate view toward Russia, which is having a difficult time defining its relationship to Europe. He said that Vladimir V. Putin, first as Russia's president and then as its prime minister, wanted to do this in terms of energy dependence. "The Soviet oil and gas structure simply provided an opportunity," he said.

A lesson for the US

David W. Kreutzer, a senior policy analyst in energy economics at the Heritage Foundation, said that an important lesson for the United States is to not grow too dependent on imported natural gas as it pursues climate change reforms. Wider use of wind to generate electricity could make US gas imports grow to back up wind, which is intermittent, he said. "We need to be more careful. We're putting forth policies which ostensibly would make us more energy independent but could actually have the opposite effect," he warned.

Karen A. Harbert, president of the Institute for 21st Century Energy at the US Chamber of Commerce and a former assistant US energy secretary for policy and international affairs, said that disagreements arise from differing energy security definitions, with the West seeking access to supplies and the East trying to control those supplies and their transmission.

She said that the natural gas showdown between Russia and Ukraine early this year reconfirmed that Europe needs to take the lead in addressing its heavy reliance on Russian gas. "It's important that the [European Union] speak with one voice. Russia will part of Europe's gas future for some time," she indicated.

Ariel Cohen, a senior fellow in Russian and Eurasian studies and international energy security at the Heritage Foundation and the seminar's moderator, said that European dependence on Russian gas is of strategic interest to the United States. One reason is that it influences individual countries' policy decisions such as Germany's leading the opposition to expanding the North Atlantic Treaty Organization, he said.

Several in the group also said that Ukraine needs to improve its internal energy operations. Cohen noted that the country uses as much gas as Germany but its gross domestic product is only 10% the size of Germany's. Chow said that Ukraine has become a major hydrocarbon transit country through which most of Russia's oil and gas exports to Europe pass. "There has been no fundamental reform of its energy sector since the Orange Revolution four years ago, and the problem isn't going to fix itself," he said.

Ukraine's internal challenges

Elkind suggested that with a presidential election on the horizon, Ukraine's domestic politics could produce calls for energy price subsidies to stimulate economic growth as it tries to keep import costs in check. He added that he hoped the United States would have a successively closer relationship with Ukraine, but added, "We don't really have a dog in this fight. There are limits to what we can do unless Ukraine takes a more pro-active role.

"There's a great deal that the United States and Europe can do, if there's unanimity, to help Ukraine make these hard choices. But there's very little we can do unless there's serious reform within Ukraine itself," Elkind maintained.

Harbert suggested that Europe needs to take more of a lead, but this is undercut by individual countries making their own energy deals with Russia. "It's an economic as well as a political issue. There are huge sums of money involved. The recent Russia-Ukraine contract was a marriage of convenience because Ukraine needed revenue and Russia was running out of storage and couldn't shut down production," she said.

Deak said that the European Commission proposed an energy strategy in 2006 which it adopted last summer which emphasizes diverse sources, diverse transmission lines, alternative energy sources and energy efficiency, including a common energy grid within the European Union. Special relationships between individual European countries and Russia aren't working, he continued, and Europe recognizes that the proposed Nabuko pipeline to move gas from Central Asia is desirable. "It's not the only solution to Europe's diversification problem. North Africa still has abundant gas supplies. So does Norway," he said.

About a week earlier, EC President Jose Manuel Barroso visited Russia, Deak said. "Nothing consequential came out of the meeting, but the decision to take nine commissioners sent Russia a message that Europe will not be held hostage over energy in its relations with Russia," he said.

But Goldman warned that unless there isn't more support from both supplies and customers, alternative gas pipeline routes won't be used. "The Russians know how to play them off against each other because they say their pipelines are already up and running," he said.

Contact Nick Snow at nicks@pennwell.com

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