The Tightening Screws of Ukraine’s Energy Supply

As the crisis in Ukraine continues, Russian President Vladimir Putin has stated unequivocally that his sole interest is in coming to the aid of and protecting civilians. His plaintive claims are falling on slightly sceptical ears, however; it may be cynical, but in all likelihood the reality is a well-worn truth that has caused innumerable conflicts both global and local in the past: it’s all about power. 

This is by no means the beginning of the story, but step back to 2010, when the Kharkiv Pact allowed the lease of Ukrainian naval facilities at Sevastopol to Russia until at least 2042 in exchange for a discount of 30% on natural gas rates. This caused widespread unease at the time, particularly because Ukraine was already paying a heightened amount for their gas due to previous disputes over alleged pipeline siphoning, so any discount was unlikely to translate into real value. Indeed, in the four years since, the price Ukraine has paid Russia for its natural gas has risen by almost 100%. In this context, the pact looks more like the only viable option for a country with its hands tied.

The motivations for Russia’s part in this agreement, on the other hand, are abundantly clear. Sevastopol provides their only access to a mainland warm water port, without which Russian naval bases are ice-locked for months at a time over winter. From a geopolitical standpoint, it is therefore unsurprising that efforts have been made to stretch out the nation’s influence over surrounding countries that enjoy slightly warmer climes, and even less surprising that Putin is making every effort to hold on to his spoils.

The steep rise in cost of purchasing Russian natural gas would imply that the 30% reduction agreed in 2010 has been lost somewhere in the ether, and now the discount arranged by Gazprom to be renewed on a tri-monthly basis has been axed. This can only be a move intended to pressurise the country into submission; Russia has a history of cutting off natural gas supplies during times of conflict, using it as a political pawn to keep adversaries in check, and it seems that they have reverted to screw-tightening form.

Gazprom has swiftly closed the noose around Ukraine; by the end of last week the country’s debt was placed at $1.89bn as other countries began desperately emptying out the coffers to get them out of their mounting financial difficulty. Let’s not forget that this is the same Gazprom that offered to bail Cyprus out last year in return for access to the country’s natural gas reserves; I wrote a blog on the subject at the time (click here to read it) and many familiar bells are ringing.  

The act of hijacking energy is incredibly concerning, and will hit closer to home now that Centrica Chief Executive of Centrica Sam Laidlaw has stated that 75% of the UK’s gas will be imported by 2020, a decade earlier than previously thought. The prospect of interrupted supply and the notion of energy used as a hostage or a ransom should be enough to make us seriously take stock and look to our own resources for energy provision to ensure we are not left vulnerable to a similar outlook as that faced today by Ukraine. 

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As Chairman of the Rolton Group, Peter provides high-level strategic advice to a range of governmental, public sector and commercial clients. He is an acknowledged specialist in the renewable energy sector, and there is good reason for this: when it comes to energy, Peter is clear about the issues we face and the need for a cohesive strategy to tackle them. He is a passionate advocate of informed debate, and has consistently brought clarity to this complex situation."If the UK is united on one thing about energy it is that, on an individual basis, the public knows what it’s not in favour of. When it comes to offering up solutions, it’s not that confident. Pointing at single solutions like wind farms and saying that they are too expensive is missing the point. Carbon-based forms of energy like oil and gas are running out. Energy is going to be more expensive and a portfolio of renewable energies will necessarily be part of our solution in the future." Peter holds particular expertise in the areas of site-wide energy planning, zero carbon power generation, low carbon design, carbon offsetting and the application of renewable technology. He has acted as a Government advisor on numerous consultations and white papers, presenting to the Secretary of State on a number of occasions on the subject of renewable planning and public sector engagement. He has worked as a strategic partner with some of the world’s largest and most successful blue-chip companies, and is a Director of Renewables East, the renewable energy agency for the east of England.Peter is both a chartered building services engineer and a chartered member of the Institute of Energy, and has gained accreditation under the Carbon Trust Consultant Accreditation Scheme for solution development, with particular expertise in the establishment of energy strategies. He founded his first business, Rolton Services Consultants Limited, in 1989, and founded Cool Planet Technologies, a specialist renewable energy delivery partner which was sold to British Gas in 2010. He has been the architect of the path through which Rolton Group has addressed the challenges of renewables, carbon and the built environment."We need to see the bigger picture and not become hung up on individual technologies and individual costs. We need a completely different technology mix and not a reliance on one form of energy supply. We need all forms of technology to be applied – and we need it to happen quickly."

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