Why should Ukraine become independent in the energy sector?

The present work is devoted to the analysis of Ukraine energy security in the aftermath of the Majdan events in 2014, with particular attention on the reasons why Ukrainian government should delve into the elaboration of a coherent energy strategy, so to avoid the reliance on Russian supply and overcome Russian attempts to bypass Ukraine as a transit country.
The research represents a tool to understand the necessity for the energy sector to provide the chance for Ukraine to survive as a state, and should represent a wake-up call for the European Union as well. This comes from the necessity for European Union to stabilize the countries at its borders and to perceive the energy sector as a security one; to experiment the diversification of energy supply in a small scale for further domestic implementation; and to reshape the existing relations between the Russian Federation and the consumer countries in a fair and market-based
fashion.
The consistent assertive policies put forward by Russia in the energy sector during the last two decades have seen Ukraine as a major player, as a transit country toward Western Europe. This sector has represented a consistent aspect of the national budget, which is nowadays put in danger by the alternative routes promoted by Gazprom and its Western partners and by the ongoing conflict in the country. The Ukrainian government has no choice but to invest as much as possible in its energy security, so to provide the country a concrete chance not to become a failed state, or even to
fall apart.
The worsening of the energy situations has had a negative impact upon Ukraine’s overall economy. Its sustainable growth requires stable access to sufficient and economically procurable energy supplies. Inefficient energy use is one of the bottlenecks hindering growth in the Ukrainian economy. Meanwhile, the social implications of the loss of winter heating are very serious, since large segments of society could not afford paying an unsubsidized energy bill with the current inefficient consumption patterns. Ukraine’s potential of energy conservation is huge, but underutilized due to the delayed modernization of energy infrastructure and the lack of social awareness about energy saving.

Six main origins and directives have been outlined in order to tackle energy insecurity in the country and provide a reliable access to energy: dependency on Russia for energy imports; inefficient energy system; insufficient use of domestic energy production potential; removal of political risks; energy market reforms; and renovation and replacement of energy infrastructure. By implementing comprehensive and well-designed energy efficiency measures like those in the European Union, Ukraine can save up to 17 million tonnes of oil-equivalent (Mtoe), or 20.5 billion
cubic meters (bcm) of gas per year, with a value of around 7,3 billions euro.

The Crimean peninsula represents a strategic hub in the Black Sea not only from a military point of view, but from an energy security one as well. With Crimea, Ukraine loses some prospective offshore oil and gas territory in the Black Sea: nevertheless, the losses are less consistent when it comes to shale gas. The vast majority of the shale reserves are in Ukraine's East and West.
Ukraine has 0.6 trillion cubic meters of natural gas reserves, mainly lying in Ukraine’s Northeastern regions and in the territorial waters going from Odessa to the Crimean peninsula, where resources in the Black sea offshore lie in the layer of the deep sea below 6,000-7,000 meters.

The city of Odessa should play a major role in the energy strategy leading Ukraine to stabilization. The city is a natural transit hub for the supplies coming from the Middle East, the Caspian basin and the Caucasus; it is the major port of the country and presents large resources of shale gas; it can become an important center for the import of LNG as a possible source of diversification of energy sources.

As Robert Bensh stated “Given that Crimea no longer exists—at least from a Ukrainian perspective—an FSRU (floating storage and regasification unit) would sit off the coast of Odessa[...]. That's where you would gasify the LNG and put it into the Ukrainian pipeline system.”
The LNG terminal will have a total capacity of 10 billion cubic metres (bcm) of gas a year and is estimated to cost €969m ($1.3bn). The facility is expected to begin production by 2018. In addition to providing Ukraine with cheap LNG, the terminal will play a key role in the Asia-Europe supply route. The perspective of the supply of LNG could be potentially hindered by two factors: the allowance of LNG cargo through Turkish-controlled Bosphorus straits and the actual possibility to receive supply in the short term. The US is just starting to open up the doors for this business due to
the development of its industries in the field, and the first cargos are approaching Europe in the very last years.
When it comes to shale gas, the only big companies actually working in Ukraine in the development process are Shell and Chevron. To get shale development in the country, Ukraine needs to auction off multiple blocks of shale acreage, and the best way to do that would not be through a data-room process in Kiev, but in Houston or Denver, where a majority of the shale industry is located. Ukraine needs about 15-20 oil and gas companies developing shale, so the
creation of a business-friendly environment is of utmost importance for the development of the country.
The country is also striving for the eradication of the massively corrupt customs authority especially in the Odessa port, being one of the biggest plagues affecting the overall Ukrainian society thus hindering the possibility for economic development.

Ukraine is an attractive place in which to operate (the country has 14 per McF gas prices) and the reforms asked by the European Union are intended to make the economic processes more transparent. Therefore, the sector is supposed to attract more investments, as energy independence assumes a higher priority on the government's agenda. Nevertheless, Ukraine has to take the first steps in approaching this reform process.
In the aftermath of Majdan events, IMF, European Union and private investors have substantially bet on Ukraine by unleashing conspicuous amount of investments in the country. Nevertheless, the ongoing conflict represents a bleeding wound also from a financial point of view, and the massively spread corruption at any level in the society are worsening the country’s reliability and perspective for further investments in the foreseeable future.

As outlined above, Ukraine must strive for energetic independence as one of the major first steps in order to achieve concrete independence from Russia, which is a top priority due to the ongoing situation between the two countries. The country has potential as a producer and transit country for alternative routes. The domestic environment should be regulated as well, and European Union can provide expertise and assistance in this field, following closer the necessary steps of the process.

Despite the tight to-do list, Ukraine is not actually performing well. If there is no sharp turn in the management of public affair, socio-political environment and economic field, the country is likely to lose the chance for a decent future. This becomes evident with the perspective of 2019 elections, in which, according to current polls, president Poroshenko is unlikely to be re-elected, paving the way to unforeseeable political evolution. It is in European Union interest to follow thoroughly the transition process in the country, providing not only funds destined to the weak civil society, but also providing highly specialized advisors who can daily and personally help guiding the country’s political elite toward a process of harmonization with EU law and market standards.