Archive for January, 2010

This winter may not see a natural-gas crisis in Ukraine, but then again, the country’s presidential election isn’t over. The outcome of the February 7 second round runoff may well determine whether the gas crises continue, and by extension, shape the future of European energy consumption.

President Viktor Yushchenko, the dioxin-scarred pro-Western reformer, is not only out of the race, but never had a chance. A combination of Russian meddling and EU apathy transformed Orange Revolution hopes for sweeping reforms and Western integration into the desperate situation we see today: a bankrupt government begging the International Monetary Fund to float another loan so that it can pay Moscow for last month’s gas bill. This after gas cutoffs by Gazprom in 2006, 2008, and 2009 that saw Ukraine’s geopolitical woes passed on to freezing consumers in central Europe.

But fault does not lie only with external actors. Yushchenko’s principled, yet uncompromising approach to governance inspired historic protests in Kyiv’s Independence Square, but found him few friends in Ukraine’s tumultuous political arena. Hence the final round between Yushchenko’s two political rivals: Prime Minister Yulia Tymoshenko and former Prime Minister Viktor Yanukovych.

Conventional wisdom dictates that should Yanukovych — Russia’s man during the 2004 election — come out on top this time, the pressure from Moscow on Kyiv to pay its bills to Gazprom will dissipate. Ukraine’s leadership will prize its special relationship with Russia over NATO and EU membership, reforms will be put on the back burner, and the opaque, corrupt practices of Ukraine’s energy sector will continue, benefitting government-tied oligarchs in Ukraine and Russia alike. This geopolitical and governance “reset” will mean that Gazprom’s Kremlin leadership will no longer seek to use energy as a weapon against Ukraine — and thus EU consumers will not experience natural-gas cut-offs down the pipeline.

But 2010 is not 2004. Moscow’s lesson from the Orange Revolution was that it cannot put all its eggs in one basket, so Russian President Dmitry Medvedev and Prime Minister Vladimir Putin have cozied up to both contenders, with particular attention paid to Ukraine’s perennial political question mark: Tymoshenko. Famous for her braids and political brawn, Tymoshenko was originally Yushchenko’s Orange ally, but broke from that coalition to cultivate her image as a middle-ground pragmatist with particular expertise in the energy sector.

That image paid off in November when Tymoshenko, as prime minister, worked out a deal with Putin to reform and regularize the energy relationship between Ukraine and Russia. In the process, she lessened the likelihood of a 2010 gas cutoff significantly and garnered praise from both Brussels and Moscow. That arrangement could collapse on or after February 7, depending on Gazprom’s whims. But, it is the closest to a stable energy relationship that the two countries have had in the past six years. And Tymoshenko showed that she could negotiate practically with Putin. That cannot be said of Yanukovych, because he owes too much to his Russian backers.

Most importantly, because of the political ground she has carved out, Tymoshenko is probably the only leader in Ukraine who can negotiate on good terms with Putin and also live up to her promise of implementing EU-backed energy-sector reforms, specifically to bring in a Western company to run the country’s transit system.

Functional ties between Kyiv and Moscow and increased transparency in Ukraine’s energy sector is exactly the combination needed to avoid future gas crises. The energy opacity and uneven power relationship that would characterize a Yanukovych presidency is probably more likely to produce more of the political and business wrangling within Ukraine that formed the context of the last three gas cutoffs. And in the midst of another such crisis, Yanukovych would be a lot less likely to heed Brussels’ warnings.

Therefore, a Tymoshenko victory on February 7 is most likely to ensure EU energy security this winter and in winters to come. But that stems from the fact that a Tymoshenko presidency will not necessarily be a pro-Western affair. That spells trouble for the EU’s long-term energy security, which can only be achieved with comprehensive political and economic reforms in Ukraine, the kind only realized during an EU accession process. With the opportunity of the Orange Revolution passed, any future Ukrainian president will have to see clear incentives from EU member states to make the concerted effort necessary to join the club. Unfortunately, such incentives are not likely to be forthcoming any time soon.

This post was previously published by RFE/RL.

APA’s interview with Alexandros Petersen, senior fellow of Eurasia Center at Atlantic Council in Washington DC

- Europe still depends on Russia in terms of energy, NABUCCO is still not there, while Turkey and Iran are planning to cooperate in the energy sphere, how do you estimate Azerbaijan’s this situation? How stable is Azerbaijan as a gas supplier for Europe?

- Azerbaijan is still a pivotally important energy player in Eurasia and an indispensable producer country for EU natural gas consumers. That said, uncertainties about Turkmenistan’s role in the Nabucco project, the gas transit dispute between Azerbaijan and Turkey, and lack of initiative on the part of the EU and its member state governments to push for alternative routes to alternative sources of natural gas in the Caspian, has caused the Nabucco consortium to plan for initial gas to be sourced in northern Iraq, with potentially more gas coming from elsewhere in the Middle East. That decision could mean that Azerbaijan becomes the end of the line for gas to be supplied to Nabucco, as opposed to both a supplier and a bridge to the resources of Turkmenistan. This is of course not certain, but it could be the case. This decision, combined with the potential for unconventional gas development within the EU, and lower demand at the moment, means that European decision-makers feel that Caspian reserves are not as important as they once were. For Azerbaijan, the question is whether it will remain just an important gas supplier, or become to key to the riches of the Caspian.

- In your view, what should be the primary factor in the gas price talks between Azerbaijan and Turkey?

- It is tempting to say that the deciding factor in the gas price talks between Azerbaijan and Turkey should be commercial concerns. Ideally, both sides would be able to come to a workable agreement based on a win-win business deal. That said, since we are talking about natural gas in the geopolitically-charged Black Sea-Caspian region, it is inevitable that strategic realities will enter into the negotiations. In this case geopolitical considerations present a solution. When looking at the bigger picture, it is clear that Caspian gas going to EU markets through Turkey is in the interests of both Baku and Ankara. This is one energy discussion that should be elevated to the high-political level to be resolved on the basis of strengthening Turkey’s status as an energy hub and Azerbaijan’s role as a key supplier of gas for the EU.

- Recently, Azerbaijan and Iran also have agreed to establish cooperation in gas sphere. In your opinion, can this agreement be considered long-term? Wouldn’t this transport of Azerbaijani gas be negative for the NABUCCO project?

- Azerbaijan will most likely export gas not only to Iran, but also to Russia this year. This is a direct result of Western inaction in realizing the Southern Corridor, the central project of which is the planned Nabucco pipeline. It is a testament to the rapid and comprehensive energy development of Azerbaijan that it is exporting to Iran, which holds far greater gas reserves but does not have the necessary infrastructure to supply its own population, and Russia, which only a few years ago used to export gas to Azerbaijan. So far, however, it looks like the Azerbaijani gas exports planned for this year will not be at volumes large enough to threaten the planned supply of Nabucco. But, Western policymakers should not take comfort in that fact. Baku can step up its exports north and south and will do so if action is not forthcoming from Turkey, the EU and the U.S.

This post previously appeared on the APA website.