The importance of these talks for the post-economic crisis world is difficult to overstate. The EU-U.S. Energy Council, as the formal coordination mechanism is called, will likely set the standard for the developed world in working towards greater energy security, harnessing new energy technologies, and addressing environmental concerns. This is why U.S. Secretaries of State and Energy, Hillary Clinton and Stephen Chu led the recent talks together with EU High Representative Catherine Ashton and Energy Commissioner Gunther Oettinger.

Importantly, unlike the recent Durban climate change conference and the almost simultaneous World Petroleum Congress in Doha, the EU-U.S. Energy Council has since its inception two years ago made a point of addressing global energy issues holistically. Its numerous expert working groups bring together the foremost policymakers and technical specialists on both sides of the Atlantic to tackle thorny yet consequential energy topics of the future, such as joint energy efficiency standards, carbon capture and storage, smart grids, electric vehicles and nuclear safety.

The Council has also emerged as a forum for the tough diplomatic negotiations that characterize energy geopolitics across Eurasia, from Ukraine’s accession to the Energy Community to the building of the Southern Gas Corridor from Southeastern Europe to the Caspian Sea. This meeting also launched a ‘Trilateral Critical Materials Initiative’, a partnership with Japan that will only enhance the Council’s role as the developed world’s guide for future energy policy.

All in all the Council should be applauded as a transatlantic talking shop practicing real forward thinking and achieving genuine coordination. But, in perhaps the most important energy issue in need of EU-U.S accord, it has unfortunately erred on the side of caution. In the joint press statement from the most recent meeting, many of the topics discussed above received major attention. But, buried amongst the others in a short paragraph was a statement of intention to continue dialogue about global natural gas markets, particularly unconventional gas.

It is no secret that the natural gas revolution in the United States has not been met with similar enthusiasm in Europe. France has all but banned unconventional gas development on its territory and other EU heavyweights are contemplating similar restrictions. The EU’s Energy Commissioner has pointedly avoided discussion about unconventional – often summarized as ‘shale gas’ – potential across the European continent largely because of very loud protests by environmental protection groups, seizing on a new technology as the next corporate energy evil to be combated.

But in world in which top energy companies are forecasting that natural gas will overtake coal to become the world’s number two fuel source in 2025, it seems evasive of the EU-U.S. Energy Council not to tackle the transatlantic dispute over unconventional gas head-on. After all, transatlantic energy coordination is presumably about addressing the difficult issues alongside the ones everyone can agree on.

There are legitimate concerns about shale gas. In early December, the U.S. Environmental Protection Agency drew a direct link between drinking water contamination and shale gas wells. But, many technical experts insist that with proper safeguards, unconventional gas development can be safe, cost effective and a major contributor to energy security. If configured correctly, an intra-EU explosion of natural gas development, similar to what has been occurring in the U.S. in the past few years, could not only drastically reduce dangerous dependence on Russian resources, but also aid in meeting 2020 carbon emission goals.

Whether or not this occurs, a future scenario in which the U.S. serves as a global evangelist for unconventional gas development while the EU emerges as its foremost critic, is one that would overshadow all of the other accomplishments in transatlantic energy policy coordination. Surely, the primary purpose of the EU-U.S. Energy Council should be to make sure that such as scenario never takes place.

Alexandros Petersen is Advisor to the European Energy Security Initiative (EESI) at the Woodrow Wilson International Center for Scholars in Washington DC.

Essentially a portion of Nabucco, it is smaller, cheaper and more realistic than its operatic alternative. And it’s got a gas-holding supermajor behind it. Most importantly, while Nabucco at around 30 billion cubic meters (bcm) a year was a project with three times the capacity of natural gas immediately available from Shah Deniz, SEEP’s capacity hovers around 10 bcm – just enough to realize the task at hand. BP representatives have also discussed the possibility for that capacity to expand in the future, should more gas – from Azerbaijan’s newly confirmed Absheron field or from Turkmenistan across the Caspian – become available. On the face of it, SEEP provides less risk up-front and flexibility in the long run.

In some ways, this is welcome news. Although just an idea, Nabucco was always a white elephant of sorts. It was endorsed by the European Commission as a strategic project to help solve Europe’s energy security woes, but it put the cart before the horse. Building transit capacity without available resources to fill it is not the way that pipelines are built. There were also serious concerns about its cost (up to 20 billion USD at last estimate) and financing. Even with seed funds from the European Bank for Reconstruction and Development, (EBRD) it would have been an enormous challenge to find private sector investment for a project of this scale in today’s economic environment. Nabucco’s consortium, a hodge-podge of national energy companies along its route and larger players such as Germany’s RWE, never had the clout that even a beleaguered supermajor like BP can bring to the table. It is perhaps not surprising that Nabucco’s start-date was delayed at least four times over an eight-year period.

All this said, BP’s alternative may have killed off a competitor, but it is far from the ideal project. Ironically, one of Nabucco’s original smaller competitors is closer to fitting the bill. The Trans-Adriatic Pipeline (TAP) is also a 10 bcm project, but with the important option of expanding to 20 bcm should gas become available. It has strong shareholders in Statoil, E.ON Ruhrgas and EGL, so that it won’t have to go begging for investment. The main difference is that SEEP will terminate in Austria, whereas TAP plans to head to Italy through Greece and Albania. A notable difference is that TAP has laid the groundwork with transit countries and regulatory hurdles for several years, whereas SEEP was just announced.

SEEP may well have legs. With BP’s Russian investments foundering, it has announced that it is doubling down on commitments to develop Azerbaijani gas and oil reserves. Having its own export pipeline fits neatly into its new strategy. But, it will face competition from its Shah Deniz consortium partner Statoil – also with 25.5%. As a major shareholder in both Shah Deniz and TAP, Statoil claims there are “Chinese walls” between the two operations. But, it will probably take the opportunity now that Nabucco is out of the game to push its own realistic, cheap and flexible project.

In fact, Statoil and TAP may well be the thinking man’s horse in the race. BP may have come back strong in Azerbaijan, but in the years that it was focused on its Russian investments it had to deemphasize its Caspian presence so as not to be perceived as competing with Moscow’s Gazprom in the region. In the meantime, Statoil filled the void and has now emerged as the player with the most influence with the Azerbaijani government. This is of paramount importance, because now that the four pipeline projects have submitted their proposals, the decision lies with the holders of the gas. And, while BP and Statoil may be majority shareholders in Shah Deniz, the nature of gas development in Azerbaijan means that the government in Baku will have the final say.

Alexandros Petersen is Advisor to the European Energy Security Initiative at the Woodrow Wilson International Center for Scholars.

This post first appeared in Oil and Gas Journal.

The main alternative producer of gas in Europe’s neighborhood, Azerbaijan, cannot come to an agreement with Turkey, the primary transit country along the so-called Southern Energy Corridor.

The problem is that both Ankara and Baku have put the cart before the horse. It makes little sense to negotiate transit when neither side has a clear idea of exactly how much gas will be flowing through the Southern Corridor, in what sort of pipeline and at what time. In fact, despite conventional wisdom on this topic, it is unlikely that the two Turkic countries will come to agreement before a Southern Corridor pipeline project is chosen by the Shah Deniz consortium in Azerbaijan, that is, by the holders of the gas.

At the moment, three competing Western-oriented pipeline projects are waiting on Azerbaijani and Turkish decision-makers. The best known of these, the Nabucco pipeline, is most dependent on a transit agreement because its mammoth plans call for it to snake across mostly Turkish territory. The two smaller alternatives, Interconnector Greece-Italy (IGI) and the Trans-Adriatic Pipeline (TAP), will eventually require Azerbaijan and Turkey to see eye-to-eye but could move forward in parallel with those negotiations if either is given the nod from Shah Deniz.

In any case, both are more likely to be built than Nabucco. While strategically important in directly linking Austria’s Baumgarten natural gas hub with eastern Turkey and maybe the Caspian itself, Nabucco’s annual capacity of around 30 billion cubic meters (bcm) would be three times the size of the gas available to fill it. Its price tag of 15 billion euros also sounds unrealistic in a difficult investment climate.

IGI’s 8 bcm capacity is more like it. The most modest of the three, it would rely on existing linkages across Turkey and just connect Greece and Italy for sale to the Italian market. TAP is also realistic in its capacity of 10 bcm, but the project will have the option of being expanded to 20 bcm should more gas become available. It also routes from Greece to Italy through Albania, with plans to reach markets in the Western Balkans and Central Europe, in addition to the Mediterranean.

All this said, the competition between Western-oriented projects is counterproductive and unnecessary. The European Commission, several EU member states and the US Departments of State and Energy are actively pushing for progress on the Southern Energy Corridor. The priority should be beginning construction on the corridor as soon as possible. And, there is a way to realize Nabucco without actually building Nabucco.

This would require seeing the Southern Energy Corridor as a multi-phased project, not an either/or prospect. Phase One would be an immediate approval of one of the smaller projects, probably TAP, due to its stronger shareholders (Statoil, E.ON Ruhrgas, EGL). This would achieve the crucial steps of getting some pipe laid, getting some gas flowing and achieving some diversification of sources and routes for European consumers.

Phase Two would expand the capacity of one of the smaller projects as production increases in Azerbaijan. Crucially, this means expansion will only occur if there is gas to fill the pipe. Phase Three would see an expansion of capacity to complement expansion of the route, potentially across the Caspian to gas-rich Turkmenistan or south to Iraq and other points in the Middle East. With this phased approach, the ambitious vision of Nabucco is probably more likely to be achieved.

In any case, Phase One is the most likely outcome of a post-Azerbaijani-Turkish transit agreement decision by the Shah Deniz consortium. Shah Deniz has been meticulous in its consideration of the technical and commercial aspects of the three proposed pipeline projects, consciously eschewing interest in the political or strategic arguments behind a project. On pure technical and commercial grounds, TAP wins out. It also does not hurt that Statoil is both a TAP shareholder and a member of the Shah Deniz consortium.

The point is, however, that this decision could be made immediately — without having to wait for Ankara and Baku — and would not sacrifice the strategic gains of a larger Nabucco-style project. Despite its geopolitical, as well as commercial, aims Southern Energy Corridor construction should be led by private sector stakeholders. Governments will follow.

*Alexandros Petersen is advisor to the European Energy Security Initiative at the Woodrow Wilson Center for Scholars in Washington, D.C.

This post first appeared in Today’s Zaman.

It has long been conventional thinking in the West to see Turkmenistan as ‘a bridge too far.’ Though European leaders have longed for access to Turkmenistan’s 8.1 trillion cubic meters of proven gas stores, substantial impediments to any southern corridor project have prevented the opportunity to connect European consumers with Turkmen producers. However, Ashgabat’s decision to diversify away from Russia and China by shaking hands on the TAPI pipeline to Pakistan and India, and the expression late last year of their willingness to construct a trans-Caspian pipeline that could connect to a project supplying Europe, have put the concept of a southern corridor firmly back on the table. European decision makers must react quickly to this opportunity, but must also press for the adoption of the most logical project.

There have traditionally been a number of factors preventing the construction of a pipeline from Turkmenistan to Europe: the country is often thought to be simply too far away, given the technical restraints on the length of pipelines and the difficulty in crossing the Caspian; Turkmens have often been reluctant to negotiate with European leaders, and; the ongoing dispute between Azerbaijan and Turkmenistan over ownership of the off-shore Serdar/Kyapaz gas field has prevented cooperation between the two nations.

These obstacles have led to suggestions for Iraqi, rather than Turkmen gas, to be linked into the southern corridor. Moreover, the completion of the 1,139 mile China-Central Asia pipeline, which connects China’s Xinjiang province with Turkmenistan, has led many to assume that Ashgabat would concentrate on strengthening its ties to Beijing’s enormous market, at the expense of Europe. However, developments in recent weeks suggest that Turkmenistan may be on the way to overcoming many of these obstacles. The agreement to construct the 1,700 km TAPI pipeline, connecting the gas rich field of Dauletabad in southern Turkmenistan to the expanding markets of Pakistan and India, is a hugely ambitious project given the need to pass through the unpredictable provinces of Helmand and Kandahar in war-torn Afghanistan. Though the pipeline cannot be built until the security situation in Afghanistan improves, the deal demonstrates Ashgabat’s determination to diversify away from Russian and Chinese demand.

Secondly, after years of ambiguity or silence, the Turkmen government has finally expressed its willingness to work with Azerbaijan on the construction of a trans-Caspian pipeline, which could link up to a project transporting gas to the huge European market. In November, both the president and deputy prime minister expressed their willingness to supply Europe with as much as 40 billion cubic meters, or bcm, of gas annually via a pipeline crossing the Caspian and South Caucasus.

Though these proposals remain far from concrete, they do place the three primary southern corridor projects back in the spotlight. The largest of the three, the Nabucco pipeline, aims to deliver 30 bcm of gas to Europe, beginning in Turkey and finishing in Austria; the Italy-Turkey-Greece Interconnector, or ITGI, is the smallest solution to opening the southern corridor with a capacity of less than 10 bcm; while the Trans-Adriatic Pipeline, which aims to transport gas from the Caspian to Albania, Greece, and Italy, is the shortest pipeline, with a flexible capacity of around 20 bcm. Its plans also allow for the reverse flow of gas, an important option in case of future gas cutoffs, such as those experienced in Eastern Europe in 2008. Perhaps most importantly, however, a project the size of Trans-Adriatic does not – at least initially – require gas from anywhere other than Azerbaijan. Southern corridor construction can begin as negotiations with Turkmenistan continue.

Though the Nabucco project is undoubtedly the most discussed of the three, this does not mean it will necessarily win out. In fact, given the timeframe the Turkmens are implying (completion by 2015), it appears more likely that a smaller project will be adopted. This needs to be recognized by European decision makers, who should be pushing for the most realistic proposal to be agreed upon as soon as possible. While the Turkmens are currently interested in the southern corridor, the rapidly changing nature of Eurasian energy geopolitics in recent years ensures that there are no guarantees this enthusiasm will persist. Furthermore, given the uncertain prospects of the TAPI project, it would make sense to undertake a more stable mission in the southern corridor. For these reasons, European decision-makers should perhaps more seriously consider the medium sized Trans-Adriatic Pipeline, which is the most cost effective of the three projects and has the added ability to expand its capacity relatively easily.

Richard Morningstar, the United States’ Special Envoy for Eurasian Energy, recognized these developments in his recent suggestion that Nabucco is “not the only project” worth considering.

The southern corridor is both a vital source of energy for the expanding European gas market and a potential political asset in countering the dominance of Russia and China. Turkmenistan’s changing attitude provides an opportunity that cannot be missed, but Western decision-makers should take advantage of it prudently and support the project that makes the most sense.

This post first appeared in Hurriyet Daily News.

The vessel’s name is appropriate, as the pipeline represents Germany’s choice to go it alone in achieving energy security within the European Union. Nord Stream, one of the longest and most complex undersea pipeline projects ever conceived, runs directly from Russia to Germany on the Baltic Sea bed. It avoids the Baltic states, the Nordics and Poland, affording Germany its own €7.4 billion privileged link to Russian resources.

In the same week that the Solitaire began laying its pipe, Poland was set to begin work on its own Baltic Sea project: a terminal for liquefied natural gas (LNG) at Swinoujscie. At the moment, Polish consumers are heavily dependent on Russia for their natural-gas needs—a reality that doesn’t sit well in Warsaw given the perennially problematic relations with Moscow. Russia has in the past cut transit of gas through Ukraine, denied oil to Lithuania and enshrines in its national-security strategy the use of energy resources as a foreign-policy tool. Starting in 2014, then, the almost €800 million LNG terminal would allow for 30%-40% of Polish gas needs to come by tanker from places like Qatar.

One would think that as part of its stated policy of improving relations with Warsaw, Chancellor Angela Merkel’s government would seek to repair intra-EU mistrust on energy security. But Germany will have none of that. Part of its plan to make Nord Stream worthwhile is to sell gas to the Poles—that is, Russian gas, but from the opposite direction. The LNG terminal therefore, is in direct competition with what Polish Foreign Minister Radek Sikorsky has called the
Molotov-Ribbentrop pipeline. So, just before the start of the terminal’s construction, Berlin issued a formal complaint, saying its placement is a cross-border issue and may violate the Espoo Convention, the same environmental agreement used by Poland and Germany’s other neighbors to protest against Nord Stream, delaying its construction for several years. The tables have turned. And now Berlin is looking to Brussels for support.

At the end of August, Germany voted against providing an €80 million EU subsidy to kick-start construction of the Swinoujscie terminal. Now, representatives of Germany’s E.On Ruhrgas and BASF/Wintershall, together with Russia’s Gazprom—all Nord Stream partners—are said to be lobbying hard in Brussels for support for an environmental re-evaluation of Poland’s LNG plans that could set the project back two to three years. With Nord Stream due to be finished in 2012, its consortium, which also includes the Netherlands’ Gasunie and France’s GDF Suez, will then have ample time to strong-arm Polish consumers into accepting a deal. As Warsaw has just renewed its import contract with Gazprom for another 15 years of gas through the Yamal-Europe pipeline from the east, Berlin’s plans would amount to a Russo-German energy pincer of Poland.

It’s not just Polish energy security that is at stake. EU aims for greater energy solidarity among member states begin to look laughable when its largest economy so blatantly undermines them. It is one thing to move forward with an exclusive pipeline that essentially positions Germany as Russia’s distributor in Central Europe, but it is quite another to actively attempt to scuttle a neighboring member-state’s energy diversification plans at the EU level.

Poland’s deputy finance minister, Mikolaj Budzanowski, has said that Polskie LNG will probably move forward with the Swinoujscie terminal even without EU funding. But the issue here is not whether the terminal gets built. It is about high-profile bickering by two EU member states about bird habitats in the Baltic, while Russia’s Vladimir Putin—who once complained “Why does everything have to go through Poland?”—savors another victory for his energy weapon.

The European Commission is set to decide at the end of the month whether or not it will fund the LNG terminal. The symbolism of this decision is difficult to overstate. The EU’s energy commissioner is German, but Günther Oettinger is not close to Mrs. Merkel and has vowed to be a champion of EU energy solidarity. This is an opportunity for him, as well as Commission President José Manuel Barroso, to draw a line in the sand, to send a message that their talk about a common EU energy policy is not just wishful thinking. Step one in that process: Teach the Solitaire player Bridge.

This post first appeared in the Wall Street Journal.

The reason has just as much to do with geopolitics as geology. As China seeks to secure energy sources for its growing economy, it has expanded production at home and made strides at ensuring its access to gas abroad. That quest has displaced a two-decades-long shadowboxing match between the West and Russia — a “Great Game” China is now poised to win.

China’s recent reach into global gas opportunities is fueled by soaring domestic demand, as Chinese industry grows despite the global economic downturn. There are signs that Beijing’s energy geopolitics ambitions cannot keep up: The onshore price of natural gas in China was just increased 25 percent. As a result, China is not only stepping up its own natural gas development, but also expanding its capacity to import LNG from places like Australia, Malaysia, Papua New Guinea, and Qatar.

Domestically, China’s East-West pipeline brings gas from the energy-rich autonomous region of Xinjiang to the booming east coast. Xinjiang’s proven reserves are about 700 billion cubic meters (about a tenth the size of U.S. reserves), but there might be a lot more. And PetroChina officials are exploring new shale gas and coal-bed methane opportunities all over the country. Eager to wean Beijing off of troublesome gas producers such as Iran, the Barack Obama administration recently signed a technology transfer agreement with the Chinese that would give Beijing the same revolutionary extraction capabilities that have created a shale gas bonanza in North America. One of Beijing’s official goals is that China’s coal-bed methane production should be 16 times higher in 2020 than it is today. Some analysts predict that China will reach 80 percent self-sufficiency in gas production by that time.

Further afield, Beijing has put into place infrastructure that would make Houston blush. Stretching 1,139 miles, the China-Central Asia pipeline connects Xinjiang with natural gas-rich Kazakhstan, Uzbekistan, and the biggest prize — with potentially the world’s fourth-largest energy reserves — Turkmenistan. With the completion of this mammoth project, which was inaugurated in Turkmenistan by Chinese President Hu Jintao last winter, China became the most influential player in the struggle for resources in the energy-rich Caspian basin. Some analysts have even sounded the death knell for Russia’s energy influence in Central Asia, Moscow’s traditional back yard.

Then, in early June, Turkmenistan’s president, Gurbanguly Berdimuhamedov, announced construction of a trans-Turkmen pipeline that will connect the China-Central Asia pipeline to the country’s vast western resources — the very same reserves traditionally exploited by Russia and earmarked for the U.S. and EU-backed trans-Caspian, Nabucco project planned to go west across the Caspian and through Turkey to Austria. Turkmenistan’s $2 billion trans-Turkmen project is, according to the president, going to be built with Turkmen money, labor, technology, and expertise. But, sources familiar with the project’s specifications say that there is little likelihood that it would have been undertaken without Chinese support, both financial and technical.

Both the Russian and Western ability to respond to this incursion on their pipeline plans looks weak. In April 2009, a major explosion damaged the main gas pipeline connecting Russia to Turkmenistan. Although Russian gas monopoly Gazprom denies any culpability, Turkmen officials accuse Moscow of shutting down the pipeline to avoid high payments for gas during a time when global gas prices were unexpectedly low. While exports to Russia have resumed, they are less than a third of what they once were.

Meanwhile, Western companies involved in the Nabucco project announced an open season for investment in the project this year. But serious doubts remain about whether the project will be able to get beyond its first stage of tapping into Azerbaijani and possibly Iraqi gas — a crucial first step before expanding across the Caspian. Western private-sector actors are also working against each other: Nabucco competes for its Azerbaijani resources with the Trans Adriatic Pipeline (which just got a major new investor in Germany’s E.ON Ruhrgas) and Interconnector Turkey-Greece-Italy, a smaller capacity pipeline that may well come to fruition because it is less ambitious than Nabucco.

Yet though Chinese state-controlled energy companies are riding high at the moment, nothing is assured. Chinese moves in the Caspian could well create a backlash, for example. Caspian gas producers welcome the cash and efficiency that comes with Chinese investment, but the attendant political influence is not always viewed favorably. Gas-rich Azerbaijan, Kazakhstan, Turkmenistan, and Uzbekistan are not interested in supplanting one imperial master in Moscow for another in Beijing.

What is certain is that the Chinese consumer’s hunger for gas reserves has landed Chinese companies right in the middle of one of the world’s most hotly contested geopolitical battlegrounds. If Chinese companies are not careful, they could drag Beijing into the region’s hard security squabbles: Afghanistan, Georgia, Iran, and the Nagorno-Karabakh conflict. Deeply invested powers, such the United States and Russia, may not appreciate another cook in the Caspian kitchen.

This post first appeared in Foreign Policy.

For the U.S. and the countries of NATO and the European Union, no aspect of Ukraine’s “Russianization” is more acute than that in the energy sector. The trans-Atlantic community has lived through four energy crises spurred by Russian attempts to exert control over Ukraine’s energy sector. Two of those involved gas cutoffs for EU consumers in the dead of winter.

Last month, Russian Prime Minister Vladimir Putin made a public offer to Ukraine to merge the two countries’ energy systems under the control of Gazprom, Russia’s state-controlled behemoth energy monopoly. The underlying message from Moscow was that Ukraine and Western countries could avoid future energy crises by giving in to Russia’s demands. But, on May 14, Mr. Yanukovich rejected Mr. Putin’s offer, saying only a 50-50 arrangement would be acceptable. In an interview with the BBC on the same day, he made it clear that Ukraine is holding out for investment in its energy sector from Western companies.

Mr. Yanukovich also lamented that the EU had not responded as quickly as Russia on issues such as the easing of visa restrictions for Ukrainians traveling to the EU, trade with the developed economies of Western Europe and “associate EU membership.” In moving into Russia’s embrace, Mr. Yanukovich is pleasing both his geopolitical backers in Moscow and the majority pro-Russian constituents who voted for him. However, he is pointedly keeping an outstretched arm to the EU and other Western actors, particularly on energy.

If Western companies and institutions do not take advantage of this opportunity, they will only have themselves to blame when the Kremlin has even more leverage to stop and start energy deliveries to the EU. A number of private-sector actors are holding themselves back from investing in Ukraine because they fear the consequences of getting involved in the country’s notoriously corrupt and murky energy sector. But that is where Western institutions, such as the EU and the Energy Community (EC) – Europe’s energy reform club – come in.

Mr. Yanukovich’s administration has indicated that it wants to join the EC, but so far, EU officials have only offered “talks” in return. Energy reform in Ukraine has thus become a chicken-and-egg problem: The private sector is waiting on the institutions, but the institutions will only be given an incentive to act once Western companies get the ball rolling. Meanwhile, everyone but Russia loses.

The only actor that can bring all parties out of this stalemate is the U.S. During Mr. Yanukovich’s trip to Washington for the April nuclear summit, the Obama administration pledged $250 million to help safeguard the Chernobyl nuclear disaster site. Washington has not given up on Ukraine, but it is searching for where it can best use its leverage. The answer is in two areas: energy investment and the relationship with Russia. U.S. companies should be encouraged to kick-start the energy-reform process, and if Western institutions are too slow to follow suit, they should begin working with Ukrainian civil society groups that encourage energy-sector reform.

It is now a foreign-policy maxim that without Ukraine, Russia ceases to be an empire. For this reason alone, Russia will always “care” more about Ukraine than any Western actor. It is with this in mind that the Obama administration can use its closer relations with Russia to hammer out a deal under which Western companies and institutions bring reform and stability to Ukraine’s energy sector without raising Russia’s ire. Ukraine is not yet lost: It just requires subtle engagement by the West.

This post was co-authored with Tamerlan Vahabov – a research associate with the International Management Institute, Kyiv - and first appeared in the Washington Times.

The 2010 Ukrainian elections have been consigned to history books. The election season and the winter passed without a major Ukrainian natural gas crisis, and a major gas cutoff, such as occurred in 2009, was avoided. However, the ingredients for future crises remain. Energy reforms, in particular those in line with European Union recommendations, have yet to be enacted.

However, given that most analysts would agree that President Victor Yanukovich was given a legitimate mandate for the next 6 years, Ukrainian and EU policymakers should view this year – before the next gas crisis season – as an opportunity push for a major change in the untenable status quo. Energy sector reform in Ukraine would significantly boost the energy security of EU and NATO countries and would help to ameliorate strained relations between transatlantic institutions and Russia over energy geopolitics. For the governments of Central and Eastern Europe (Germany included) energy sector reform in Ukraine is intimately tied to the provision of essential services to their citizens: heat and electricity during the coldest months of winter.

Yanukovich seems to have understood the geopolitical importance of this domestic issue. His first trip as president was to Brussels, his second to Moscow. Energy security was at the top of the discussion agenda in both capitals. But, as the leader now of all of Ukraine, not just the representative of the Russian-leaning east, Yanukovich must also understand that energy security and efficiency are indispensible to the country’s economic recovery and future development prospects.

Investment in Ukraine’s energy sector – attracting energy efficient companies, promoting an energy efficient culture – and more political support to energy supply diversification are keys to domestic stability and economic growth in the country. In this effort, Ukraine needs support from EU institutions, EU member state governments and Western companies.

There are ample opportunities to engage Ukraine. Yanukovich has been able to build a large, heterogeneous government. With the biggest number of ministers in Europe (29) and a number of deputy prime ministers, it can accurately be dubbed a government of “compromise”. Not all high-level officials are “Western-leaning”, but the group’s heterogeneity stands in stark contrast to Victor Yuschenko’s uncompromising approach. Yanukovich’s cabinet includes his rival in this year’s presidential elections: Sergiy Tihipko, an internationally well-regarded economist. Yanukovich also retained Yuschenko’s head of the Central Bank.

Given the ultra-competitive history of post-Cold War Ukrainian politics, it is a positive sign that Yanukovich could form such a politically diverse group in a relatively short period. But, its diverse makeup also runs the risk of dissolving into future political disarray before the 2012 parliamentary elections. For that not to happen, this government will have to deliver on its campaign promises of economic and energy reforms.

EU support of Ukraine is key in ongoing negotiations with Russia on a joint EU-Ukraine-Russia gas consortium. Ukraine may well be forced to hand over some control of its gas transportation system to Russian interests as the price for a reduction in Moscow’s gas tariffs. At the moment, Ukraine pays 301 USD per 1000 cubic meters of gas received from Russia: more than some EU countries. Given its high budget deficits, Ukraine may be forced to make even greater concessions to Russia. At a March 29 meeting between Russia and Ukraine’s prime ministers, it was clear that Vladimir Putin was intent on playing hardball. Rapid energy sector reform, spurred by Western investment is the only real alternative.

Kyiv finds itself with few negotiating options. According to the head of the Kiev Energy Club, Olexander Todiychuk, Ukraine relinquishing up to a third of its gas transportation system to Russia will not prevent Gazprom from pursuing pipeline projects that bypass Ukrainian territory and putting more pressure on Kyiv. Todiychuk stresses that Yanukovich’s government can only realistically hope to negotiate more favorable terms for gas transportation through its territory. In this case, the EU’s support for Gazprom’s Nord Stream and South Stream pipelines – both designed deliberately to avoid Ukraine – does not contribute to Ukrainian energy reform, nor European energy security.

The EU should instead support the modernization of Ukraine’s gas transportation system, help to promote energy efficiency in one of the world’s most energy intensive countries and throw its weight behind projects that will support Ukraine’s economic recovery, such as the expansion of the Odessa-Brody oil pipeline. The effort will require not only working with Ukraine’s new government, but key civil society groups that promote a culture of energy efficiency.

Ukraine’s energy reform is the EU’s energy security. Now is the time to seize the opportunity of a new government in Kyiv to support real change before the next gas crisis.

Alexandros Petersen is Senior Fellow with the Eurasia Center at the Atlantic Council, Washington DC and Tamerlan Vahabov is Research Associate at the International Management Institute – Kyiv.

This post first appeared in New Europe.

What little-known international issue is key to our relationship with Afghanistan, Iraq, China, Russia, Turkey, the countries of Central Asia and our European allies? Eurasia’s energy geopolitics cut across more U.S. foreign and energy policy priorities than any other topic of discussion in Washington. The problem is that energy in Eurasia is not receiving the kind of high-level attention it deserves from this administration. While Moscow, Beijing and Tehran take the nexus of energy and foreign policy very seriously, Washington is playing catch-up across the Eurasian continent.

Since World War II, European countries and even the substantial bloc of the European Union have not had much of a policy toward China. But over the winter holidays, China’s state-owned energy company, CNPC, completed a natural gas pipeline across Central Asia to Turkmenistan on the eastern shore of the Caspian Sea. An EU-backed consortium is at the same time working on the Nabucco gas pipeline, to reach Turkmen gas reserves from the west. Energy has brought China to the EU’s neighborhood. Energy geopolitics have forced our NATO allies to consider a China policy for Eurasia.

China’s Central Asian coup also has jeopardized plans for energy development in NATO’s other theater of operations, Afghanistan. U.S. companies and the Asian Development Bank have long advocated a gas pipeline from Turkmenistan through Afghanistan to consumers in Pakistan and India. Afghan officials had touted the project as a potential facilitator of stability and rural development, a catalyst for more than 3,000 energy-related small businesses across the country. Now it looks much more likely that Pakistan and India will get their gas through a pipeline from Iran, enriching a regime that may well send the region into a tailspin if its nuclear ambitions are fulfilled.

In mid-January, the EU signed an energy deal with Iraq’s central government that could see gas from the country’s Kurdish areas supplement the gas for Nabucco that was supposed to have to have come from Turkmenistan. It is urgent that consumers in EU and NATO countries gain access to new gas resources because of the West’s relationship with another major Eurasian power, Russia. Much of Central and Eastern Europe is dependent on Russian gas for winter heating, but Moscow has tried to use that uneven relationship to its advantage, splitting energy and foreign policies within the EU and NATO. Russia’s disputes with its neighboring transit states – Ukraine and Belarus – have caused annual gas crises for European consumers since 2006. For key U.S. allies like Poland and Romania, energy security and national security are one and the same.

Three successive U.S. administrations have, in fact, acknowledged the enormous importance of Eurasian geopolitics. President Obama’s point man for the issue is Richard L. Morningstar, special envoy for Eurasian energy. It would be difficult to find anyone with a better background for the job: Mr. Morningstar played a key role in the Clinton administration in opening up the oil and gas fields of the Caspian after the collapse of the Soviet Union. Turkmenistan is on the global energy map largely because of U.S. efforts in the Clinton and George W. Bush eras. In 2010, Mr. Morningstar’s job could not be more challenging.

Russia, China and Iran are all more assertive in their foreign and energy policies across Eurasia. The U.S. and Turkey once walked in lockstep on Eurasian energy issues, but now Ankara seeks to carve out its own regional influence as a global energy hub. NATO allies, uninvolved in the 1990s are interested, but not unified. And major technological and policy changes are tearing old assumptions asunder.

The development of previously inaccessible shale gas deposits in the U.S. has revolutionized the North American energy market. American consumers probably are sitting on 100 years of domestic gas supplies. So all of the liquefied natural gas shipments originally bound for the U.S. are heading to Europe and East Asia. This could tamp down Eurasia’s energy geopolitics – if consumers’ needs are met by sea. But it is more likely to intensify the cross-continental competition as both producing and consuming countries will be looking to find and develop the same kind of shale deposits across Eurasia.

While Mr. Morningstar so far has done yeoman’s work, the White House would do well to acknowledge the escalating severity of Eurasia’s energy geopolitics with the appointment of a National Security Council director to focus solely on the issue. This effort must be complemented by high-level diplomacy to shore up key energy relationships in Eurasia. Energy Secretary Steven Chu should make a point of visiting Turkmenistan, and Secretary of State Hillary Rodham Clinton would do well to step up coordination on energy-security policy with our European allies – and China. Finally, our relationship with Russia must address head-on the issue of oil and gas as geopolitical tools. If its focus remains on strategic arms reduction, it will have skirted the most contentious issue in Eurasia.

Energy is not just about conservation or climate change. In Eurasia, it is about power politics at a strategic level. Better policy on most U.S. national security priorities – Afghanistan, Iraq, Russia, China – depends on better understanding of Eurasian energy geopolitics.

This post first appeared in the Washington Times.

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.