Global Insider: Ukraine’s Energy Market

Ukraine and Azerbaijan recently signed a deal on the supply of Azerbaijani liquefied natural gas to Ukraine. In an email interview, Natalia Shapovalova, a researcher at the Madrid-based think tank Fride, discussed Ukraine's energy market.

WPR: What is the current state of Ukraine's energy relations with Russia?

Natalia Shapovalova: Russia-Ukraine energy relations are difficult as both have diverging interests. Ukraine is interested in keeping gas prices low, the volumes and price of gas transit high and control over its gas pipeline independent. Russia wants just the opposite. Ukrainian President Victor Yanukovych's government has tried to revise the 2009 contract with Russia to lower the price of gas. Russia made such a revision conditional upon either a merger between Naftogaz -- Ukraine's gas and oil monopoly -- and Gazprom or Ukraine's accession to the Moscow-led Customs Union with Belarus and Kazakhstan. Ukraine has rejected both proposals and continues to seek a way out. International arbitrage is one potential solution, as has been the case with other European companies. The second option, recently discussed in a meeting between the Ukrainian and Russian presidents, entails Russia's eventual participation in the management of Ukraine's gas-transit system. The details are still unknown, but Ukraine is trying to revitalize the idea of a trilateral Ukraine-Russia-European Union gas-transit consortium. The EU's participation is needed to neutralize Russia's domination.

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