EU Energy Security and its implication for Ukraine

By: Shahab Sabahi, Policy Analyst in Energy Security and Policy Research Group

One could think of various reasons for the recent Ukraine tension, but certainly wining political control over the Eurasia faultline isn't the only driving force for Russia's offensive stance, as the coincidence of last year’s energy agreements, between Kiev and the giant energy companies, with the commencement of the conflict is unlikely to be considered a random accident.

According to the U.S. Energy Information Administration Ukraine has Europe’s third-largest shale gas reserve at 42 trillion cubic feet. While for years the giant energy companies have been pressing for shale gas development in Britain, Poland, France and Bulgaria there has been considerably less opposition in Ukraine, a country that has been entangled in gas disputes with Russian in recent years. Gazprom annually supplies more than half of Ukraine’s gas demand, and about 30 percent of Europe’s. Russia has often used this as political and economic leverage over Kiev and Brussels. This leverage, however, came under challenge in 2013 as Ukraine took steps towards breaking its dependence on Russian gas.

According to the New York Times, Chevron signed a 50-year agreement with the Ukrainian government to develop oil and gas in western Ukraine on Nov. 5, 2013, just a few weeks before beginning Kiev’s unrest. The quantities of gas production can probably go beyond Ukraine’s gas needs and the left over can export by 2020. As Reuters stated that the deal for Ukraine and Europe would be a step towards more energy independence from Russia.

It’s in the Donetsk Region, in eastern Ukraine, that Shell signed, in January 2013, a 50-year profit sharing deal with the government of Ukraine to explore and drill for natural gas in shale rock formations.

In another occasion, in autumn 2013 Ukraine’s officials were in negotiations with an ExxonMobil-led consortium to explore for hydrocarbons off Ukraine’s western Black Sea coast. On Nov. 27, the Ukrainian government signed another production-sharing agreement with a consortium of investors led by Italian energy company Eni to develop unconventional hydrocarbons in the Black Sea. In Crimea, giant energy companies including Chevron, Shell, ExxonMobil, Repsol and even Petrochina have shown interest in developing its offshore energy assets. In 2013 these companies have greatly expanded their exploration of the Black Sea off the Crimean peninsula. Perhaps one of Russia’s motivations for annexing Crimea was to ensure that Gazprom will remain in control of Crimean offshore energy assets in addition to ensuring the continued use of Crimea as host to Russia’s Black Sea Fleet.

With much invested of these giant energy companies including those of Russian and the west they are deeply entangled in the Ukrainian crisis. Most likely they will firmly stand to make a profit from these contracts signed by the previous Ukraine’s government and that will influence the geopolitics of Eurasia and Ukraine’s future more than other factors in place.