Ukraine's corruption schemes are called gas independence

Author : Oleksiy Kushch

Source : 112 Ukraine

The Ukrainians naively think that "Rotterdam+" and "Düsseldorf+" schemes are our high price for "energy independence"
11:20, 6 March 2019


The issue of energy security is the cornerstone of the sustainability of any economic system. In Ukraine, the term “energy security” is often taken as “energy independence.” But Ukraine is not Qatar or Iran, and even if, as a result of the de-industrialization of the national economy and the growth of utility tariffs, gas consumption drops to the level of the "Stone Age," we will still remain dependant on the oil products and coal.

European countries that do not have gas reserves, except for Norway and the Netherlands (the latter, however, turned into a net importer of gas into a net importer of gas), have long formulated the concept of "energy security." The economy should have at least three alternative points of entry into the gas transportation system. For many European countries, such hydrocarbon supply channels are the Russian Federation and another alternative country, for example, Norway or Algeria. Caspian gas is on its way through the TANAP gas pipeline, which passes through Turkey. The third point is reception of liquefied gas (LNG), terminals are built in the UK, Poland, Lithuania, and other countries.

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That is, if you suddenly have problems with one supplier, you can increase supplies from another one and, as a last resort, increase the purchase of LNG, although it is expensive and cannot fully replace the deficit. Of course, if Russian gas supplies to the EU from the Russian Federation are discontinued for any reason, the situation in the European energy system will be critical, but Europeans have some sources of diversification of such risks. For example, Germany tries to minimize not only the risk of the supplier, but also the transit country. This explains the fact that the Germans are promoting the Nord Stream 2, despite the protests of Ukraine, Poland, and the United States.

And now let's analyze the level of energy security in Ukraine, which we stubbornly call “energy independence”. For a long time, politicians have been convincing us that we have completely refused from buying Russian gas. But as soon as after the loss of the Stockholm arbitration, Gazprom reduced the gas supply to our gas transmission system, the state of emergency was immediately announced.

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The price model, which was supposed to promote energy independence, was a peg to import parity. Today it works both in coal and in gas spheres –  "Rotterdam+" and "Düsseldorf+" schemes. Two price models that are filled with the cache at the expense of the end user, through the inclusion of the so-called import component in the corresponding tariff (electricity, gas for the population, heat, hot water). Lobbyists of these mechanisms are trying to convince us that Ukraine buys coal not from occupied territories of Donbas, but from Rotterdam and that gas goes from the European gas hubs.

Unfortunately, the institutions that could put an end to this bacchanalia are not created. So some "experts" criticize "Rotterdam +" scheme, but at the same time justify "Düsseldorf +", and vice versa. Let's just say, we do not have an unbiased expert platform for analyzing the state tariff policy.

Ukraine has depended and depends on Russian gas, although it is called "European gas" today. According to the State Statistics Service, last year Ukraine imported 10,4 billion cubic meters of gas (3,12 billion dollars), that is, the average price was more than 330 dollars. Switzerland with a volume of 3.8 billion cubic meters was number one exporting country (1.16 billion dollars), this could be explained that a lot of straw gas companies are registered in this country. Switzerland accounts for 37% of gas imports to Ukraine.

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Germany with 3.17 billion cubic meters of gas worth almost a billion dollars takes 31% of the total. That is, the country in which the gas hub is located is noticeably inferior to Switzerland, which has nothing to do with the import parity and gas market scheme.

What has this supply chain led to? The price of gas is only manipulatively determined on the basis of price parameters at the NCG hub (Germany), plus transportation costs and entry-exit tariffs on the western border of Ukraine. A significant part of the gas price is formed on the gas European circuit companies.

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Every year, Ukrainian consumers overpay millions of dollars in order to fill the Swiss and Luxembourg “financial rivers.” And we naively think that this is our high price for "energy independence!"

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