Filenews 21 January 2025 - by Ken Silverstein
The United States began shipping liquefied natural gas to Ukraine in December. The move is in line with Ukraine's decision to terminate its Russian gas transit agreement from January 1, 2025. Ukraine's largest utility, DTEK, has a two-year contract with U.S. firm Venture Global.
Ukrainian President Zelensky has announced that his country will officially end its trade with Russia, saying the revenues - amounting to billions - are being used to make weapons that kill Ukrainians. The move gives the United States more influence over energy markets in Western and Eastern Europe.
"This is a historic event. Russia is losing these markets and will suffer economic losses," Ukrainian Energy Minister Herman Halustshenkun said on Telegram. "Europe has already decided to phase out imports of Russian gas and this is in line with Ukraine's decision."
This strategy aims to cut off Russia's energy connection to Europe. Until recently, the Old Continent relied on Moscow for 40% of its natural gas. In retaliation for the war in Ukraine, Europe pledged to reduce its dependence on Russian gas and cut its imports to 10%. Meanwhile, the United States has stepped into fill some of the gap, supplying about 38 percent of Europe's natural gas, which amounts to 5.2 million tons.
Russia continued to abide by the 2019 agreement, even as it bombed Ukraine. By terminating the contract, Ukraine "waived" EUR 800 million in revenue. dollars per year as transit fees. On the other hand, Russia's Gazprom is set to lose 5 billion dollars per year in sales. Austria said it was prepared for the change, while Slovakia said Europeans would be more affected by the new status than Russians.
Most analysts predict that the gas cut off will not significantly affect European countries, except for Moldova which now has to cut its gas use by a third. Ironically, Transnistria, a breakaway region of Moldova with pro-Russian sentiments, has been hardest hit, as power cuts are more frequent there.
The Moldovan government is concerned that Transnistrian citizens will be relocated to the mainland, hampering the country's ability to adequately support the energy needs of its population. Chisinau also said the Russian government was hampering efforts to help those in need, creating a crisis. Natural gas covers more than 50% of Moldova's electricity supply. Fortunately, Moldova's electricity grid is interconnected with that of the European Union, making things a little easier.
"EU countries expanded their LNG import capacity by more than 1/3 between 2021 and 2024 and expect to further boost their regasification capacity this winter. We estimate that the regasification capacity will be extended to Germany, Italy, Greece and Poland by 3.5 billion. cubic feet per day through January 2025," the U.S. Energy Information Administration noted.
The price of war for Ukraine
DTEK has lost nearly 90% of its generating power, producing 20% of the electricity Ukraine needs. Its power plants are vital for supplying electricity during peak hours. The World Bank estimates that Ukraine's energy sector had suffered ,12 billion dollars in damage since the start of the war.
Over time, the country will connect its grid to the European high-voltage transmission system. This interconnected system will give some freedom to the flow of electricity in Ukraine. The government should cut ties with Russia and look for more reliable energy partners. However, the interconnected network is also more vulnerable to cyberattacks.
With the United States now sending Ukraine liquefied natural gas, the country can reduce its dependence on Russian energy and secure supplies from a reliable partner. The strengthening of energy ties with the United States underscores Ukraine's intention to embrace Western values. On top of that, Kiev can become a regional energy hub for Eastern Europe if it invests in basic infrastructure such as storage facilities and pipelines.
The United States can now emerge as a global energy supplier, with geographic location, logistics and infrastructure being key parameters.
"For years, Russia controlled energy in Ukraine and kept us dependent. We aim for our self-sufficiency – to produce as much gas as we consume," Oleksiy Chernyshov, now Ukraine's deputy prime minister, previously said.
Naftogaz is the largest state-owned energy company in Ukraine, focusing on the development of oil, gas and renewable energy projects. At the moment, it produces around EUR 15 billion. cubic meters of gas per year. Ukraine consumes around EUR 19 billion. cubic metres, whereas in the past it had reached the point of consuming up to EUR 50 billion. cubic meters.
Although Ukraine is the third European country in natural gas reserves, U.S. companies have the technical expertise to maximize production through horizontal drilling, hydraulic fracturing and three-dimensional seismic survey services. If Ukraine successfully increases its production, it could become an energy supplier for Europe.
The Russian invasion of Ukraine has transformed the global energy landscape. The U.S. can take the lead in this area, driven by LNG sales. This is already evident in Western Europe and may soon extend to Eastern Europe.
