Ukraine’s Gas Woes - America Adding Fuel to the Fire?

By Aliza Kempner
Work on the Nord Stream pipeline.
By Bair175 (Own work) [CC-BY-SA-3.0],
via Wikimedia Commons

The political scene remains fiery in the Crimean peninsula, it’s looking like Ukrainians may soon lose the ability to keep heat in their homes. Gazprom, Russia’s state-owed monopoly of natural gas, is threatening to pull the cord on its subsidized trading of natural gas to Ukraine. This isn’t just Ukraine’s problem either - most of Europe gets its gas from Russia, and the United States may soon add our own fuel to the fire.

In December of last year, former Ukrainian leader Viktor Yanukovych brokered a deal with Russian President Vladimir Putin to allow Ukraine to purchase natural gas at a price of $268.50 per thousand cubic meters of gas rather than $400. Ukraine depends on Russia for between 60-70 percent of the gas is uses to heat homes and keep businesses running. Since then, however, Yanukovych has been overthrown in a frenzied uprising, and as the Kremlin recently reminded it, Ukraine still owes Gazprom a whopping $1.55 billion. This is a little more than most countries would be okay with spotting neighbors to cover the gas bill, especially when that neighbor was rumored to have stolen gas transported through its territory en route to Europe and already had a reputation for making late payments. Still, the loss of this deal, which had provided Ukraine with a total saving of $2 billion per year, could be catastrophic for Ukraine, especially as an unsteady new government tries to take charge and Russian troops intensify their attempts to control the region.

This isn’t the first time the Russians have withheld gas or hiked up the prices as a form of sanction.  This move has historically become Europe’s problem, too, since much of the continent depends on Russia to provide its gas supplies. Importantly, two major Russian pipelines run through Ukraine, feeding twelve European countries. When Russia cut the gas flow in 2009 as a result of Ukraine’s nonpayment, Croatia and Serbia lost all their gas from Russia, and countries like Austria and France lost about 30 percent. This time around, at least, things might not be looking as dour for European consumers. Since 2010, Russia has had a new system of pipelines in the works, destined to bypass Ukraine in delivering natural gas to Europe. Already, in contrast with the early 1990s, when Russia sent all of its gas destined for Europe through Ukraine, by 2013 only half that gas traveled through Ukrainian soil. Having these pipelines in place will give Russia even more authority over Ukraine, allowing Moscow to stop gas flow without a fear of backlash from the European Union.

As another twist, the United States is looking to capitalize on its store of natural gas to heighten American geopolitical power. While Russia remains the biggest exporter of natural gas in the world, the United States recently blew past it to become the greatest producer of natural gas, with the rise of hydraulic fracking playing a part. Should America come to the rescue? Some think so. In particular, Congressional Republicans have teamed up with massive oil and gas producers like ExxonMobil in pushing the administration to hasten the issuing of oil and gas permits. Speaker of the House, John Boehner, even wrote an article advocating that America join the fray for supplying natural gas to the Ukraine. Moreover, the State Department’s Bureau of Energy resources has put an initiative in motion to use a new supply of American natural gas as a lever against Russia, hoping to reduce the chances of supply shocks and protect economies against sudden spikes in gas prices. Nevertheless, the new boom in energy derived from fracking carries heavy consequences for the environment, with environmentalists decrying its potentially catastrophic implications for pollution, and the practice also is insidiously making its way into European countries like Poland.

Finally, even if America coming in and changing the game sounds great on paper, is it really even feasible? There’s reason to believe that even when American export terminals are operating in full force, most of that gas will be tagged for the Asian markets.

As Ukrainian blood continues to spill, the conflicts bring new questions to the basis for Western intervention: long-term questions of energy security, climate change, and fears about geopolitical struggles.