This document summarizes Ukraine's energy relations with the EU and some key implications. It notes that 25% of EU gas passes through Ukrainian territory via major Russian pipelines. Ukraine is also the largest consumer of Russian gas. While Ukraine has significant gas transit and storage infrastructure, its energy sector is dominated by the state-owned monopoly Naftogaz. Ukraine joined the European Energy Community in 2010 but has faced challenges implementing reforms to increase competition and integrate its energy market with the EU, with the government retaining significant control over the sector. Overall the document outlines both Ukraine's important role in European energy transit but also obstacles to further energy cooperation between Ukraine and the EU.

1. Ukraine’s energy relations with the EU:
implications for competition
Oleksii Leshchenko, Gorshenin Institute
Brussels, Belgium
15 March 2012

2. Ukraine-EU: Energy
• 25% of annually consumed in the EU gas
passes through Ukrainian territory (120
bcm/a)
• 75% of all exported gas from Russia to Europe
goes through Ukrainian territory
• The lowest transit rates in Europe (2.84 $)
• Underground gas storage capacity – 1/3 of EU
gas storage capacity (32 bcm)
• Largest consumer of Russian gas in the world
(25% of Gazprom European exports)

3. Major Russian Gas Pipelines
Source:PetroleumEconomist

4. • The 10-th largest gas consumer in the world
and the 30-th gas producer in the world
• Ukraine gas consumption equals to the Czech
Republic, Hungary, Poland, and Slovakia
combined
• Energy capacity of Ukrainian GDP – 40%
(World - 19%, Europe – 17%)
Energy efficiency in Ukraine

5. Energy capacity of GDP of
Ukraine & other countries
Source: IEA, 2008 (PPP USD 2000)

6. Assets and Vulnerabilities
GTS capacity 180 bcm/a/
“Metal scrap” if not utilized by
Gazprom

7. Naftogaz - Oil&Gas Monopoly
Production &
Refinery
Transportation Sales &
Distribution
SC Ukrgas
production
SJSC Chornomor
naftogas
OJSC Ukrnafta
(50%+1 share)
SC
Ukrtransgaz
OJSC
Ukrtransnafta
SJSC
Ukrspetstransgaz
SC Gas of
Ukraine
SE Ukravtogaz
Heat power
generating
companies
97% of oil & gas
production
100% of oil & gas
transportation
100% of gas
distribution

8. Ukraine and the European
Energy Community
• Became a member on Feb. 1, 2010
• More competition in the domestic market
• Higher technical standards and regulations
• Better investment climate
• Further integration of Ukrainian energy sector
with the EU
• Enhance energy security
• Access to international loans and technical
assistance

9. • Ukraine expected blocking of the “South Stream”
and investments in the GTS modernization
• EU expected reforms of the internal market
• Ukrainian government uses membership in the EEC
to promote reforms that do not enhance
competition but strengthen manual control: law on
oil and gas sector reforming entitles the Cabinet of
Ministers to unilaterally reorganize the energy sector
• This state of affairs is at hand to third parties
Ukraine and the European
Energy Community - reality

10. Implementation
• Gas produced in Ukraine should be used to
meet the needs of the population and housing
and communal complex
• Gas produced in Ukraine may not be exported
• Gas produced in Ukraine is sold by regulated
tariffs
• Profitability of the state gas production
companies is limited to 15%

11. • Regulations on the access to the GTS of the
third parties are postponed until mid-2012
• Law on Naftogas restructuring submitted to
the Parliament
Implementation

12. Third Energy Packet
• National Electricity Regulatory Commission is
directly subordinated to the President, and
this fact can influence independence of the
regulator
• Property unbundling: restructuring of
Naftogaz is not transparent

13. www.gorshenin.eu