Ukraine's National Energy Strategy: "Open and Fair Competition"?

At the Ukrainian Energy Forum, participants in a session dedicated to Ukraine's National Energy Strategy to 2030 attempted to answer the question "Does the Updated Document Meet the Requirments of All Stakeholders?"

In that context, one speaker, Axel Scheuer, Global Regulatory Advisor, ExxonMobil Gas & Power Marketing, recalled one of the tenets of economist Adam Smith: "change creates opportunities."

He said, "According to The Wealth of Nations, a nation is best served if individuals pursue their own interests in open and fair competition."

Mr. Scheuer said he wanted to answer three crucial questions: "How can Ukraine take advantage of the increasingly competitive and liquid European energy market, particularly the gas market? Why do competitive markets benefit all stakeholders? What are the key elements needed to get towards a competitive and integrated gas market in Ukraine?"

He said that changes in European gas markets in Europe were creating a lot of opportunity for Ukraine, and presented a depiction of a comparison of those markets, which showed varying levels of competition and liquidity. The UK, the Benelux countries and Germany were all shown in green, indicating high levels of those attributes. He noted natural gas hubs had been established in those markets and liquidity had increased.

"The EU is trying to create a single market," he remarked, "for gas as well, and that involves better interconnection between the countries."

The result, he said, was that a liquid energy market was developing at Ukraine's doorstep, and the country could take advantage of this by tapping into neighboring markets, facilitating investment by E&P companies there.

"Competitive markets benefit all stakeholders," he explained. "ExxonMobil would like to encourage Ukraine to take the path towards EU accession if it wants to attract investment and create jobs."

He added that there was a need for security of natural gas demand in Ukraine; meanwhile consumers wanted affordable energy. Clearly, he contended, competitive markets worked to the benefit of all stakeholders, including fair access to the gas grid and infrastructure.

"Price formation provides investment information for producers," said Scheuer, adding that an effective institutional infrastructure must also be in place, including an independent regulator.

"Laws and regulations should be based on good dialogue. Prices should reflect international pricing."

Ukraine has an efficient plan to increase energy generation as part of its National Energy Strategy Plan to 2030, said Olena Pavlenko, Founder, DiXi Group, who also spoke in the session.

Assuming economic growth would be 5% annually in the coming years, she said Ukraine planned to achieve the goals of 45 bcm/year of gas production, coal production up to 75 million tons/year, and commissioning new generation capacities in the electricity sector until 2018.

"At the same time, it is expected that energy consumption will decline by 30-35%," she explained. "On the one hand, it is really a good plan to decrease the energy dependence of Ukraine. On the other hand, the mechanisms to achieve these goals should be detailed."

She said instruments like programs of sector reforms, creating competitive markets, and raising prices for energy resources to improve the investment climate were all mentioned in the document, but they needed to be implemented. "Right now, the Government is not ready to raise prices for energy resources," commented Ms. Pavlenko, "and privatization last year showed more cannibalization rather than competitiveness.

"Detailing such mechanisms to achieve the goals will show how fast we will reach the expected results, something which should be started immediately."

Governmental priorities, she said, should be detailed in each sector. "For example, in the gas sector for extraction the estimated resources of the necessary investments is published, but at the same time nothing is said about the framework of cooperation between the Government and investors. If such a framework were adopted officially, explaining the future tax and regulatory regimes, it would make the energy policy of the Government more consistent and predictable."

She said the draft of Ukraine's Energy Strategy should also consider the international context of Ukrainian policy, like considering perspectives and changes on European energy markets, new gas corridors, LNG exports from the US or implementation of new EU directives.

"It should also consider implementation of international standards," she added, like requirements for environmental impact assessments.

The draft of the updated Energy Strategy should also consider the priorities of EU policy, which entailed decarbonization, but Ukraine included coal within its Energy Strategy, she noted. A certain proportion of renewables, she said, was also crucial.