Russian gas as drug for Ukraine economy

10:00, 09 June 2016
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Opinion

The previous government, just as today’s president has repeatedly boasted that the country finally managed to get off the Russian gas needle and that we no longer need to buy gas from Russia. After all, own-produced gas and that purchased on the western border in a so-called reverse flow scheme can cover all of the country’s demands and also ensure pumping enough fuel into the underground storage facilities for further use during the heating season.

But here we go again… On June 6, Naftogaz of Ukraine CEO Andriy Kobolev said that the company considered reviewing gas purchases from Gazprom, in case the Russian energy monopoly offered a price lower than the European one. "In terms of minimizing consumer cost and common sense, it would be right to buy gas from the eastern direction," he said.

The following day, Gazprom confirmed receiving such a proposal from Ukraine.

Let's start with common sense. Trading with the enemy, at the same time encouraging others to extend sanctions against the aggressor state is rather a sign of schizophrenia, or split personality.

It is unlikely that Mr. Kobolev would move with such a proposal to his Russian counterparts at his own risk, without the blessing from some higher offices. This could indicate either that the war is apart from “business as usual” for the state leadership, or that the previous government lied to the public, saying that we could supposedly survive without the Russian gas.

If you want cheap gas in your boilers, get used to the fact that it’s only cheap in the Kremlin

I almost got too emotional when the Naftogaz chief hinted that the citizens could pay less for gas if we manage to agree with Russia on a cheaper price. It looks very much like the beginning of a PR campaign to justify cooperation with the aggressor state. It’s as if to say that is you want cheap gas in your boilers, get used to the fact that it’s only cheap in the Kremlin.

Besides, the very concept of cheap/expensive only exists in market conditions. Market conditions means there are multiple sellers competing for consumer attention. And what do we have now? There is a state energy and utility regulator - the National Commission - which recently set a single gas price for all consumers, for some reason calling it a “market price.” There are also monopolies in every Ukrainian region and city - numerous gas distribution companies, which stretch gas pipes to households with no alternative whatsoever, charging the people for their services by tariffs approved by the regulator, also with no alternative.

Moreover, even if we try to turn a blind eye on this and use cheaper Russian gas, then how will it promote energy efficiency, which is now called the government priority? Experience shows that as long as the energy sources are cheap, consumers have no incentive for energy saving. Gasoline is a classic example. In Soviet times, the drivers used to sometimes pour the excess fuel into the ditch. The present attitude of the Ukrainian drivers to gasoline is dramatically different.

As long as the energy sources are cheap, consumers have no incentive for energy saving

It seems that ideas of constructing LNG terminals in Black Sea ports, developing renewable power generation, and the alternative hydrocarbon energy sources remained on paper. Why bother if the dealer cuts the price of drugs?

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