Ukraine makes inroads on energy security as Donetsk teeters

Ukraine declared an 'anti-terrorist operation' Tuesday against pro-Russian militia in eastern Ukraine's Donetsk region. Meanwhile in the West, Kiev courted its European neighbors for alternative fuel supplies that would boost its energy security.

As tensions in eastern Ukraine's Donetsk region escalate, Kiev is quietly cobbling together Western energy supplies to lessen its reliance on Russia.

As of Tuesday, Ukraine has European natural gas flowing from Germany, an extended nuclear fuel contract with an American company, and the potential for expanded gas flows from Slovakia. None of it is enough to offset Russia's stronghold on Ukraine's energy industry, and there are plenty of obstacles to Western neighbors coming to Ukraine's aid. Still, the contracts and negotiations suggest Ukraine isn't wasting any time in finding alternative, Western supplies.

German energy company RWE began delivering natural gas to Ukraine via Poland Tuesday, the company announced in a statement, making it the first European company to supply gas to Ukraine this year. The supplies come under a five-year framework agreement between an RWE subsidiary and Naftogaz, Ukraine's state-owned gas company, which could deliver up to 10 billion cubic meters (bcm) of the heating and electricity fuel per year.   

In 2013, Ukraine consumed between 53 and 55 bcm of gas, about half of which it buys from Russia, according to Moody's Investors Service. Ukraine has missed several payments since last fall, amassing a debt of about $2.2 billion to Russia's state-owned gas company Gazprom. Previously this month, the company effectively doubled the price it charges Ukraine for natural gas, and warned of a possible shutoff if Naftogaz continues to miss payments.

RWE will charge prices based on European wholesale levels including delivery costs, the company said in a statement, meaning it would likely undercut the $485 Gaprom now charges Ukraine per bcm of natural gas. That price is the highest Gazprom charges any customer and well above the European average of $370 per bcm, according to Reuters.      

Ukrainian officials were also in Slovakia Tuesday, hoping to secure as much as 14 bcm annually in reverse gas flows from another neighbor to the west, but a deal failed to materialize.

"No agreement on the issue has been reached yet due to unresolved issues regarding contracts between [the Slovak gas transmission company] Eustream and third parties," Slovak Economy Ministry spokesman Stanislav Jurikovic said, as reported by The Wall Street Journal. 

Upward of 90 percent of the gas Slovakia consumes comes from Russia, so it is cautious not to violate either the spirit or the letter of its contracts with Gazprom. Slovakia is also concerned about being paid for any gas it ships to Ukraine.

"It's clear that Ukraine is not able to pay its bills," Slovak Prime Minister Robert Fico said last week, as reported by the Agence France-Presse. "Only a third party, like the European Union and European Commission, can guarantee that Slovakia will get paid if we help Ukraine."

Gas isn't the only energy source Ukraine imports primarily from Russia. Ukraine gets virtually all of its nuclear fuel from Russia, but it has even made small steps toward diversification. Last week, Pennsylvania-based Westinghouse Electric Co. agreed to extend a contract to fuel two of Ukraine's nuclear reactors through 2020.  

“We are very pleased to be a strategic partner with [Ukrainian nuclear firm] Energoatom and assisting them in diversifying their supply of fuel deliveries," Westinghouse chief Danny Roderick said in a statement last Friday. “We expect that with continued superior results and competitive efficiency of our fuel design, Westinghouse will grow its share of the Ukrainian nuclear fuel market.”