Kyiv Post

A better option
28 January, 2009

INVESTING IN UKRAINE'S GAS PIPELINE IS THE BEST AND CHEAPEST OPTION FOR EUROPE TO SECURE RUSSIAN GAS SUPPLIES

The January natural gas war between Ukraine and Russia was a badly
needed wake-up call for European Union bureaucrats who have dragged
their feet on energy diversification and who have long been wimpy with
Russia.

The cutoff of natural gas supplies revealed how deeply dependent both
Ukraine and Europe have become on a nation whose leaders are keen to use
energy as a geopolitical tool of influence and blackmail. One of
Russia's aims was to smear Ukraine, undermining its reputation in Europe
as a functioning democracy and as a reliable transit route for Russian
gas to Europe.

The Russians also hoped to build support for costly alternative pipeline
projects bypassing Ukraine. But that's a tough sell.

Kremlin leaders are finding it hard to finance the $20 billion Nord
Stream project across the Baltic Sea, and for good reason. It's a very
expensive way to pump 30-55 billion cubic meters of gas.

Another Kremlin favorite is the $20 billion South Stream, which would go
through the Black Sea into Bulgaria, also an expensive way to move 30
billion cubic meters of gas.

A third option to bypass Ukraine, touted mainly in the West, is the $13
billion Nabucco gas pipeline. But that's a stiff price tag to move 30
billion cubic meters.

But the better and cheaper option would be to invest up to $3 billion or
so in strengthening Ukraine's pipeline system, which already pumps a
whopping 120 billion cubic meters of gas each year. The nation's network
could pump more, and do so more efficiently, with needed upgrades.

While Russian bad behavior has shown that Europe and everyone else
should explore other energy options, Europeans should also back a
consortium that would invest into Ukraine's state-owned pipeline.
Ukrainian leaders should embrace this option as well. It would bolster
the nation's free-market credentials and its economic importance.
Europeans would then be deeply involved in the gas issue all the way to
the Russian border. Ukraine's gas pipeline might also be a key to
opening the door to future membership in the European Union.

In the next five to seven years, Ukraine's vast pipelines will remain
dominant, yet vulnerable. Still, the existing network remains the best
and cheapest way to pump Russian gas to Europe.