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Presentation 'Ukraine, between Russia and the EU: Strengthening regional stability through an effective and reformed gas market in Ukraine' by Marc-Antoine Eyl-Mazzega, Centre d’Etudes et de ...

Presentation 'Ukraine, between Russia and the EU: Strengthening regional stability through an effective and reformed gas market in Ukraine' by Marc-Antoine Eyl-Mazzega, Centre d’Etudes et de Recherches Internationales (CERI / Sciences-Po), at Lviv International Security Forum, April 15-16 2010

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    Section5 eyl mazzega-eng Section5 eyl mazzega-eng Presentation Transcript

      • Marc-Antoine Eyl-Mazzega
      • Centre d’Etudes et de Recherches Internationales (CERI / Sciences-Po)
      Ukraine, between Russia and the EU: Strengthening regional stability through an effective and reformed gas market in Ukraine Presentation for the Regional Security Conference Lviv, 15-16/04/2010
    • Building an effective gas market
      • Challenges and constraints
      • Gas market has not been adapted to market prices
      • Important level of gas consumption, especially public sector
      • Important value of state subsidy to the public sector
      • Single external gas supply source, hardly any other reachable as real alternative and diversification
      • Naftogaz near monopoly of imports, production and distribution though in a fragile situation due to intrigues and economics of gas imports
      • No rule of law, inefficient state regulation, conflicts between various private interests leading to instability
      • Rules of the game are political
      • No or hardly any credits available for the Ukrainian market
      Marc-Antoine Eyl-Mazzega – Lviv conference on regional security, 15-16/04/2010
    • Building an effective gas market
      • Assets
      • Unique storage facilities, well located
      • Relatively important domestic production and existing reserves
      • Important transit volumes providing huge revenues
      • One of the world’s leading gas producer and exporter is the neighour
      • Many possible alternatives to gas available, just need to be developped
      • Ukraine draws attention from investors, far more could come in
      Marc-Antoine Eyl-Mazzega – Lviv conference on regional security, 15-16/04/2010
    • Building an effective gas market
      • Key issue
      • Having a liquid gas market, with relatively optimal and reasonable market prices, efficient, predictible, depoliticized and secure regulation through competition of actors, security of supply and mitigation of strategic risks
      • Key risks:
      • Price setting by dominant external actor and political and economic influence taking through gas supplies; Deterioration of infrastructure; Contradiction between private interests and state interests and use of state ressources for private interests; Ruin of state budget; Intransparency
      Marc-Antoine Eyl-Mazzega – Lviv conference on regional security, 15-16/04/2010
    • Building an effective gas market
      • The check list (1)
      • Is diversification of supplies possible ? No
      • Is reduction of state subsidy to public sector possible? Yes
      • Is reduction of public sector’s gas consumption possible? Yes
      • Can gas be substitueted by alternatives fuels? Yes
      • Is reduction of Ukrtransgaz gas consumption possible? Yes
      • Is increase of internal production possible ? Yes
      • Is improvement of market conditions possibles? Yes
      • Is development of alternative fuels possible? Yes
      Marc-Antoine Eyl-Mazzega – Lviv conference on regional security, 15-16/04/2010
    • Building an effective gas market
      • The check list (2)
      • Is a gas market without Russian participation possible? No
      • Can Ukraine afford continuing under the same system? No
      • Can the state budget further support the current level of subsidy? No
      • Can Naftogaz survive its indebtness? Hardly
      • Should the Ukrainian citizen be satisfied with the current system? No
      Marc-Antoine Eyl-Mazzega – Lviv conference on regional security, 15-16/04/2010
    • Building an effective gas market
      • The agenda of reforms (1)
      •  EU lead reform agenda usefull, but not the one and only task
      •  Increase domestic gas production to increase competition with Russian gas
      •  Decrease public sector’s gas consumption to decrease burden on state budget and free up domestic gas for the industry
      • Increase the regulated prices, also for electricity! Differentiate consumers on the basis of their status: retired, or active
      • Use transit revenues to modernise gas pipeline system and finance the remaining state subsidy
      • Provide for exceptionnal investment conditions for foreign, private investor in the energy sector (otherwise no money will come and nothing will happen)
      Marc-Antoine Eyl-Mazzega – Lviv conference on regional security, 15-16/04/2010
    • Building an effective gas market
      • The agenda of reforms (2)
      •  Let Russian actors in: the more, the better !
      •  Provide for innovative market access conditions and licence obligations for new actors on the distribution market: supply at least 15% of gas at regulated prices, store 20% of domestic supplies, pay taxes in Ukraine, provide for strong financial guarantees, and for long term gas supply contracts
      •  Provide for transparent, stable and predictible working conditions for gas actors: rule of law is key, clear competition law with benchmarks, same as an independant regulator, with extensive energy security responsibilities and capacities to act
      Marc-Antoine Eyl-Mazzega – Lviv conference on regional security, 15-16/04/2010
    • Building an effective gas market
      • The agenda of reforms (3)
      • Get a workable deal with Russia: greater flexibility of supplies, better price, in exchange for direct access to domestic consumers and relative advantage on the gas transit price
      • Make Naftogaz ready for competition and reforms, separe the gas from the oil function to make it more efficient in turning Naftogaz into a holding with two branches, NeftUkrajina and GazUkrajina and transform it into a dynamic gas actor
      • Rather to think about an LNG terminal, think about acceeding to Baumgarten gas
      • Establish a predictible, attractive and secure market and political environment to attract European companies in Ukrainian storage
      Marc-Antoine Eyl-Mazzega – Lviv conference on regional security, 15-16/04/2010
    • Building an effective gas market
      • A Gas consortium?
      • Objectives:
      • secure funding for modernisation; strengthen trust as a gas transit corridor; improve transparency; ensure best level of revenues for state budget; develop opportunities for creating value through the gas storage facilities. The increase of volumes in transit or attempts to avoid alternative pipelines is irrealistic !
      • What to do?
      • Unbundling; project of concession; new study of pipeline system technical state; decide whether investors will make money or just provide for stability; calculate what it may cost and benefit the state
      • What should Ukraine not do?
      • Consider the consortium issue in view of other stakes (gas price) and mix up short term arrangements with long term interests
      Marc-Antoine Eyl-Mazzega – Lviv conference on regional security, 15-16/04/2010
    • Building an effective gas market
      • Future actors on Ukraine’s reformed gas market
      •  Production:
      • At least two international majors working under PSA
      • Increased number of Joint production agreements with Naftogaz
      •  Imports and distribution :
      • 50% of industrial sector to be supplied by two Russian companies; 20% by Naftogaz; 20 % by private, Ukrainian companies; 5% by non Russian, foreign companies
      •  Infrastucture and networks :
      • Naftogaz/Private companies, even Russian, provided that strong regulatory framework providing for energy security, transparency and third party access
      •  Exports/transit
      • Gazprom, private Ukrainian and foreign companies, Naftogaz
      Marc-Antoine Eyl-Mazzega – Lviv conference on regional security, 15-16/04/2010
    • Building an effective gas market
      • Future of Naftogaz in the gas sector
      • - Be the country’s most important gas producer
      • - Possibly, be the operator of gas transit infrastructure and storage facilities, or co-operator (if consortium)
      • - Rely on a long term supply contract from Gazprom with reduced volumes (10-15 bcma)
      • - Obtain a better market price from Gazprom in exchange for direct access to final consumer in Ukraine
      • - Supply gas to about 70% of public sector at regulated, though increased prices and thus benefit from increased revenues
      • - Supply gas to about 20% of industrial consumers at market price
      • - Provide for budget revenues to cover the remaining subsidy
      Marc-Antoine Eyl-Mazzega – Lviv conference on regional security, 15-16/04/2010
    • Conclusion (1)
      • Russia may be difficult partner, EU may be disappointing, but:
      •  The ball lies in Ukraine’s hands. Urgent action needed, no further complaints, or irrealistic projects
      • Ukraine should prepare for a different external gas equilibrium within the next 5 years. Ukraine will in no case transit more than current gas supplies. Important decrease of gas volumes in transit is likely (at least, 20%)
      • Ukraine should change its gas market before it gets into further, heavy trouble and will suffer irreversible losses
      Marc-Antoine Eyl-Mazzega – Lviv conference on regional security, 15-16/04/2010
    • Conclusion
      • Bring market rules in !
      • Bring foreign investors in !
      • Bring new players in the distribution and production!
      • Let the market do its job !
      • Be prepared to suffer some inevitable costs at first !
      • Change before it’s too late !
      • Start developing a real gas policy !
      Marc-Antoine Eyl-Mazzega – Lviv conference on regional security, 15-16/04/2010
      • Thank you!
      • [email_address]
      Marc-Antoine Eyl-Mazzega – Lviv conference on regional security, 15-16/04/2010