RCEM: Views on Energy News

Thanks to ESCP Europe's Research Centre for Energy Management's  wide network in the academic and business communities, our views on energy news give you comprehensive insight into energy issues. 

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In the past 10 years, "Ukraine" and "gas" have together been associated with the country's strife with its eastern neighbour, and by extension, with Europe's security of supply concerns. Given this, it is easy to overlook Ukraine's importance as a gas market in its own right. At 42.6 billion cubic meters (BCM) in 2014, the country's gas market ranks a close 4th in Europe, after Germany's (86.2), UK's (78.7) and Italy's (68.7).

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In the wake of the downing of Malaysia Airline flight MH17 over eastern Ukraine on 17 of July 2014, Russia has been pelleted with adverse court rulings and judicial decisions. In sequence we have:

  • 28/7/2014 : the Hague arbitration court's finding is that Russia did in fact steal Yukos from its rightful owners, the shareholders of the company, and must pay $50 billion damages as a result [1]
  • 31/7/2014 : Europe's top human rights court awarded shareholders in Yukos 1.9 billion € in damages [2]
  • 31/7/2014 :  the European Council announced sectorial sanctions against the banking/financial, the weapons trade, and the oil sector.[3] In the latter, new investments, covering new investments after 1 / 8 / 2014
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Few bilateral gas relations are as complicated and as far-reaching as those between Russia and Ukraine. As it was, these relations are uniquely opaque, considering that they affect numerous countries downstream of Ukraine. International gas meters are situated on Russian side of the border, and the contract is supposedly secret. However headline prices per 1000 m3 have always leaked to the press or were officially announced by successive Ukrainian prime ministers or by Gazprom. The current contract was signed in 2009 by then Prime Minister Yulia Timoschenko and it runs until 2019. It stipulates a price of $450 / 000 m3 initially (http://news.mail.ru/politics/2320367/), with a subsequent indexation on crude and HFO. This is to be compared with the last price of $385 which Gazprom offered  before the current negotiations broke off. More significantly, this is to be compared with the current price marker of $200 on the continental gas hub TTF. The 2009 contract has a take-or-pay clause which allows Ukraine to reduce its imports. This is significant because Ukraine's floundering industry has less need for gas, and in future years if it can pacify its eastern regions, it stands to develop considerable shale gas reserves there.

 

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Ukraine, which in Russian translates as 'on the border', is sitting on the fence in more than one way. The country is now in the news after its president single-handedly put the Association Agreement with the EU "on pause", in favor of a Eurasian customs union with Russia and regional allies.

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