Energy crisis: How Brussels is Courting Ukraine

The EU has opened accession negotiations with Ukraine, with a view to 2030. The country is at war, the economy is in ruins, reconstruction will take decades - democratic elections have been postponed until further notice. The list of problems is long, and the prospects for rapid improvement are slim. But accession could go faster if Kiev can provide something the EU urgently needs: energy, for example. The groundwork for this "deal" has already been laid.

We know that Brussels has been intervening massively in the European energy market for the past two years, without democratic legitimacy and in defiance of Member States' reserves of sovereignty. The Commission is abusing the emergency clause to prolong a precarious situation that it has itself helped to create, notably by adopting several sets of sanctions against Russia.

We also know that some Member States have massively subsidised energy prices. This has not prevented an industrial nation like Germany from teetering on the brink of recession, and inflation from spiralling out of control in some Member States.

What is less well known is that over the last ten years, the EU has developed a legal framework for cooperation with Moldova and Ukraine, enabling closer cooperation in the energy sector. In addition to EU institutions and Member States, European financial institutions, including the European Investment Bank (EIB) and the European Bank for Reconstruction and Development (EBRD), are also involved.

Rich in resources?

The EBRD, for example, has opened a 300 million dollar credit line to Ukraine's national oil and gas company Naftogaz for emergency gas purchases in the summer of 2022. It has also begun to provide regular support to Ukraine. A June 2023 agreement guarantees 600 million euros in aid to Ukrainian companies active in the gas, electricity and hydroelectricity sectors.

These figures come from a recent analysis by the European Council on Foreign Relations, one of the think tanks responsible for preparing the ground for all kinds of Brussels policies. The analysis states unequivocally that the EU must strengthen its energy sovereignty by cooperating with Moldova, but above all with Ukraine: 

Ukraine is home to some of the largest proven natural gas reserves in Europe (after Norway), estimated at up to 1.1 trillion m3 in December 2020 (within the internationally recognised borders of Ukraine, that is, including Crimea and other areas occupied by Russia). Ukraine’s gas production is also the second-largest in Europe after Norway and, despite the war, remains at a relatively high level (18.5 bcm in 2022 and 18.7 bcm in 2023).

Ukraine also has a gas infrastructure that could be useful to the EU in diversifying its sources of supply. This would be particularly the case following the construction of a liquefied natural gas (LNG) terminal on the Ukrainian Black Sea coast, which has been under study for over ten years:

Ukraine could also help Europe to store gas – the country has the largest gas storage system (30 bcm) in Europe and the third-largest by capacity in the world – behind only the US and Russia. This capacity not only ensures Ukraine’s energy security but could also potentially be used by European customers. Some EU companies are already doing this – at the beginning of 2024, around 2 bcm of gas in Ukrainian storage belonged to EU companies, but the potential for exploitation is much greater.

There is also talk that, according to Ukraine's National Energy Regulatory Committee, the country could be producing and exporting up to 35 billion cubic metres of biomethane a year to the EU within the next few years. 

Finally, Ukraine's potential is highlighted in terms of critical raw materials that would be important for the EU's own energy transition:

For example, Ukraine has the largest reserves of lithium in Europe, used, amongst other things in the production of batteries for electric cars. In 2021, Ukraine also accounted for around 7 per cent of global titanium production and was the world’s seventh-largest exporter of titanium ore.

Membership despite the obstacles?

Due to its "considerable potential for green energy production and its status as the country with the largest nuclear capacity in Europe", Ukraine could also be a source of low-carbon electricity imports for EU Member States, in line with the REPowerEU initiative, the analysis concludes. And even more:

Finally, Ukraine can provide important insights into protecting energy infrastructure across Europe based on its experiences of Russian attacks, which could further strengthen the EU’s energy sovereignty.

So there's great potential on all sides, if it weren't for the question of financing it all. The World Bank estimates the total cost of post-war reconstruction at nearly 486 billion dollars, more than double the size of Ukraine's pre-war economy. According to the United Nations, restoring Ukraine's energy sector, which has been severely damaged by incessant gunfire, will alone cost around 47 billion dollars. The country's long-term investment needs in renewable energies and hydrogen, as well as in the development of nuclear energy and gas, are estimated at over 400 billion dollars.

Be that as it may... Brussels has created the conditions for both an energy emergency and an energy turnaround, with the famous "net zero" target for 2050. Those who cut the bridges behind them have limited options, as is also known in Kiev. In a recent interview with Euractiv, Ukrainian Prime Minister Denys Schmyhal stressed that his country could be an energy hub and a "gas reservoir" for Europe. Ukraine would have survived two very difficult winters when Russia terrorised the energy infrastructure, but there would still be a surplus in the energy system, which could provide clean green energy to the European market, said Schmyhal. Ukraine is said to have one of the largest underground gas reservoirs on the continent, and this capacity could be increased by 10 to 15 billion cubic metres. Not to mention that Ukraine is home to more than 5% of the world's raw materials and natural resources, including 22 of the 30 raw materials critical to European production, such as lithium, cobalt and titanium.

A risky move?

Since the Covid-19 pandemic, since the war in Ukraine, since the energy and climate crises, it is clear that Brussels is artificially creating emergency situations and prolonging them to push through its own political agenda. The 'emergency situation' seems to be sufficient justification for local elites to circumvent the Treaties, extend their own powers and flout the Member States' sovereignty reservations.

Some of the groundwork for a possible energy agreement with Ukraine has long been laid. EU money is pouring into Ukraine's energy sector all the time, and attempts will be made to present the country's rapid integration as essential to Europe's energy sovereignty - whatever that may mean.

Let's remain objective... it's totally unpredictable,
- when Ukraine's security situation will be more or less stable;
- when the Ukrainian energy sector will be cleaned up and who will finance it;
- who will make the necessary investments in the future of Ukraine's energy sector?
- whether Ukraine will be able to stem the tide of corruption; and
- whether the country will stabilise its politics and economy sufficiently to become a trustworthy trading partner.

If the Brussels elites are willing to sacrifice long-term, functional trading relationships in the energy supply sector to their ideological narrow-mindedness, Europe will set itself back several years, if not decades, in global competition.

This article was first published in: Le Courrier des Stratèges on March 19th, 2024