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US-UA “Working Group” Initiative

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Basic Directions of Ukraine's Energy Strategy
Source: The Action Ukraine Report (AUR), Issue 627, Article 4

US-Ukraine Energy Dialogue I

Basic Directions of Ukraine's Energy Strategy

Yuri I. Yekhanurov

Keynote address by Yuri I. Yekhanurov, Prime Minister of Ukraine, delivered at "US-Ukraine Energy Dialogue I", November 2, 2005.

Honorable Senator Richard Lugar, sponsor of the dialogue! Honored conference participants, ladies and gentlemen!

I am especially glad today to speak at this conference. I am convinced that our meeting today attests to the significance of Ukraine in the creation of a safe, reliable, environmentally-friendly energy space.

We consider the organization and holding of this forum not only as a show of respect for the democratic aspirations of the Ukrainian people, but also as an acknowledgement of Ukraine's special role in the context of ensuring energy security of the entire European continent.

Energy was and remains the main strategic prerequisite for economic development, the foundation for providing for all types of society's vital activities. Hence the fixation and realization of its developmental directions is a priority task in the ensuring of national security, the political and energy independence of the country, and [the country's] economic development.

The next several years will be decisive for all nations of the world in the context of the search for answers to energy challenges. Strivings to improve the standards of life are innate for all peoples. At present, mankind has not found a way to provide for the growth of the standard of living without the essential increase in the use of energy. But we are witnesses of disproportionate energy consumption in many countries.

Today the directions and tempos of a society's development are dictated in large measure by general tendencies in world energy markets, and also in the energy sectors of every country of the world. This holds particularly true for economies of those nations who recently switched to the market economy path for development.

For Ukraine, the energy sphere is particularly important, since it affects the state of the national economy and the social clime in the country.

It will not be an exaggeration to say that precisely the energy sector was that sphere that ensured the rebirth of a national economy in the long-term perspective. At the same time substantial challenges regarding the continued, stable development of our state are contained namely within the energy sphere.

Today the energy sphere in Ukraine remains a highly developed system. A confirmation of this is not only the stable indicators of the work of companies in this field, but also the field's development, particularly in such high-tech components, such as atomic energy.

It is important to establish and maintain steady international cooperation and to be a participant in integration processes of the energy sphere.

Today Ukraine's energy sector is in a state of realization of large-scale and complex objectives, and I am certain that these objectives cannot be reached without broad international cooperation.

For Ukraine, a key moment in such cooperation is that it be based on economic expediency. We are open to cooperation with all interested potential partners.

Ukraine is a unique bridge that draws together many regions that are rich in energy resources with countries that need them. This uniqueness is conditioned not only by the advantageous geographic location of our country.

A component of this uniqueness is the highly developed existing infrastructure for transporting energy resources that has substantial reserves for expansion, and the high scientific and personnel potential.

We consider Ukraine's dedication to international commitments, not only within the framework of bi-governmental agreements, but also within the framework of signed multilateral documents, to be a key element for the further development of cooperation.

Today Ukraine is the author of a number of initiatives, the goal of which is an assurance of guaranteed supplies of energy resources to world markets, the necessity of an increase in their volumes, and a diversification of the sources of their origin.

But the potential for international cooperation with Ukraine in the energy sphere is not limited to major initiatives. With the introduction of market principles and their incorporation into the energy sector of Ukraine, and the renewal of the financial viability of energy companies, the foundation is laid for further stable development of this field, namely on the basis of investment and through commercial and scientific-technological cooperation with leading companies of the world, including U.S. companies.

I would like to dwell more in detail on the basic directions of Ukraine's energy strategy.

One of the decisive factors of a state of economic upheaval of a country is its energy supply. According to the prognoses, in 2005 the energy supply in Ukraine will reach four tons of conventional fuel per person. By this indicator Ukraine significantly lags behind developed countries of the world, and it is essential for us to do a lot to eradicate this discrepancy.

A key driving force for every country is providing for its energy security, a component of which is energy dependency. Ukraine's energy dependence on the import of organic fuel for the years 2000-2004 comprised over 70%. This is an average European level, but for Ukraine it is characterized by an absence of diversified delivery sources of energy carriers, principally of oil, natural gas and atomic fuel.

On the one hand, Ukraine is limited by its own natural gas, oil and atomic fuel resources, but on the other hand, it has sufficient coal supplies and atomic fuel components, including uranium and zirconium. The country's energy system in general requires radical reconstruction.

A heavy burden for Ukraine's economic development is the high energy volume of GDP, which constitutes 0.89 kilograms of conventional fuel for one US dollar counting the parity of actual buying power that surpasses the average level of energy volume in countries of the world by three-four times, and is the reason for a continual increase in the import of hydrocarbons.

It should also be noted that the high level of wear on Ukraine's infrastructure combined with the related necessity of modernization and reconstruction of basic equipment prompts the introduction of the latest technologies.

Considering the modern state of development of Ukraine's fuel-energy complex and the development tendencies of the energy sector by global standards, we brought about certain changes in the priorities in the process of reconsidering the conceptualization of the development of the fuel-energy complex by 2030.

According to the conceptualization, irrespective of the forecasted savings of energy products as a result of structural and technological energy conservation, the absolute growth of their consumption until 2030 due to an increase in GDP and the development of the social sphere is expected.

The scope of consumption of basic fuel-energy resources in the year 2030 will increase:

  1. Electric power - by 2.2 times and will reach about 380-400 billion kWh;
  2. Coal products - by 2 times and will reach 130 million tons;
  3. Oil for internal use - by 30% and will reach 24 million tons;
  4. Uranium of our own production - by 7.5 times.
  5. On the other hand, consumption of natural gas will decrease by one third and will become 49 billion cubic meters.

We plan to secure our energy product needs by accomplishing the following:

  1. First of all, decreasing energy capacity of GDP;
  2. Second, increasing our own output of coal, Uranium, oil and gas;
  3. Third, increase the manufacturing of electricity at atomic energy plants using our own atomic fuel;
  4. And finally, increasing the volumes and depths of oil refinement.

Based on the foreseen needs of electric power for the prognostic period and given the optimized balance of the development of solar, nuclear and hydro- power, the production of electrical power at Ukraine's atomic energy stations (AES) will increase until 2030, approximately doubling from 95 to 219 billion kWh.

The atomic energy development strategy foresees:

  1. Lengthening the term of energy blocks by 15 years;
  2. Bringing the established power factor to 87-90%.

It is planned that the production of AES electric power will be carried out with maximum use of uranium and zirconium of our own production and by mastering the atomic fuel production technology. It is foreseen that 65% of electric power in 2010 will be produced thanks to uranium extracted in Ukraine, and beginning in 2015-100%. Anticipated also are the increase of production of uranium concentrate and the increase of the Ukrainian component in atomic fuel from 20% to 40%.

An important problem is the handling of spent atomic fuel and radioactive byproducts. At present we have only one of our own waste dumps for spent atomic fuel and waste products. The main task regarding the handling of spent atomic fuel is the creation of a central disposal site of the "dry" type.

It is predicted that the development of solar energy will be due to an increase in the use of coal, a portion of which in the fuel chambers of solar energy stations will reach approximately 80% by the year 2030.

It is foreseen that special attention will be paid to the formation of public opinion regarding energy conservation and support for an ecologically acceptable development of the country's energy.

The reconstruction and modernization of all generator output and the introduction of 24 million kW of new force is also foreseen.

In harmonizing the development of atomic energy and energy from organic fuel, due attention will be paid to hydroelectricity, non-traditional sources and energy conservation.

In the year 2030, the production of energy by means of non-traditional sources, specifically wind energy, small hydro-electric stations, solar panels, etc., is expected to increase to 2 billion kWh.

Ukraine's geographic location allows varied sources of oil supply by independent pathways from Azerbaijan, Kazakhstan, and Turkmenistan, thereby strengthening the role of government-transporters between oil- extracting areas of the Caspian region's countries and important selling markets in Europe.

The oil transport system "Odesa-Brody" creates technical opportunities for the import of oil both from the Caspian region, as well as from the countries of the Persian Gulf, North and West Africa. The strategic purpose of the oil pipeline "Odesa-Brody" remains unchanged: to ensure the delivery of oil to the European market.

It is also anticipated that by the year 2015 the Ukrainian pipelines' load will increase to 17 million tons per year. The increase in oil transit volume is expected to take place due to stage-by-stage realization of the oil pipeline "Druzhba" and "Adria" integration project, and also due to the step-by-step realization of the Euro-Asiatic oil transit corridor project for ensuring oil transit from the countries of the Caspian region (Kazakhstan, Azerbaijan) and the countries of the Persian Gulf (Iran, Iraq and others) to 10 million tons by 2010 and to 20 million tons by 2015.

Ukraine has significant reserves for increasing the transit volume of natural gas through its territory to the countries of the European Union. With the presence of relatively small investments, the Ukrainian gas pipeline system could secure an increase in transit volume by a minimum of 50 million cubic meters.

We are studying a number of projects for transporting gas from the Caspian and Central Asian regions, Turkmenistan, Iraq, and Iran.

One of such perspective gas transit projects could become the gas line project Aleksandrov Grove (border between Kazakhstan and Russia)- Novopskov (Ukraine)-Uzhhorod (western border of Ukraine). Such a pipeline, realized within the framework of an international project, would allow laying the shortest and most economic route for the transportation of Central European gas to Ukraine and beyond to European countries.

Ukraine is interested in joining the gas pipeline project "Nabukko," by which means it is planned to transport gas from the Caspian region through Turkey, Bulgaria, Romania, Hungary and Austria. Since this gas pipeline will pass through countries that neighbor with Ukraine, a technical opportunity of organizing an alternate route arises.

Radical changes in the development strategy of Ukraine's coal industry are foreseen. The creation of non-governmental enterprises in the indicated field is in planning.

I would like to dwell on the problem of energy conservation. The volumes of real energy product savings due to energy conservation are so great, that they almost double the fuel potential of our country. Simply by employing inexpensive, short-term organizational-technical measures in the nearest one-and-a-half to two years the conservation of energy products could realistically comprise 12-14 million tons of conventional fuel each year.

The realization of energy conservation possibilities is restrained by: the fact that to this time no working, economical investment-stimulation mechanism has been developed in the country; the development and introduction of energy conservation measures; and also low tariffs on electrical energy, compared with other countries.

We are beginning preparation of an action program that addresses more extensive collaboration in the area of energy efficiency, that will promote incorporation of renewing sources of energy and the enacting of measures with regards to solving the problem of global climate change, including emissions into the atmosphere, and also the use of a joint-mechanism of realization within the Kyoto Protocol.

One of the ways to reduce consumption of primary energy products is to develop non-traditional and renewing sources of energy.

Ukraine has the potential for renewing sources of energy, the main usage trends of which are harnessing the hydro-electric potential of Ukraine's smaller rivers, bio-masses, secondary energy products, and also wind. Despite the existence of such potential of non-traditional and renewing energy sources their segment in the country's energy balance today barely exceeds 5%.

Significant investment resources are needed to ensure effective developmentof the energy sector. Experts calculate the general sum of funds needed to fund the perspective measures foreseen by the year 2030 to be over 200 billion US dollars.

The financing of the energy sector's development is expected due to:

  1. The optimization of price and tariff policies
  2. The securing of foreign credit resources and investment
  3. The use of funds from the realization of the Kyoto Protocol regulations.

Ukraine is open to dialogue with foreign partners not only in deciding concrete questions of collaboration, but also in matters of forming a combined strategy and of creating maximum optimal conditions for its further development.

I wish all participants of the forum interesting and fruitful discussions and new business contacts, and I look forward to our continued cooperation.

Thank you for your attention.

Note: Translation by Heather Ferniuk for the Action Ukraine Report (AUR). The early November speech by Prime Minister Yuri I, Yekhanurov is published by The Action Ukraine Report (AUR) as a public service in cooperation with the organizers of the US-Ukraine Energy Dialogue: Center for US-Ukrainian Relations, American Foreign Policy Council, Ministry of Fuel and Energy of Ukraine, Ukrainian Congress Committee of America (UCCA) and the Congressional Ukrainian Caucus (CUC).The Program Coordinator for the US-Ukraine Energy Dialogue Series is Walter Zaryckyj, Executive Director/Center for US-Ukrainian Relations/A/Associate Professor of Social Sciences/New York University;


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