Is Ukraine dependent on Russian gas supplies?

Ukraine is indeed dependent on Russian gas and other energy supplies, although to a much lesser degree now than during the “gas war,” which lasted from 2005 to 2009. Ukraine produces only about a third of the oil and gas it consumes, with the rest be­fore 2014 imported from Russia.

although the fuel for Soviet-built nuclear power plants comes from Russia.

Much of Ukraine's energy dependence is a legacy of the Soviet past. Back then, planners had little concern for the energy efficiency of industrial enterprises in Ukraine because they had at their dis­posal the immense natural gas deposits of the entire Soviet Union. Ukraine itself used to be a major gas-producing region, supplying other parts of the Soviet Union and even its Eastern European allies, until the deposits started showing signs of exhaustion in the mid- 1970s. Since then, the indigenous production of gas has decreased threefold. At the same time, Ukraine became an important gas transportation hub, as new Soviet pipelines to Europe crossed the republic's territory.

For about a decade after the Soviet Union's disintegration, the price that Russia charged Ukraine for natural gas increased grad­ually but still remained well below world prices. There were some political strings attached, which became clear particularly during Kuchma's second term. As well, a number of corrupt officials in both countries benefited from the resale of subsidized Russian gas to Europe at world prices. The oligarchs, too, enjoyed making hefty profits from the sale of metals produced using heavily subsidized gas.¹⁰

This corrupt symbiosis came to an end with the 2004 Orange Revolution, when the new Ukrainian government attempted to remove gas trade intermediaries, shut down other fraudulent eco­nomic schemes, and reverse the most notorious cases of insider pri­vatization in metallurgy.

Following these developments, Ukrainian industry began seri­ously reducing its dependence on the now expensive Russian gas by replacing it with Ukrainian coal. The import share of Ukraine's overall gas consumption decreased from the high point of 90 per­cent before the “gas wars” to something like 70 percent in 2013.

Yet, until the winter of 2014, the government achieved little progress in reforming the other Soviet legacy in gas consump­tion: the inefficient residential-heating system. The Soviet state held the municipal authorities, rather than residents, responsible for supplying heat and hot water in urban areas. The system used centralized water heating in district stations, with hot water then transported to apartment buildings by underground pipes. In in­dependent Ukraine, the authorities had no choice but to keep this economically unsustainable model running, yet they also did not increase residential rates to keep up with the price of gas because they feared the consequences at the ballot box. Only during the dif­ficult winter of 2014 did the new authorities, in Kyiv in particular, call on urban residents to install boilers where practicable because of the impending rate increases and possible supply disruptions. The complete rebuilding of the urban heating infrastructure is probably not feasible in the near future.

In 2014 the new Ukrainian government began looking for other ways to reduce its dependence on Russian gas, such as increasing domestic production and reversing supply from Europe. However, the country's energy dilemma has only worsened following the out­break of war in the Donbas. As some 40 percent of the country's energy is produced by coal power plants, disruptions in the pro­duction and transportation of coal from the troubled region has had a negative impact on industrial enterprises and residential power supply. In the winter of 2014, scheduled power outages took place throughout the country for two hours a day in cities and for up to eight hours in rural areas. The Ukrainian authorities had to resort to buying coal from Russia, thus increasing the country's energy de­pendence on its worrisome neighbor. In subsequent years, Ukraine explored purchasing coal from South Africa and even the United States before settling on its indirect purchase from the occupied Donbas.

Ironically, the economic contraction caused by the war helped Ukraine by making it less dependent on Russian gas. In order to avoid dealing with Russia directly, Ukraine switched to buying Russian gas from European intermediaries. In December 2019, the two countries finally signed a five-year contract for the transit of Russian gas through the territory of Ukraine and its purchase by Ukraine. The experts saw this agreement as a compromise accept­able to both sides.