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New Energy Sources: How To Make Ukraine More Secure Without Using U.S. ...

Pollution control is nearly non-existent in Ukraine's energy complex, as this picture of an electric plant at Burshtyn illustrates. However, installation of U.S. clean-coal technology could largely eliminate noxious emissions while minimizing reliance on Russian energy sources. (© Raimond Spekking / CC BY-SA-3.0 (via Wikimedia Commons), via Wikimedia Commons)

The Obama Administration faces a dangerous dilemma in trying to defuse the current crisis in Ukraine, because that country sits on the doorstep of a nuclear-armed rival with massive local superiority in every dimension of military power. If Russia chooses to invade its former republic, Washington isn't likely to send forces; in fact, it is reluctant to even send military aid for fear of provoking Moscow. Yet it shares a concern with its NATO allies that successful Russian annexation of Ukraine's Crimea province - the first forcible revision of European borders since World War Two - could foster further aggression. What to do?


Economic sanctions are certainly a start, but when winter comes in a few months, Moscow will have a powerful source of leverage in the form of natural gas supplies that the West currently can't match. Ukraine imports much of the natural gas that powers its electricity plants, steel mills and chemical complexes from Russia. In addition, roughly 20% of Europe's natural gas supply is piped through Ukraine from the east in what the International Energy Agency describes as 'the largest gas transit infrastructure in the world.' Most European countries have alternative sources of supply, but a cutoff by the Russian state-controlled energy enterprise Gazprom during the cold months could cause hardship far beyond Kiev.


Of course, any such cutoff would hurt Russia too, given the dependence of its economy on energy exports. But the gas is Russian leader Vladimir Putin's most potent tool for working his will without going to war. Simply forcing Kiev to pay the same price for gas as the rest of Europe could have a devastating effect on its economy, which became dependent on energy subsidies during the Soviet era. If Gazprom's current cutoff of gas supplies to Ukraine persists into the fall - ostensibly due to billions of dollars in unpaid bills for past deliveries - then the country may once again resort to siphoning off gas transiting its territory that is intended for the West.


That could lead to a breakdown in the sanctions regime as shivering Europeans decide they'd rather be warm than stand up for Ukraine. Washington has led the way in pushing for economic sanctions against Russia over its aggression in Ukraine, but America is less vulnerable to energy disruptions than Europe and will suffer less from the depressing effects of sanctions on trade and capital markets. What the Obama Administration needs to do is help Ukraine become less dependent on Russian energy supplies - thereby depriving Moscow of its most important non-military source of leverage over Kiev (not to mention the rest of Europe).


I should note that Kiev's energy vulnerability is largely of its own making. Its economy is hugely inefficient in the use of energy, lacking either a realistic cost structure or the means to meter usage. Furthermore, its energy industry and regulatory system are corrupt, an inheritance of previous regimes that continued to follow Soviet-style practices long after the USSR had disappeared. In fact, the government of deposed president Viktor Yanukovych had close ties to organized crime. Experts such as Stephen Blank of the American Foreign Policy Council and Edward Chow of the Center for Strategic and International Studies have argued forcefully that Kiev needs to clean up its act if it wants to escape the stranglehold that Moscow currently exerts on energy supplies.


However, it will take a long time to fix the demand side of the Ukrainian energy equation. Eliminating subsidies, installing meters, and reforming regulatory practices will only unfold gradually, in part because many Ukrainians will not want to give up the benefits they receive from the present inefficient and corrupt system. So as a practical matter, if President Obama wants to make any real progress in reducing Russia's leverage over Ukraine while he is still in the White House, the focus needs to be on the supply side. In other words, Washington needs to help Kiev find alternatives to Russian gas as soon as possible.


It turns out that is not so hard, and might actually prove beneficial to U.S. industry. Ukraine has abundant potential in virtually every form of useful energy. The country already meets a third of its natural gas needs from domestic sources, it has abundant reserves of coal, it is one of the world's top-ten producers of nuclear fuel, and its potential for exploiting renewable sources of energy is impressive. The problem is that Kiev's past governments have done too little to exploit this potential and break the power of the country's indigenous energy mafia. Here are three fairly quick ways in which Washington could help Ukraine find alternatives to Russian gas.


Shale gas. You'd think a country that depends on imports for 39% of its energy needs must have limited indigenous reserves, but in Ukraine's case the opposite is true. The country already produces a significant amount of natural gas and oil domestically using conventional means, and its reserves of recoverable shale gas - gas that must be extracted using newer technology such as fracking - are estimated at 42 trillion cubic feet. That's over 500 times the country's current annual rate of consumption. Two major basins where shale gas is known to exist in quantity stretch across the country's northeastern and southwestern expanses, making it one of Europe's most promising prospects for new gas exploration.


The International Energy Agency says Ukraine could eliminate its reliance on Russian gas imports by more vigorously developing indigenous sources while moving forward on renewables and initiatives aimed at reducing waste. But Kiev lacks a legal and regulatory framework for stimulating the shale oil sector, and exploration for unconventional sources of fossil fuel didn't even begin until 2010. Washington has signaled an interest in helping Ukraine to develop its shale-oil reserves, an area where U.S. industry leads the world. What is needed now is an aggressive package of financial incentives and regulatory protections that would encourage international energy companies to focus on Ukraine so that commercial production for domestic use can commence.


Clean coal. Ukraine is one of the world's largest producers of coal, and has significant unused mining and distribution capacity owing to a decline in output following collapse of the Soviet Union. It would be a relatively straightforward project to convert the country's 22 large thermal plants generating electricity and heat from natural gas to clean coal. The U.S. company Babcock & Wilcox estimates the five biggest plants could be converted in 24-36 months using U.S. technology and the local workforce, at a cost of $200-250 million per plant. It says that if all 22 plants were converted, the country's ten-year energy savings - coal costs less than gas - would be $22 billion. (Disclosure: Babcock & Wilcox is a modest contributor to my think tank.)


Clean coal has not been a prominent part of proposals to achieve energy independence in Ukraine, but in some ways it is the most attractive near-term option. The country already has capacity to produce more coal and the boiler-conversion process from gas to coal is well understood. Conversion would stimulate the local economy while providing an opportunity to install modern pollution-control equipment to capture noxious gases and particulate matter. And although carbon dioxide generated by burning coal is often cited as a cause of climate change, the methane escaping from creaky Soviet-era gas distribution networks is actually 85 times more potent over a 20-year period in contributing to greenhouse effects. Babcock & Wilcox says a federal loan-guarantee program could jump-start clean coal efforts in Ukraine.


Renewable energy. Ukraine only meets about 1% of its energy needs today using renewable sources, but the International Energy Agency and other authoritative sources say the country has huge potential to generate energy from hydropower, biomass, wind and solar collectors. The most developed renewable source is hydropower, which provides about 6% of electricity needs and has installed capacity equivalent to 10% of electric consumption. Wind energy potential for the country is estimated at 30,000 gigawatts, with about half the country suitable for siting of wind farms. And the country has been making rapid progress in deploying solar equipment - although current solar installations have less than 1% the capacity of Germany's, a country that gets less sun.


Collectively, renewables could make a sizable dent in Ukraine's reliance on Russian gas, and they tend to require less investment than nuclear and fossil-fuel plants. However, it appears that new fossil-fuel sources such as shale gas and clean coal can bring about the quickest reduction in imports, given the way in which the Ukrainian energy system is organized. With some modest inputs of assistance in the form of loan guarantees and legal protections, the Western allies could help Ukraine to become energy independent within a few years, reducing the country's vulnerability to Russian pressure. That won't solve all of Ukraine's problems, but it will help to achieve U.S. goals in the region without the use of military forces.


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