Ballyhooed energy deal brings embarrassment
A highly publicized signing ceremony on Nov. 26 for a landmark energy
deal in Kyiv turned into a fiasco amid confusion and contradictory
government statements.
Acclaimed as an agreement with a Spanish energy company to build an onshore $1.1 billion liquefied natural gas terminal, it appears now that nothing legally binding was signed.
The goal was to import gas 20 percent cheaper than what Russia’s Gazprom charges.
The ceremony took place after yearlong talks between Ukraine and two Spanish companies – Gas Natural Fenosa and Enagas – as well as others to form a consortium, officials said.
Under the plan, a Spanish company would be the lead investor bringing in 75 percent of financing for the construction and operation of the liquefied natural gas terminal. Ukraine was to come up with the rest.
Moreover, over the course of the year, a subsidiary of Gas Natural had conducted a feasibility study that proposed building the costly land-based terminal.
“This is a historic moment… We’ve taken the first really big step in securing Ukraine’s energy independence,” Prime Minister Mykola Azarov announced proudly in Kyiv after the signing.
Instead, journalists witnessed Jordi Sarda Bonvehi, a Spanish-speaking negotiator without authorization from either Spanish company sign a non-binding document with Vladyslav Kaskiv, head of Ukraine’s state investment agency, that hasn’t been made public.
It was all done in the presence of Azarov and Energy Minister Yuri Boiko.
The Spanish companies quickly denied having signed any agreements with Ukraine.
Gas Natural officials stated that they don’t know the negotiator and that he doesn’t work for them or their subsidiaries.
Confusion ensued when Ukrainian officials expressed shock at Gas Natural’s statement and claimed the deal was sealed.
The Financial Times reported that Azarov’s spokesperson later described the turn of events as disappointing and stressed that the country would pursue the construction of the strategic LNG terminal, with or without Gas Natural or other investors.
Then in an interview with online news portal Ukrainska Pravda, Kaskiv said he will resign “if it helps realize the LNG terminal project.”
What is certain is that Ukraine commenced construction on Nov. 26 in Odesa Oblast on a pipeline that would connect Ukraine’s vast gas transit network with the proposed Black Sea coast LNG terminal, as shown on live video feed.
Another certainty is that Edward Scott from the U.S. Excelerate Energy, a pioneer industry firm, also signed a non-binding cooperation agreement with Kaskiv that wasn’t revealed.
A Kyiv Post phone call and email to Houston-based Excelerate Energy went unanswered by the time this edition went to print.
Ukraine evidently wanted to do this quickly and better, but the outcome was the same as it always is.
As it turns out, the cutting edge American company has a floating terminal unit that it could possibly lease to the Ukrainians and which costs much less than the proposed $1 billion onshore project.
“The most realistic scenario,” said Dmytro Marunych, director of the Energy Studies Institute in Kyiv, “is that over the course of the year, the Ukrainians found that it’s much cheaper to lease the American technology than to go ahead with the Spanish onshore proposal.”
But this doesn’t rule out having one onshore and one offshore terminal, or a combination of both, as long as there are willing investors to move ahead.
“If there are investors that are ready to invest, to possibly put in a second floating terminal or the land-based terminal, we are very interested to talk,” Kaskiv told the Financial Times.
In an earlier interview with Ukrainska Pravda news site, Kaskiv implied Russia had pressured the Spanish company to cancel at the last moment.
Whatever the causes, after the signing ceremony, Ukraine is left without a consortium to finance an LNG terminal project.
“The Spanish could still be on board as investors and suppliers of the gas, but why should they come to (Kyiv) to sign something that wasn’t what it had originally proposed,” said Marunych.
When asked whether Ukraine wanted to upstage Russia, which hasn’t begun constructing its South Stream pipeline to circumvent Ukraine’s gas transit system to Europe, Marunych said: “I wouldn’t speculate, but Ukraine evidently wanted to do this quickly and better, but the outcome was the same as it always is.”
Kyiv Post editor Mark Rachkevych can be reached at rachkevych@kyivpost.com.