Ukraine’s Energy Security: How the U.S. Can Help

As the United States prepares to move forward with its promise to bolster Ukraine’s physical security by providing lethal weapons to enhance its conventional defensive military capability, it is necessary to reevaluate U.S. policy towards the equally critical area of Ukraine’s energy security.

By Katherine Baughman 

February 16, 2018

Ukraine’s Energy Landscape

Though Ukraine is a net exporter of electricity, its primary role in the region is an energy transit corridor and consumer. In terms of overall energy mix, in 2014 ,Ukraine depended on natural gas to provide of 35.1% of its energy needs and relied on coal to meet another 34.7%. As of 2016, 20 bcm of Ukrainian gas was produced domestically. 100% of imported gas was delivered via reverse flow from Germany, Hungary, Austria, and Poland1, with none of the Ukrainian gas supply coming directly from the Russian Federation. However, the 11.1 bcm of reverse flows in 2016 were significantly more costly than direct flows from Russia had been,2 and are nevertheless dependent on Russia’s uninterrupted and largely undiminished delivery of gas to EU countries via pipelines that traverse Ukraine.

Ukraine’s other main energy security challenges include its high level of energy intensity and outdated energy infrastructure.3 In 2015, excess energy usage due to inefficiencies cost Ukraine approximately 1.2 billion USD above its minimum annual consumption requirements, with Soviet-era heating infrastructure and other factors encouraging imprudent and wasteful consumption practices.4 Though the economic downturn and elimination of supply to occupied areas in Eastern Ukraine has temporarily reduced industrial gas consumption, energy usage on the household level has seen another uptick in the last several years.5 High energy intensity in the household sphere exacerbates the costs and vulnerabilities that Ukraine faces.

The high proportion of gas in its energy mix has also made Ukraine especially vulnerable to disruptions and other issues.6 These vulnerabilities became all too clear when Russia cut off gas supply to Ukraine on three occasions over the past decade, first in 2006, then in the winter of 2008, and again in June of 2014. Regardless of the motivations for these energy cutoffs, they left the cash-strapped country no choice but to pay astronomical prices while instituting emergency heating and electricity cuts to many industrial and household consumers.7 Though direct dependency has since been eliminated, these vulnerabilities could easily be exploited again: Russia need only disrupt deliveries via Ukraine to the EU countries on whom it depends for reverse-flow supply.

Due to this very real risk, Ukraine wants to uphold its importance as a transit state. However, the Nordstream I pipeline system links Russia directly to the EU market, diminishing Ukraine’s importance as a transit corridor and reducing transit volumes by a projected 10 bcm in 2017 alone.8 The Nordstream II pipeline project, which is currently underway, could allow Russia to bypass Ukraine altogether.

Yet gas disruptions are not the only challenges Ukraine faces in the energy sphere. The threat posed by Ukraine’s lack of control over much of the eastern region of the fossil fuel-rich Donbas has recently become even more problematic. A blockade that hindered coal supply from the separatist-controlled territories in February of 2017 was followed by a complete Ukrainian government cutoff of coal deliveries from these areas in March. These changes have had a significant negative impact on the country’s steel industry and, more crucially, on coal-generated electricity and heating.9 With coal making up nearly one third of Ukraine’s overall energy mix, supply disruptions of this kind have serious consequences for the country’s energy supply.

U.S. Policy

Since the events in 2014, the United States has begun formulating strategies to address Ukraine’s energy security challenges.

In Congress and amongst the political leadership, the debate has mostly centered around the export of U.S. natural gas in the form of LNG. Since the shale gas revolution in the United States significantly expanded U.S. natural gas production, the country’s politicians have been promoting the search for export markets. In 2014, in light of the Ukraine crisis, facilitating the export of LNG specifically to East and Central Europe began to be bandied about as a possible solution to Ukraine’s dependency on Russian gas, whether direct or indirect.

Although Republican Senator John Barrasso’s proposed amendment to the Ukraine aid package on this particular topic was ultimately rejected, the LNG export option was not and has not been retired from Republican party discourse on Ukraine. As recently as July 2017, U.S. President Donald Trump made statements that echoed Barrasso’s proposal, expressing his determination to make exporting LNG to Eastern and Central Europe easier in order to help neighboring countries decrease their energy dependence on Russia. Facilitating LNG exports has remained one of the most high-profile policy proposals put forward by U.S. policymakers for enhancing Ukraine’s energy security.

However, the politically popular concept of U.S. LNG export to Ukraine would be problematic in practice . Ukraine has no LNG regasification ports, and would need to either build such ports at great expense or arrange and pay for regasification and reverse flow from Poland. The unfavorable price disparity between US LNG and significantly cheaper pipeline gas would only be exacerbated by these additional measures.

Additionally, these costly measures would not fully counteract other structural limitations on LNG imports from the United States. In a 2015 Senate hearing, CSIS analyst Edward Chow identified multiple factors that would limit the viability of this initiative. Firstly, there is the limited potential capacities of the few existing and prospective U.S. LNG export projects, which would only offset less than half of direct or indirect Russian gas export capabilities even at maximum production.10 Secondly, there are already established contracts that commit a large proportion of U.S. LNG to buyers within more profitable markets in Asia.11 These factors render the proposal to facilitate U.S. LNG exports to Eastern and Central Europe ineffectual in the short- and medium-term.

Going beyond proposals, United States policymakers have also undertaken concrete actions in an attempt to bolster Ukraine’s energy security. The most recent round of sanctions signed into law by President Trump this past summer included discretionary sanctions on financiers of the Nordstream II project. However, the law makes clear that the decision to enforce these particular sanctions falls solely to President Trump.

Trump has expressed reluctance to support punitive measures on Russia in the past and has had his ability to scale back other sanctions on Russia curtailed by recent legislation. In light of the administration’s recent refusal to enact further congressionally-mandated individual sanctions, it is very likely that Trump will also choose not to enact these sanctions on the Nordstream II pipeline. Although one private investor, Austrian company OMV, has reevaluated its financing of the pipeline, initial estimations saw uncertainty about Trump’s willingness to impose sanctions as capable only of temporarily slowing investment. Though this concrete measure was intended to enhance Ukraine’s energy security by halting a project which could threaten that security, its success is limited by uncertainty surrounding the current administration’s commitment to this policy.

Although the emphasis in U.S. policy toward Ukraine’s energy situation has for years been on diversifying the gas supply rather than coal supply security, the Trump administration has taken an important step in remedying this shortcoming. President Trump identified the reliable provision of coal to Ukraine as a key element of his foreign and domestic energy policies. In late summer of 2017, the first shipment of anthracite coal from the United States to Ukraine was authorized and carried out. This important measure was carried out under the auspices of a contract between U.S. company XCoal Energy and Resources and Ukrainian state energy company Centerenergo, stipulating the gradual delivery of 700,000 tons of power plant-compatible anthracite coal to supplement domestic supplies compromised disrupted due to the war in the Donbas. Coal can be delivered directly to Ukraine by sea, avoiding the shortfalls and complications of potential LNG shipments. Unlike the measures crafted to address Ukraine’s gas supply security, coal exports can provide an immediate and effective avenue for supporting Ukraine.


With the exception of coal exports, the policies that have received the most exposure and continuing popularity in the U.S. political sphere are limited in their ability to assist Ukraine. However, support to less publicized domestic initiatives already underway could bolster energy security far more effectively.

In terms of energy aid on the household level, directing U.S. resources toward existing energy efficiency initiatives has the potential to greatly enhance Ukraine’s energy security. With the Ukrainian government only able to provide a small amount of the nearly 50 billion dollars worth of current planned energy reform investments, increased international financing is essential. A recent law signed by President Poroshenko this year has established a fund to enhance energy efficiency in multi-story buildings in hopes of attracting at least EUR 100 of external investment to that purpose.

Expansions on existing European Bank of Research and Development loans to low- and fixed-income individuals to support costly household energy-saving measures like gas meters could also be both viable and effective, not only in terms of reducing gas usage, but also in reducing demand for Donbas-sourced coal used for heating and electricity generation.12 The United States could feasibly contribute to the state’s energy efficiency fund and put forward aid to complement ERBD loans at their current insufficient levels.

Though concerns about corruption rightly curb efforts to offer unconditional financial assistance, the United States could provide highly targeted aid for these and other similar initiatives. If the U.S. were to pursue these kinds of concrete steps to fund energy reform implementation, Ukraine could significantly reduce its energy consumption and external dependence.

In the search for new, more effective tactics for combating critical threats to Ukraine’s energy security, the United States would be well served by a continued emphasis on ensuring coal supply in addition to gas supply security, committing publicly and unequivocally to measures against Nordstream II, and supporting domestic energy efficiency projects.


[1] Pirani, “Adversity and Reform,” 6.

[2] Pirani, “Adversity and Reform,” 6.

[3] Kapitonenko, “Ukrainian Energy Security,” 2.

[4] “Energy Policies Beyond IEA Countries,” 374.

[5] Pirani, “Adversity and Reform,” 4.

[6] “Energy Policies Beyond IEA Countries,” 374.

[7] “Energy Policies Beyond IEA Countries,” 364.

[8] Pirani, “Adversity and Reform,” 2.

[9] Zinets, “Ukraine Faces Energy Crisis after Blockade Cuts off Coal Supply.”

[10] Chow, “Importing Energy, Exporting Jobs. Can It Be Reversed?”

[11] Chow, “Importing Energy, Exporting Jobs. Can It Be Reversed?”

[12] Michael Emerson and Vladimir Shimkin, “A Household Energy-Saving Initiative for Ukraine,” Working Paper (Center for European Policy Studies, May 2015), 7.


Katherine Baughman is the Program Associate at CGI and a current M.A. student at the Center for Eurasian, Russian, and East European Studies (CERES) at Georgetown University’s School of Foreign Service. She graduated from Middlebury College summa cum laude with a B.A. in Russian and Eastern European Studies in May 2016.

The Center on Global Interests does not take institutional positions. The views expressed in this article are the author’s own and do not reflect those of the affiliated institutions or individuals.

Comments Off on Ukraine’s Energy Security: How the U.S. Can Help