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Europe, Ukraine Discuss Pipeline Upgrades, Reversals

Ukraine's energy minister said his country is paying "politically motivated" prices for natural gas from Russia's OAO Gazprom following Russia's seizure of Crimea, while Ukraine discusses a European Union (EU) proposal to upgrade its pipeline network and add the ability for reverse flows.

Meanwhile, two U.S. senators announced a bipartisan plan to expedite the Department of Energy's (DOE) review of applications to export liquefied natural gas (LNG). President Obama also expanded sanctions against Russia, which retaliated with sanctions against U.S. officials.

According to reports, Ukrainian Energy Minister Yuriy Prodan met Gunther Oettinger, energy commissioner for the European Commission (EC), in Brussels on Thursday. The Kuwait News Agency (KUNA) said the two men signed a joint report over a memorandum of understanding (No. 14-159) between the EU (through the EC) and Ukraine to cooperate on energy issues through 2020.

Specifically, the memo -- first brokered in December 2013 but not signed at that time, with an estimated cost of at least 11 billion euros ($15.1 billion) -- includes plans to modernize Ukraine's gas pipeline system and to work on reverse flows, notably via Slovakia.

"In the short term, the EC is ready to assist Ukraine in diversifying its gas supply routes, notably by ensuring that reverse flows with the EU, notably via Slovakia -- in addition to Poland and Hungary as is currently the case -- can be [placed into operation] as soon as possible," the memo said. "The EC should ensure, together with Slovakia, that the Ukrainian and Slovakian transmission system operators establish the necessary rules and process that allows gas to flow from EU to Ukraine in increased capacities in order to enhance the security of supply in Ukraine."

The EC said it was also committed "to continue working with the relevant [EU] member states to facilitate the creation of additional reverse flow corridors to Ukraine via Bulgaria and Romania and via Croatia and Hungary."

The memo added that "in the medium term, should circumstances allow, the EC continues to be ready to promote a trilateral approach (between EU, Russia and Ukraine) for the modernization of the Ukrainian gas transmission system."

Prodan told KONA that he had received "very good signals" from the EU.

"We have a serious risk with regard to the possible limitation of gas supply to Ukraine," Prodan said in a translated statement. "We have serious risks as to a drastic increase in the price for gas we are buying from Gazprom. The gas prices have to be market-based, not politically motivated. But the gas prices now in Ukraine with Gazprom are politically motivated."

In a statement Tuesday, U.S. Sens. Mark Warner (D-VA) and John Hoeven (R-ND) called on the Obama administration to order the DOE to quickly evaluate more than 20 applications to export LNG to countries without a free trade agreement (FTA) with the United States. Specifically, they want DOE to approve all of the pending permits within 60 days, or provide reasons why they can't be approved.

"For the first time in a generation, America is in a position to export energy, and acting strategically to increase our natural gas exports will weaken [Russian President Vladimir] Putin's grip on energy supplies for Europe and Ukraine," Warner said. "We're suggesting a comprehensive, bipartisan approach that will have a positive impact in the near term and the longer term on the energy security of Ukraine and the EU."

Hoeven said that after he and other senators met with Ukrainian officials last week, "it is clear...that we need to work with Ukraine and the EU to forge a long-term and short-term strategy that includes tough sanctions to deter Russian aggression, as well as an energy plan that helps the people of Ukraine and the EU become more energy secure and less dependent on Russian energy."

The Warner-Hoeven plan also calls for a strategic review of U.S. energy policies; establishing a joint energy security initiative between the U.S. and the EU at next week's summit in Brussels; and helping Ukraine implement development technology and an energy productivity plan.

Only one project, Cheniere Energy Inc.'s Sabine Pass facility, has received authorization from DOE to export LNG to non-FTA countries, but the agency has granted six conditional non-FTA export approvals (see Daily GPI, Feb. 11; July 30, 2012). All of the advanced proposals have contracted most of their gas to Asian buyers at higher prices than generally prevail in Europe.

The House Subcommittee on Energy and Power is scheduled to meet on March 25 to review a bill sponsored by U.S. Rep. Cory Gardner (R-CO) to expedite exports of LNG from the United States to its allies. The subcommittee said the bill, HR 6, was in response to Russia's intervention in Crimea and the slow LNG export approval process by the DOE.

President Obama issued an executive order Thursday, expanding travel bans and asset freezes on 20 individuals, including Putin’s chief of staff, and the Bank of Rossiya. The president had unleashed a first set of sanctions against 11 people on Sunday (see Daily GPI, March 18).

In response, Russia banned nine U.S. officials -- including three White House officials, House Speaker John Boehner (R-OH), and Sens. Harry Reid (D-NV), John McCain (R-AZ), Robert Menendez (D-NJ), Dan Coats (R-IN) and Mary Landrieu (D-LA) -- from entering Russian territory.

Landrieu, who chairs the Senate Energy and Natural Resources Committee, said she was proud to be on the list.

"Being sanctioned by President Putin is a badge of honor," Landrieu said Thursday. "It will not stop me from…[promoting] America as an energy superpower and help increase energy exports around the world. We must minimize Russia's influence over Europe, the former Soviet states -- especially Ukraine that has fought so long for freedom -- and our allies."

Russia triggered an international crisis with its smaller neighbor in late February. Following a revolution in the Ukrainian capital of Kiev, pro-Russian forces began to take control of Crimea on Feb. 26. After a referendum on Sunday, the Russian Federation formally annexed the peninsula on Tuesday.

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