Natural Resources Committee on May 1st, 2014

[Geoff Regan, Liberal, Halifax West, NS]

Dr. Aslund, what levers does Gazprom have to place obstacles in the way of Canadian companies being active in Ukraine, whether it be to do energy efficiency, to assist with things like reversing pipelines, etc.?

[Anders Aslund]

Basically, not much.

I agree very much with what Vitalii Dem’ianiuk said here before. Ukraine is moving toward independence from Russia simply because the relationships are so bad. Economically, you can say this doesn't make much sense. Russia has plenty of gas, and it can produce gas cheaply if we looked upon it as an ordinary enterprise, but it doesn't work. There's no good relationship between these two. As I mentioned, it's quite obvious that Russia wants to avoid taking any gas through Ukraine in the future. Russian sales to Europe are falling. Russia is simply mishandling its market in Europe very badly, not being the least oriented towards it. The positive side of it is that Gazprom therefore cannot cause many problems, but there are specific issues.

Some of the biggest gas storage in the world is in western Ukraine; 36 billion cubic metres of gas can be stored there. Gazprom has an enormous interest in seizing these big storages for its supplies in eastern Europe if they were to be serious about it. We could see a sudden change of Gazprom coming in. Ever since Ukraine became independent, there has been a discussion about the status of its gas transit system through Ukraine so that it be owned by Russia or Ukraine. The current legal rule is that it must be Ukrainian state-owned, but there has been constant discussion about a consortium with Germany, Ukraine, and Russia, or with the European Union, Russia, and Ukraine. Because of the complete lack of trust between Russia and Ukraine, nothing has come out of these many discussions.

The short answer is that Gazprom cannot block it right now, but you never know how it can pop up.

[The Chair, Conservative, Leon Benoit]

Thank you.

Thank you, Mr. Regan.

We go now to the five-minute round, starting with Ms. Crockatt, followed by Mr. Leef, Ms. Moore, and Mr. Calkins.

Go ahead, please, Ms. Crockatt.

[Joan Crockatt, Conservative, Calgary Centre, AB]

Thank you very much to the witnesses. As other MPs have said, it is really an honour to have you here and to be getting such up-to-the minute information from such excellent witnesses.

I want to start with you, Dr. Aslund.

As we know, there is a major political upheaval taking place in Ukraine right now. Much of Europe, if not the world, is jittery. In fact nine hours ago the Ukraine forces moved to full military readiness, and in news reports just two hours ago, the Ukraine foreign minister warned of a Russian invasion.

Dr. Aslund, can you tell us succinctly what is the threat to Ukraine, and indeed to Europe, of being so energy dependent on Russia?

[Anders Aslund]

Well, the bigger problem, which you have touched on, is what Russian policy is towards Ukraine as a whole. We have just seen that Russia has annexed Crimea. That came as a complete surprise, like a bolt from a clear sky. Nobody really expected that Russia would do it. We do expect that Russia will poke up trouble around it, which they like to do; they don't like stability in their nearest neighbourhood.

The fundamental question is what President Vladimir Putin, because it's very much he who decides in the Crimea, wants in Ukraine. I would suggest that there were two reasons for him to start the trouble in Ukraine in February.

First, he was afraid of a democratic breakthrough in Ukraine, because that would be a potential threat at home against his authoritarian and corrupt rule.

The second reason—

[Joan Crockatt, Conservative, Calgary Centre, AB]

Could I move you just a little—our time is very short; I do apologize—to the issue with energy? Is energy being used, is gas being used, as a form of oppression? What is the threat to Ukraine, and the threat to Europe, of being dependent on Russian gas, Russian energy?

[Anders Aslund]

The big point here is that it's the greatest vulnerability. Russia wants to poke up trouble in Ukraine, and nothing is more effective in that regard. Russian exports to Ukraine are about $12 billion a year, so this is a big impact that Russia can have.

Of course, you don't store that much gas. Therefore, cutting the gas is very effective in order to cause trouble in Ukraine.

[Joan Crockatt, Conservative, Calgary Centre, AB]

Thank you very much.

Mr. Dem'ianiuk, I noticed you said in your presentation that the contribution by the Government of Canada and Canadian companies will automatically cause a positive impact, and that you've noticed with great satisfaction that Qatar has already publicly declared a readiness to start substituting volumes of natural gas.

Now, others are suggesting that perhaps Canada shouldn't act—I think that's an undercurrent—because it might take too long. There have been curtailments on Russian supplies of gas to Ukraine going back to 2006.

Do you believe Canada should act, and if so, why?

[Vitalii Dem'ianiuk]

From my perspective, if the world community will try to feed the European gas market as much as possible, it will help Ukraine as well. In Ukraine we don't need some specific prices for the gas; we just need prices that are not politically but economically motivated.

I will give you some examples. In the European Union, the closest gas hub to Ukraine is the Baumgarten hub in Austria, so now the prices for Ukraine, from Gazprom, are higher than the prices at the Austrian hub for the Russian gas. I think if Ukraine joins the European gas market, and if it will organize free gas flow from the European market to Ukraine, at least we will have leverage to discuss with the Russians.

[Joan Crockatt, Conservative, Calgary Centre, AB]

Will it provide Ukraine with leverage if Canadian companies, with the support of the Canadian government, are able to make a decision to announce that they are ready to pursue how to supply gas and other forms of energy to Ukraine? Will that help the situation, in your view?

[Vitalii Dem'ianiuk]

Yes, absolutely. I strongly believe it.

[The Chair, Conservative, Leon Benoit]

Ms. Crockatt, your time is up.

We will go now to Mr. Leef, for up to five minutes, please.

[Ryan Leef, Conservative, Yukon, YT]

Mr. Aslund, you mentioned the volume of gas sold to Ukrainian markets from Russia. You pointed out that Russia isn't storing any gas so it's an easy leverage point, but does that export then, just sit idle in Russia? What do they do with the loss of revenue by not moving it into Ukraine?

[Anders Aslund]

That is a good question.

What is happening is it's not being produced. Russia does not have much possibility of storing gas at home, so Gazprom production has fallen. Gazprom is also beaten by the independent produced Novatek that is much more efficient. Gazprom's share of the total domestic market has fallen from something like.... Total Russian gas production has fallen from something like 85% to 65% over the last half a decade. Those are just approximate numbers.

[Ryan Leef, Conservative, Yukon, YT]

So that does have some impact on Russia itself.

[Anders Aslund]

Yes.

Gazprom is extremely poorly managed and Gazprom has missed the LNG revolution. Russia is producing LNG on Sakhalin, but that's essentially a Shell project and not a Gazprom project, even if they have muscled themselves in and taken a slight majority of it.

They have missed the Chinese market. They have missed the opportunity to control central Asian gas, which they did before. They have essentially missed everything, and of course the shale gas revolution they have denied until very recently.

[Ryan Leef, Conservative, Yukon, YT]

Thank you.

Mr. Dem'ianiuk, a lot of our discussion in committee has been around the supply of oil and gas. We haven't really spent a lot of time talking about what you mentioned at the end of your presentation, which was about exporting knowledge or importing Ukrainian students for professional development.

Mr. Edwards pointed something out, which is that the government is in transition and there has to be some incentive to look at a policy shift, at least for energy efficiency. We heard in a past committee testimony that there could be a bit of a challenge with that because prices are generally lower and then there could be some social economic impacts of raising gas prices, or the cost of finding those efficiencies.

What is the incentive at a government level, and what is the incentive at a consumer level to realize efficiencies in the Ukrainian market for energy consumption? How can Canada take advantage of that if that's the case, or how can Canada influence it to try to encourage an energy efficiency policy either by the consumer in the Ukraine, or by the government?

[Vitalii Dem'ianiuk]

At the current moment I think that the Ukrainian government doesn't have any doubt about how important energy efficiency is, so we don't even need to persuade them, it's true.

Further, on the level of consumers, it has also become absolutely clear because a few weeks ago the government made a decision to change the system of tariffs on the gas for consumers. As of today, the gas has become 50% more expensive. This price is more economically reasonable.

At the level of regular people, they will also start to understand how important energy efficiency is on the household level.

Canadian companies at the current time can be included in the process of modernization, power generation and heating generation companies, especially small-scale companies on a regional level.

[Ryan Leef, Conservative, Yukon, YT]

I appreciate that.

I have time for a small question.

Do you know, or are you able to comment on Canadian expertise in terms of inviting Ukrainian students, Ukrainian professionals into Canada to take advantage of some of the skills and trades program expertise that we have in the construction and development of energy efficient things from homes to windows to doors right on up to oil and gas extraction?

[Vitalii Dem'ianiuk]

Yes, I totally agree. Actually, you've said what I would like to say.

[The Chair, Conservative, Leon Benoit]

Thank you very much.

Thank you very much, Mr. Leef.

We go now to Ms. Moore, for up to five minutes, please.

[Christine Moore, NDP, Abitibi—Témiscamingue, QC]

Thank you, Mr. Chair.

My questions are primarily for Mr. Dem'ianiuk.

In your testimony, you talked about diversifying sources of energy supply and reducing fossil fuel consumption. You also talked about biomass, which is of particular interest to me. In my region, we have developed a biomass energy supply chain. We currently have projects in progress, researchers and research chairs.

How can we quickly connect the people with that type of expertise across Canada who could help you with the people who need this expertise in your country? What would the best strategy be to effectively and quickly share this information?

[Vitalii Dem'ianiuk]

If you will take my coordinates, with pleasure I will share with you the information of non-government organizations in Ukraine which are working and are charged with the biomass energy sectors. I am ready to introduce you as widely as is possible. From our perspective, the current potential of biomass in Ukraine is at least equivalent to two to three billion cubic metres per year, so it's a huge potential for us.

[Christine Moore, NDP, Abitibi—Témiscamingue, QC]

Thank you very much.

Do you have the potential for hydroelectricity?

[Vitalii Dem'ianiuk]

Excuse me. I didn't get the question.