A Very Warm Batallion

Energy industry of a not-so-martial law

Germany alone promised 60 billion euros to shield consumers on the eve of the heating season, which is critical for victory over Russia. Next week, the European Commission will announce how it will defend itself against energy blackmail. The strategy is comprehensive and includes taxes on the companies earning the most, limits on the price of Russian gas, and targeted assistance to companies and consumers who will be most affected by the energy crisis.

Ukraine is at the cutting edge of this war for we are also warned that this heating season will be the most difficult in the entire history of independence. This is a really difficult front, every consumer hopes that the government has prepared for this struggle in wartime mode.

Unfortunately, this is not the case. The Minister of Energy and the Deputy Head of the President’s Office, responsible for the heating season, have failed to replicate Valerii Zaluzhnyi’s success. On the eve of a difficult winter, we do not have enough fuel reserves and there is no real support from the allies. It will not be possible to attribute this to the war. There are too many simple and obvious opportunities for improving the situation  that no one has simply addressed.

No Fuel in the Tank

Thanks to the unexpected openness of the head of Naftogaz of Ukraine to public interviews, learning about available gas reserves is the easiest. They are not sufficient, and the head of the company directly declares it. The head of Naftogaz considers the government task of accumulating 19 billion cubic meters to be excessive, although he admits that the 13 billion available at the end of August is not enough. To purchase additional 5 billion cubic meters of gas, at least 10 billion dollars is needed (in September, another “yard” is expected to be pumped in).

Naftogaz does not have such money since the company is bankrupt. Moreover, according to people’s deputy Oleksii Kucherenko, the figure of 13 billion is inflated for it takes into account the so-called buffer gas, the one that is used for drawing from storage facilities and which will be impossible to get in the middle of winter. For those who has forgotten, storage is not a “reservoir” under the ground, it means once developed deposits that can be quickly filled, but the withdrawal speed in winter is not high, especially if there is little gas there.

It is currently unclear, how the government and the president’s office will get out of this situation; regular requests for the provision of “gas lend-lease” face demands to restore corporate governance in the industry. Neither the government nor the president’s office can agree to the requests, despite the direct hints of the G7 ambassadors.

The way out of the situation may also be to increase Ukraine’s own production. But the current rent calculation system actually “extinguishes” the level of production in Ukraine. It is simply unprofitable for miners to work, and instead of growing, production is falling. We ask for money for gas in the USA and refuse to extract the resource ourselves. ZN.UA reported on this story last week in vivid detail.

It should also be remembered that gas is used for different purposes. For thermal power plants that heat cities with central heating. For consumers who use gas for autonomous heating. For business and factories. And – it is crucial to remember – for the generation of electricity when there is a severe shortage of coal.

Hoisting Coal to the Surface?

The situation is even more complicated with coal reserves mined by state mines and the DTEK corporation. The Ministry of Energy is lying when it claims “a reduction in production due to the war.” Production at state-owned mines has been falling for more than a year for nobody wants to control their work, everyone would only empty the state budget to cover miners’ salaries.

According to data obtained from fellow energy specialists, this year’s preparations for the season are in no way different from all the previous ones, no “wartime regime” was foreseen and will never be. The state mines are operating in a minimal mode since there is not enough money either for equipment or for miners’ salaries.

As a result, coal production has not increased at all – the country mines 1.1–1.2 million tons per month. Considering consumption, this means that we add no more than 400,000 tons per month to the warehouses before the heating season. At the beginning of the heating season, there will be almost 3 million tons of coal. Then warehouses will be employed, and we will barely have enough of these stocks. Just like of gas.

Meanwhile, the market situation is unique. Due to the energy crisis and sanctions against Russian coal, the market price per ton soared to a record-setting USD 400. Even the least efficient state-owned coal mining company has a lower cost.

This is a golden time for miners, one just needs to get management in order, invest in equipment at state mines, where there is already prepared conditions. The example of Dobropillyavuhillya, which, after returning to state ownership, reduced production tenfold, shows the existing potential. The potential of the crisis could be a salvation for miners, and money for investment could be obtained from Europe.

The Europeans announced the Energy Support Fund for Ukraine in early April (!) this year. It was a great platform through which we could get live funds if the relevant departments started doing their work. But as a result, the fund was never filled with money for Ukraine failed to propose real projects.

It is not too late to do this, because surplus coal can not only be used for electricity generation, but also exported, helping neighboring Poland. The Poles still produce it at coal stations and will be happy to buy this fuel during a crisis. It’s expensive, they say. You just need to hoist coal to the surface.

The Rescue Atom

Like last year, all hopes in this situation are based on nuclear power generation since Ukrainian nuclear power plants have enough fuel in the reactors.

The previous year, it was the use of all 15 nuclear units that made it possible to get through the heating season without outages. I have already explained the connection between electricity and gas – the more electricity we generate from coal and nuclear plants, the less expensive gas needs to be burned to produce it. If there is neither gas nor coal, all that is left is the import of electricity from the EU — at sky-high prices, which will be in Europe in winter.

However, the power of the atom will be significantly less this year. The operation of Zaporizhzhia nuclear power plant (ZNPP) units in the network is in question since the Russians have clearly shown that they are ready to use force to make staff of the captured ZNPP to stop the plant, the total capacity of which is 6 GW. After all, this is what our international partners are hinting at. White House national security spokesman John Kirby directly called for shutdown of Zaporizhzhia NPP.

The shutdown of the Zaporizhzhia nuclear plant will make it an energy consumer, because the reactors will need to be cooled. And no matter how the Ministry of Energy and NNEGC Energoatom delay the payback time, one can’t count on the capacity of the ZNPP in winter since it is regularly shut down due to shelling.

The capacity of the Khmelnytskyi NPP will also be lower, as the consequences of the accident of one of the turbines have not yet been eliminated there, so one of the rectors will work at half capacity. And this is only what we know, because Energoatom does not publicly report on the state of preparation at other stations. Therefore, only the person who actually manages the industry and preparations for the heating season knows about the real balance of the available atomic units. This is Andriy Yermak’s deputy Rostyslav Shurma. Only if he was reported true data.

The energy crisis also opens up opportunities here. After the rise in fuel prices, the only uranium mine in the country, namely state enterprise Eastern Mining and Processing Plant, which is able to supply ore to, for instance, France – may become profitable. But it won’t happen for the company’s management continues to build up debts for wages. The trade unions are convinced that the company will simply go bankrupt.

Wartime Mode?

All this does not look like “wartime mode” in preparation for the heating season. There is less gas than last year, the same amount of coal, the potential of nuclear power is reduced.

The war as an excuse is used for other actions. Back in March, under the slogan “we are at war,” the Ministry of Energy created a scheme, according to which it is trying to extract UAH 3 billion for gas that never existed. I wrote about it last week, now the temporary investigative commission of the parliament is already dealing with this scheme. However, it may not manage to make it in time since the appointment of the new head of the Operator of the Gas Transmission System of Ukraine is already to be signed by the Prime Minister. As in the case of Naftogaz, public humiliation of corporate governance rules takes place. Although in public, the head of the president's office, Andriy Yermak, strongly supports the OECD principles of corporate governance.

Using the slogan “we are at war,” the Ministry of Energy and Energoatom corporation actually “merged” the profits from the export of state electricity to the “single trader” headed by former manager Rinat Akhmetov. Economichna Pravda media outlet has addressed this in detail.

There is also no mention of financing of energy efficiency projects in cities and communities. City halls are left alone with winter, that is why they desperately discuss firewood, portable cast iron wood stoves, and the need to have a “spare stove in the village.” Although it was quite possible to allocate funds for the renewal of heating networks for cities. It’s just that the money would be decentralized, so not much of interest.

The only thing that remains is the usual political decision that has been practiced over many years – appointing someone responsible for the heating season and fire them with a bang. However, no one will get warmer from this. Neither physically nor politically.

Read this article by Mykola Teslia in russian and Ukrainian.