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The conflict between Ukraine and Russia has taken on many facets, of which the energy-related ones are seemingly the easiest ones to solve. As Kiev and Moscow are exploring the limits of arbitration, it seems that all the necessary prerequisites and conditions for a potential settlement are present. It has to be said that such a dispute adjustment faces numerous obstacles, with political headwinds dominating not only the two nations energy discourse, but also its coverage in the media. If one is to avoid the temptation to have recourse to the usual finger-pointing and rather delve into the realm of figures, the potential for cooperation is easily detectable.

Ukraines gas market is in a dire condition. Despite many potentially favorable measures initiated by the cabinet of ministers, i.e. the unbundling of Naftogazs activities, the corruption-ridden character of Ukraines public administration has led to scant progress in their implementation. In just three years, gas consumption has fallen by 40 percent (see Graph 1) due to the ongoing conflict in Ukraines Eastern regions, as well as several-fold increases in gas prices, as mandated by the IMF. Ukraines gas transmission system urgently needs refurbishment and modernization, only immediate costs to cover for supplies by 2030 amount to at least $3 billion. Moreover, its pipelines are becoming obsolete, too, Gazproms Nord Stream pipelines operate under 120 bar pressure, whilst Ukraines are 75 bar. Yet on the back of arbitration dealings, visceral political atmosphere and full cessation of Russian imports, Russian transit to Europe has actually increased in the last two years and Ukraine assured supply safety for transited volumes, so coming to an agreement is not a delirious idea.

Graph 1. Ukraines Domestic Gas Consumption, Russian Gas Imports and Transit 2000-2016.

(Click to enlarge)

The protracted arbitration proceedings at the Stockholm Arbitration Court have so far only partially indicated where the Russo-Ukrainian gas issue could develop further. The claims and counterclaims are very unlikely to yield any sensational result, Gazproms $44.8 billion take-or-pay non-payment claim seems to be dismissed on the ground that Kiev neednt have paid the minimum take-or-pay price as there was a material change in market circumstances, a clause included in the contract. Naftogazs claim that Gazprom applied unfair pricing from 2011 is also believed to be significantly curbed, as the Stockholm Court ruled that it was only after 2014 that such practices could be observed. The Courts overall ruling will try to counterbalance the two sides claims, possibly with a little tilt towards Naftogaz (apart from legal factors, politics will make an impact, too, as any large Gazprom victory would result in a Naftogaz bankruptcy). Yet the arbitration will achieve what the two sides by themselves could not place the Russo-Ukrainian gas issue into a wider European context, equating it to effective terms that became norm with Gazproms other European partners. Related:The Only Way OPEC Can Kill U.S. Shale

Since December 2015, Ukraine is buying gas to its own detriment. In every single month since the abrupt cessation of supplies, the price of reverse gas supplies has significantly exceeded that of Gazproms European average (see Graph 2). By buying reverse Russian gas, supplied to Kiev by European traders, Ukraine is losing $35-40 million on a monthly basis, which, given the wretched state of its public finances and its economy (GDP-wise it is back to 2005 levels), is a sore neglect. Although it would be politically suicidal to express interest in resuming supplies, Ukraines Naftogaz has admitted that the price it pays for reverse gas could be more favorable. Hopes that LNG supplies transported to Ukraine via Poland might be profitable are plainly wrong under current market conditions, only a considerable price hike in global oil prices could alter the balance as both Poland and Ukraines gas supply contracts (valid until 2022 and 2019, correspondingly) are oil-indexed.

Graph 2. Gazproms Average European Gas Price vs Ukraines Average Fact Price (December 2015 June 2017)

(Click to enlarge)

Since 2015, Gazprom has repeatedly confirmed that it seeks to nullify the Ukrainian transit route after the currently effective 10-year contract runs out in 2019. There are numerous obstacles to this, however, as even the 55 BCm/year throughput capacity Nord Stream 2 and TurkStreams 15.75 BCm/year branch destined for Southeastern Europe cannot fully cover Ukraines 82.2 BCm transit (as of 2016, expected to reach 88-90 BCm in 2017). Therefore, Gazprom officials have acknowledged the full cessation of gas transit via Ukraine is improbable and stated that approximately 15 BCm per annum will be supplied after 2019. Even if a sweeping renaissance of relations were to take place between Moscow and Kiev, Ukraine will no longer be a priority for Russian exporters, as the Baltic route is economically more profitable. Apart from being 1800km shorter than the Ukrainian route and as a consequence being closer to Russias leading gas-producing regions which are drifting all the more to the north, it entails no transit fees. Related:4 Reasons Oil Will Rally Back To $50

Whilst the Stockholm Arbitration will curtail Gazproms maneuvering possibilities in Ukraine and dovetail it with dealings vis--vis other European partners, it is unlikely to influence Ukraines tariff-setting much. Yet it remains one of the key factors if Ukraine is intent to keep at least the 15-20 BCm/year transit further on. The Kiev-set tariffs are currently prohibitively high, for instance, transiting to Slovakia totals $32.8/MCm, almost the same as the total fee for Nord Stream ($37/MCm). According to Naftogaz, this is due to cover amortization costs which occurred as a result of the 115BCm/year pipeline systems underutilization it now operates around 60% of capacity, in 2014-2015 it was oscillating around 50%. Traditionally, Naftogazs transportation branch has been used to cross-subsidize pretty much all the other branches which operated at a loss, yet this has to change. The underlying logic is fairly obvious. Even though the re-export clause that Gazprom incorporated into the previous contracts is now gone, Ukraine has no chances whatsoever of exporting gas to Russia. If it wants to garner any transit money, it must reconsider the foundations of its tariff-setting.

All in all, the resolution of the gas dispute between Ukraine and Russia is both feasible and desirable. Moscow needs it because it seems unlikely it will be able to find another viable transportation route for Central European countries that would not jeopardize its other commitments, Kiev, on the other hand, ought to come to terms with the fact that no one apart from Russia will use its gas transportation system for transiting. Even if gas transit is limited at 15-20BCm/year, the $500-600 million to be earned from this is too big a sum to be shrugged off, especially for depression-stricken Ukraine. Political issues, such as the appropriate determination of Crimeas legal status or the unobjectionable fulfillment of the Minsk Agreements, represent a far bigger challenge it would be a waste not to normalize relations at least in the gas sector.

By Viktor Katona for Oilprice.com

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Settling The Ukrainian Gas War - OilPrice.com

By Navy Petty Officer 1st Class Sharay Bennett U.S. 6th Fleet

ODESSA, Ukraine, July 19, 2017 Ships from Georgia, Romania, Turkey, Ukraine and the U.S. departed the port of Odessa and the nearby Western Naval Base yesterday to participate in the free-play phase of Exercise Sea Breeze 2017.

Sea Breeze is a U.S. and Ukraine co-hosted multinational maritime exercise held in the Black Sea to enhance the interoperability of participating nations and strengthen maritime security in the region. The exercise is taking place from July 10-22, and air, land, sea, and amphibious forces from 17 nations will participate.

While the first phase of the exercise consisted of knowledge-based scenario training, the second phase will focus on the ability of participating forces to react to various scenarios.

Integrating Units

The initial push was to integrate individual units into one organization, said Navy Capt. Matthew Lehman, deputy commander of U.S. 6th Fleet's Task Force 65 and the officer in tactical control of the exercise.

"During the initial phase, the surface ships focused on command-and-control and platform interoperability to allow for better coordination during the more advanced underway phase," Lehman said. "They knew what to expect."

The second phase, however, will be more complex, he added.

As the exercise forces transition into free play, an exercise control cell will inject information about notional events as part of the scenario. Operational-level leaders will assess the events and order tactical units -- such as ships -- to respond with controllers evaluating the decision-making and the execution of tasks by the tactical units.

"They know the mission and specified task, but they don't know the implied task," said Ukrainian navy Capt. Andrey Ryzhenko, commander of maritime forces for the exercise.

Flotilla

More than 30 ships will participate in the four-day free-play phase, operating and training together in the Black Sea.

Divers will conduct search-and-rescue and explosive ordnance disposal missions, while other units will carry out anti-submarine warfare, submarine warfare and air warfare missions.

According to Lehman, aviation and amphibious components will also be tested during this phase. U.S. Marines will operate with their Ukrainian and Turkish counterparts, carrying out visiting, boarding, and search-and-seizure missions at sea and employing other tactics on land.

"The key thing about this exercise is, over the last renditions of it, it's becoming far more complex; a very robust sea, air and land component," Lehman said.

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Exercise Sea Breeze 2017 Continues in Ukraine > U.S. ... - Department of Defense

Separatists in eastern Ukraine claimed Tuesday to have founded a new country Malorossiya, which means Little Russia in English that they hope will eventually overtake Ukraine.

We offer Ukrainian citizens a peaceful way out of the difficult situation, without the war, Alexander Zakharchenko, leader of the self-proclaimed Donetsk People's Republic, told reporters during a surprise announcement. This is our last offer not only to the Ukrainians, but also to all countries that supported the civil war in Donbass.

The move seems to undermine the falteringMinsk peace agreement, a 2015 deal reached between Russian-backed rebels and the government in Kiev that sought to end the violence in Ukraine's industrial east. News of the Malorossiya proposal quickly drew condemnation from the international community, with Ukrainian President Petro Poroshenko calling theDonetsk People's Republic apuppet show that broadcasts messages from Russia.

Notably, both Russia and other separatist movements in eastern Ukraine also distanced themselves from the move, with the self-proclaimedLuhansk People's Republic saying it wasnot notified ahead of time about the announcement and that discussions about the project were untimely.

Despite this, the proclamation of Malorossiya was dubbed a historic event by the Donetsk People's Republic. In a map released by the separatists, all of Ukraine was portrayed as part ofMalorossiya with the sole exception of Crimea, thepeninsula annexed by Russia in March 2014. Kiev would remain a historical and cultural center without the capital city status in the new state, according to the separatists' statement Tuesday, but Donetsk would be the new political center of Malorossiya.

TheDonetsk People's Republic also released a flag, which it said was based on that of Bogdan Khmelnitsky, a 17th-century Ukrainian Cossack leader who organized a rebellion against Polish rule and transferred Ukrainian lands to Russian control.

The rhetoric behind Malorossiyadraws on the complicated history of Ukraine. Much of what now makes up the country was once part of the Russian Empire and later theUkrainian Soviet Socialist Republic, a part of the Moscow-dominated Soviet Union, until it gainedindependence in 1991.

Many people in eastern Ukraine are ethnically Russian and speak the Russian language. Many Russians also hail their own historical links to Ukrainian land and the Kievan Rus, an East Slavic state that peaked in the 11th century and was centered uponwhat is now the Ukrainian capital.

As tensions flared between Kiev and Russian-backed rebels in 2014, separatists beganto talk about the concept of Novorossiya a concept that means new Russia in English. The name referred to what is now the east of Ukraine lands that were taken from the Ottoman Empire by the Russian Empire in the late 18th century. RussianPresident Vladimir Putin referredto the historical concept during a December 2014 question-and-answer session.

However, Malorossiya is different fromNovorossiya. The word is thoughtto date back as far as the medieval era, but came intowidespread use under the Russian Empire in the 19th century when it was used to describe the land that now makes up Ukraine. The term has long been considered archaic in Ukraine itself; some nationalists use it disparagingly, and it issometimes used as an insult to describe Russified Ukrainians in the country's east.

Importantly, the word is usedto refer to almost of all of Ukraine rather than the eastern provinces that made upNovorossiya implying increased ambitions for theDonetsk People's Republic.Zakhar Prilepin, a Russian writer who formed a volunteer battalion for theDonetsk People's Republic, told the Komsomolskaya Pravdanewspaper that the ultimate aim ofMalorossiya was to merge with both Russia and Belarus.

Despite these lofty ideals, there were signs that the announcement of Malorossiya was rushed. The statement announcing the proposed country referred to "19 regions of the former Ukraine an apparent error as Ukraine has 24 administrative regions and the Malorossiya map showed all these regionsaccurately. Documents claiming to mark the official establishment of the country were riddled with red squiggly lines, suggesting that they were images taken hastily from word-processing software.

More strikingly, although the news was covered exhaustively by Russian state media Tuesday, Moscow said it did not support Zakharchenko's calls for Malorossiya, and there was little sign of backing from other separatists.

Kremlinpress secretary Dmitry Peskov distanced Russia from Malorossiya, telling reporters that the proposed country was a personal initiative ofZakharchenko. Moscow learned about it from the press, Peskov said. Boris Gryzlov, Russia's envoy for the Minsk talks, also Russian told journalists that the proposal was likely related to informational warfare and is not a subject of real politics.

Althoughthere seems little prospect ofMalorossiya becoming a recognized country anytime soon, Tuesday's announcement highlights that little progress has been made in finding a solution to the conflict in eastern Ukraine since the Minsk agreement came into force in 2015.AndZakharchenko seemed undeterred by the low feasibility ofhis plan.

I am convinced that we will do everything possible and impossible, Zakharchenko told reporters Tuesday.

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Trump calls Ukraine the thing Ukrainians hate the most

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Ukrainian separatists claim to have created a new country: Malorossiya, or 'Little Russia' - Washington Post

MOSCOW/KIEV (Reuters) - The pro-Russian rebel leader of a breakaway region in eastern Ukraine proposed on Tuesday replacing Ukraine with a new federal state, in comments that could further undermine a 2015 peace deal that is already faltering.

Ukrainian President Petro Poroshenko rejected the idea, describing Alexander Zakharchenko, leader of the self-proclaimed Donetsk People's Republic (DNR), as part of "a puppet show", with Russia pulling his strings in order to relay a message.

France and Germany, which are involved in diplomatic efforts to end the Ukraine crisis, also condemned the proposal.

Kremlin spokesman Dmitry Peskov told Russian agencies that Zakharchenko's statement was Zakharchenko's own initiative and that the Kremlin had learned about it from media reports.

Ukrainian officials contend that Russia wants to show the world, and the United States especially, that it can keep the crisis in a suspended state and deepen it if need be. A new U.S. envoy for the Ukraine crisis was appointed this month and Moscow and Washington are likely to start regularly engaging on the issue.

Zakharchenko, who would scarcely have expected anything other than outright rejection from Kiev, said in a declaration that he and his allies were proposing a new state called Malorossiya (Little Russia) be set up with its capital in rebel-held Donetsk.

Malorossiya was the term used to describe swaths of modern-day Ukraine when they were part of the Russian Empire in tsarist times and is one many Ukrainians today regard as offensive.

Ukraine, a country of about 42.5 million people, declared independence from Moscow in 1991.

"We are proposing to residents of Ukraine a peaceful way out of a difficult situation without war. It's our last proposal," Zakharchenko said in a statement. The new state would be federal, with regions enjoying a large degree of autonomy.

He said the move was backed by delegates from various Ukrainian regions, but a statement from the neighboring rebel territory of the self-proclaimed Luhansk People's Republic said it had been unaware of the initiative and did not support it.

His declaration cast a shadow over the faltering Minsk peace agreement between the rebels and the Ukrainian government, which has failed to quell fighting between the two sides and has only been partially implemented since a pro-Russian uprising erupted in eastern Ukraine in 2014.

Russia denies accusations it has delivered arms and provided troops backing rebels in the industrial, largely Russian-speaking east. On Tuesday the Kremlin said it remained committed to the Minsk peace deal.

Yevhen Marchuk, Ukraine's representative in the talks on implementing the peace deal, told Ukrainian TV channel 112.ua that Zakharchenko's declaration would complicate negotiations and looked like a Russian attempt to sabotage the process.

France condemned the idea and demanded Russia do more to prevent a further escalation. A German government spokeswoman also criticized the move, calling it "totally unacceptable".

Ukraine's top military commander, Viktor Muzhenko, said on social media that the Ukrainian people would "bury" Malorossiya, calling the plan one of the rebels' "sick fantasies".

Three former rebel leaders told Reuters in May that a top aide to Russian President Vladimir Putin decides how the pro-Moscow administration of eastern Ukraine is run and who gets what jobs there, challenging Kremlin denials that it calls the shots in the region.

Additional reporting by Polina Devitt in Moscow, Margarita Antidze in Tbilisi, John Irish in Paris and Andreas Rinke in Berlin; Writing by Andrew Osborn; Editing by Gareth Jones and Richard Balmforth

Read more here:
Pro-Russian rebel leader in east Ukraine unveils plan for new ...

By Raphael Satter, Svetlana Kozlenko And Dmytro Vlasov The Associated Press

In this photo taken Wednesday, July 5, 2017, patients stand at the reception in a private clinic in Kiev, Ukraine. The clinic was one of many institutions disrupted by June 27 cyberattack which paralysed computers in Ukraine and across the globe. (AP Photo/Efrem Lukatsky)

KIEV, Ukraine Dr. Lidiia Podkopaieva was about to click send on an order of new surgical instruments when her computer monitor suddenly went dark.

She speed-dialed the clinics technician but didnt even have time to tell him what was wrong.

Were under cyberattack, he told her. Switch off the computer immediately.

The call would kick off a crazy week as Podkopaieva and her staff struggled with the sudden loss of half the computers at the Left Bank Pediatric Clinic in Kyiv, where she serves as medical director. The central phone system collapsed, digital appointments vanished and diagnostic machines dropped offline, interrupting at least one patients exam. Podkopaieva said no one suffered in the attack, but academics argue that even glancing blows to medical facilities like this one represent a damaging break with international norms.

You cannot attack hospitals, said Duncan Hollis, a Temple University professor and a former treaty lawyer for the U.S. State Department. Although what happened at Podkopaievas clinic fell short of the death and destruction that would constitute an unambiguous attack, Hollis said the disruption was still a step in a dangerous direction.

READ MORE:Global cyberattack: where did it come from and is it under control?

Its getting close to, if not across the line of, actual harm that international law might be prohibiting, he said.

Podkopaievas pediatric clinic, part of Ukraines Dobrobut health group, was one of thousands of victims of the data-scrambling software dubbed Nyetya that erupted June 27. Unlike WannaCry, a similarly quick-spreading digital worm that also disrupted hospital work earlier this year, Nyetyas masters appear to have had the ability to draw data from their targets meaning they either knew or could have discovered who would be at the receiving end of their attack.

Podkopaieva said the disruption to Dobrobut was considerable.

VIDEO:Sophisticated cyberattack cripples computers across the globe

For a moment, we were blind and deaf, she told The Associated Press in an interview at her clinic a week after the attack. Across Dobrobut, a CT scanner, a mammography machine and four X-ray machines were disabled after the worm crippled the Windows computers they were connected to. One patient had just finished being X-rayed when the cyberattack destroyed their scan, she said. Overall, about 100 examinations had to be cancelled.

READ MORE:Cyberattack spreading across the world, now in the U.S.

Dobrobut wasnt alone. Ukraines Ministry of Health says public hospitals werent touched, but at least two other private medical institutions in Kyiv were also affected, according to the Ukrainian website Censor.NET, which published a running tally of affected firms. The media group said several pharmaceutical companies also were affected by Nyetya and anecdotal evidence suggests pharmacies across Ukraine experienced shortages when the cyberattack derailed deliveries of medication.

Volodymyr Varenytsia, who runs a drug store in the Luhansk region of Ukraine, said he ran out of iodine and Citramon, a headache medicine, in the days after June 27. The shortage lasted until deliveries resumed a full week later. Meanwhile, he had to turn some clients away empty-handed.

People suffered because of this virus, he said in a telephone interview.

Podkopaievas clinic recovered faster.

READ MORE:Small businesses often more vulnerable to cyberattacks, experts say

She said staff moved swiftly and calmly to restore her facilitys systems and work around faults. Even when diagnostic work was cancelled, every patient was still seen by a professional. Doctors wrote information down on paper, just as they had in the years before the hospital went digital. Within a day, the appointment system had been restored and by June 30, Podkopaieva finally ordered the instruments she was sending for when her computer went dead. They arrived that evening.

We had good backups, which helped in part, she explained. Training helped too, she said, even if we never expected that medical organizations would be affected by a cyberattack.

That anyone might be held accountable for the disruption seems unlikely.

READ MORE:Bank of Canada warns financial sector vulnerable to cyberattacks

Ukrainian officials have laid the blame for Nyetya at Moscows door, but Russian officials have denied any responsibility, and in any case hackers who operate at the scale of the June attack are notoriously difficult to bring to justice.

Even verbal condemnation has been hard to come by. U.S. officials have said nothing about the attack on Ukrainian medical facilities and little about the outbreak in Ukraine in general, despite the fact that spillover from the digital outbreak snarled traffic at American ports formally considered critical national infrastructure and disrupted several U.S. multinationals. A small U.S. care network, the Heritage Valley Health System, was also affected, with several operations rescheduled.

Academics said President Donald Trumps administration was inviting trouble by not reacting publicly to cyberattacks on civilian infrastructure, whether at home or abroad.

Scott Shackelford, the chair of the Cybersecurity Program at Indiana University in Bloomington, said that the past progress toward setting international norms for behaviour in cyberspace is in danger of eroding.

Whats needed is leadership, and right now thats in dangerously short supply, especially coming from Washington, he said.

Hollis, the Temple professor, said American leaders at the very least needed to speak up.

Were in this era right now thats almost a constitutional moment for cybersecurity and cyberspace, he said. When youre silent in the face of bad behaviour, that does sort of imply that its permissible.

2017The Canadian Press

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Cyberattacks targeting clinics in Ukraine draws concerns from experts - Globalnews.ca