Ukraine -- A Nation on the Edge

The word Ukraine –  Україна or Украина –  derives roughly from the words «У край» (phonetically: "oo-krai"), meaning something like “near the edge”, usually translated as the borderland or frontier.  «У край» provides an appropriate alternative meaning, “on the precipice”.

Ukraine, on the eastern border of Russia, has historically been part of Russia, and part of Russian culture.  Major figures in Russian literature, politics and music were born or lived in Ukraine, particularly in Kiev, the ancient capital.  But the country lies between Russia and Western Europe.  It is divided in culture, language, economy and politics between the ties to East and West.  

Kiev - City of cathedrals and chestnut trees

Ukraine today is in a deep crisis -- financially, politically, and of national identity.  This crisis was entirely predictable, even ten years ago.  There is great risk of civil war, or a separatist conflict such as enveloped the Georgian separatist provinces of South Ossetia and Abkhazia only a few years ago.    Navigating this crisis will require statesmanship and a commitment to peace by Ukrainians, their leaders, Russia and the West.

Dnieper River, ancient cathedrals, and a modern city.

History and Culture

In a sense, Russia was born in Kiev.  Kiev was the principal city of the Rus, around 1000 AD.  Under Vladimir the Great, Orthodox Christianity was adopted as the principal religion of Russia in Kiev, in 988.   Russian law was consolidated by his son Yaroslav the Wise, and the Russian political sphere expanded northward to the Baltic, southward to the Black Sea, and eastward along the vast territory of the Volga River.

Yaroslav the Wise

 As the center of Russia moved eastward, Kiev retained its importance and contribution to Russian culture.   Novelists Nikolai Gogol and Mikhail Bulgakov are two of many prominent Russians born in Ukraine.  From Mussorgsky’s “Night On Bald Mountain” to Bulgakov’s “Master and Margarita”, to Gogol’s “Night Before Christmas”, artists have used Ukrainian folklore, witchcraft and mysticism in their work, adding a distinctive Ukrainian flavor to Russian culture.

Saint Michael's Cathedral

Ukraine has its own language, its own alphabet, its own people, but is a divided country.  Eastern Ukraine is predominantly ethnically Russian, with Russian-speaking people.  Western Ukraine is ethnically Ukrainian, speaking the Ukrainian language.   Names of distinctly Ukrainian origin (for example, anything ending in …-shenko) can be recognized, and distinguished from Russian names.

Friendly natives, during a street fair, 2010; in Ukrainian, "Let's Hug"

Ukrainian Economy and Natural Gas

Ukraine is economically dependent on Russia.  For decades, Ukraine has depended on subsidized natural gas from Russia as fuel for its heavy industry.  Heavy industry is located in eastern Ukraine, where iron ore from the vicinity of Belgorod, across the border in Russia, is brought into eastern Ukraine, where coal and natural gas provide the energy for steel-making.  Ukrainian steel production declined substantially due to the economic decline of 2009, contributing to the country’s financial crisis.

Natural gas is still the country’s largest import, and the cause of its persistent trade deficit.  The low cost of subsidized gas allowed Ukraine to continue as one of the world’s least energy-efficient countries.  Since 2004, Russia has gradually raised the price of gas to Ukraine, resulting in recurring trade disputes over stolen gas, gas pricing and non-payment of debts.  Ukraine still imports most of its gas.   However, consumption has fallen by more than 50%, from 118 billion cubic meters in 1991, to 80 bcm in 2005, to 55 bcm in 2012.  Ukrainian domestic production is about 20 bcm. 

Ukraine has substantial and under-developed resources of natural gas.  Proved reserves are more than 1.1 trillion cubic meters, or 50 years of supply at current rates of production.  Gas is located in the eastern part of the country, in the deeper parts of the Dneiper-Donets basin.  The gas was originally discovered in the 1970s, but was left undeveloped.   This gas is high-pressure, high-temperature, and difficult to drill and produce using older equipment.  Old drilling equipment was all that was available in the country, even into the 2000s.  Import restrictions on modern drilling equipment, and the lack of a coherent petroleum laws have been serious obstacles to the exploration and development of Ukraine’s domestic gas resources.

The potential for new gas discoveries in Ukraine are significant.  Modern seismic techniques would certainly reveal additional drilling targets in the deep Dnieper-Donets basin; production of gas from the Black Sea has begun, and is growing; and there is good potential for unconventional gas from shale and coal within shallow stratigraphy of the Dnieper-Donets basin in eastern Ukraine.  Ukraine has the geological potential to become energy independent.

Dnieper-Donets Basin, Figure from OGJ

Ethnic and Cultural Division

Eastern Ukraine is predominantly populated by ethnic Russians, speaking Russian as their native language.  Eastern Ukraine is economically tied to Russia through its heavy industry, supplies of natural gas and iron ore, and markets.

Western Ukraine is predominantly populated by ethnic Ukrainians, speaking Ukrainian as their native language, although most speak Russian fluently.  The economy of western Ukraine involves agriculture and trade with Western Europe.  The capital, Kiev, is a vibrant and beautiful city where these divisions meet in sharp, but so far peaceful, contrast. 

Political Environment and Prominent Figures

For years, Ukrainian politics have been plagued by allegations of corruption, press censorship, political fraud and attempted assassination involving all players in the political stage.   Massive street demonstrations have become the process of political dialog rather than orderly elections.

It is worth noting brief biographies of three of the major political figures in Ukraine.  

Former President Victor Yuschenko is a Ukrainian nationalist, and was a leading opposition figure prior to the Orange Revolution of 2004.   During the campaign for presidency of Ukraine following the revolution, he was allegedly poisoned in an assassination attempt.  Yuschenko was disfigured, and blood tests repeated showed extraordinary levels of dioxin in his body.  Nevertheless, there is still dispute in Ukraine regarding the veracity of the assassination attempt and medical tests.  Yuschenko served as president from 2004 to 2010, but his term was marked by political division and in-fighting.  Little was accomplished in governmental or policy reforms.  In 2010, Yuschenko received a meager 5% of the vote in a new presidential election. 

Former Prime Minister Yulia Tymoshenko has an extensive history of corruption in her early political career.   During this time she and her family became extremely wealthy as a result of dealings in Ukraine’s natural gas business.  Dark-haired and a shrewd self-promoter, she re-invented her appearance as a blond Ukrainian doll as she rose to prominence in national politics.  Yulia Tymoshenko is currently in prison, serving a seven-year term for corruption.   

Viktor Yanukovych has served as President of Ukraine from 2010 to the present.  He served as Prime Minister of Ukraine from 2002 to 2004.  Generally regarded as a loyalist for ties with Russia and Ukrainian business, he has stated “Ukraine’s integration with the EU remains our strategic aim”, while advocating a balanced policy between Russia and the West.   In Yanukovych’s youth, he was twice imprisoned for crimes of assault and robbery, spending a total of 3 ½ years in prison by the age of 22.    Substantial voting irregularities are alleged in Yanukovych’s electoral victory as President in 2010.    Numerous complaints also exist regarding political censorship of the media.

Prospective Trade Agreements

Ukraine appears to be at a crossroads with regard to trade orientation between east and west.   Ukraine has been in negotiations with the EU regarding a prospective trade deal for five years.   At the eleventh hour, and apparent in response to objections from Russia, President Victor Yanukovych vetoed the trade agreement.  In exchange for canceling the trade agreement with the EU, Russia promised to provide substantial economic assistance (roughly 15 billion dollars of low-interest loans) to Ukraine, and discounts on future natural gas deliveries.  The agreement with Russia was concluded on December 17. 

The EU, for its part, has demanded political reforms from Ukraine as terms to secure the trade agreement.  In particular, the EU has demanded the release of Yulia Tymoschenko from prison, regarding her punishment as political repression. 

According to the latest news, the trade agreement with the EU, which was vetoed by President Yanukovych late last month, is still in play.   At this time, according to statements by Prime Minister Mykola Azerov, there is the possibility of three-party talks, involving the EU, Russia and Ukraine. 

Ukraine – A Nation on the Edge

On December 29, at the close of 2013, NBC News published an article called, "World in Turmoil: Seven Countries to Watch in 2014".    NBC's list of troubled countries included Afghanistan, Brazil, China, Iran, Russia, South Africa, and Syria.  While not diminishing the difficulties and risks faced by other countries, I would suggest that the country most at risk for turmoil and tragedy in 2014 is Ukraine.

The situation in Ukraine brings to mind unpleasant reminders of the August 2008 war in the separatist Georgian provinces of South Ossetia and Abkhazia.   Ethnic divisions and ineffective government threaten to divide the country, which in the extreme case could descend into violence.

Pragmatically, in the near term, Ukraine should turn toward Russia.  The synergies of Russia resources and Ukrainian industry are significant, and the EU is unlikely to match the level of economic aid that has been promised by Russia.  In the longer term, Ukraine must develop its own resources, and trade that is aligned according to economic benefit, rather than political principles.

Ukraine has every possibility of becoming a prosperous country.   However, substantial reforms are necessary before Ukrainians can realize and enjoy real prosperity.  Ukraine has not yet established effective policies for its economy, effective government, or a credible democracy.    Ukraine must establish a coherent policy for the development of its natural resources to attract investment and technology from modern oil companies.  Ukraine must establish a rule of law which protects the integrity of business, media, and politics.   The political process in Ukraine must change from democracy by barricades to democracy by ballots, in free and honest elections.   And the leadership of Ukraine must stop behaving like Mafia gangsters, and start behaving as statesmen serving in the best interest of their nation and their people.

Mosaic of Ukrainian Easter Eggs, "The Gaze Into Eternity"

---
An update to this post was published on March 1, 1014.

http://dougrobbins.blogspot.com/2014/03/ukraine-nation-on-edge-update-march-1.html

Energy Return On Investment

Here is one of the most important graphs I’ve ever seen.  The slide was prepared by Dr. Charles Hall, of the College of Environmental Science, SUNY.

It’s a busy slide, so let’s spend a little time understanding what it says, before we decipher what it means.

EROI

Dr. Hall is a biologist by training, and a professor in the School of Ecology at SUNY.   His early research involved how trout must expend energy in order to eat (i.e., to obtain energy).   In different environments and by using different strategies, animals maximize their survival chances by maximizing their EROEI, their Energy Return On Energy Invested -- expending a minimum amount of energy to obtain a maximum amount of food.   Stated more simply as EROI, the equation is as follows:

If EROI is high, the animal is efficient in obtaining what it needs to survive.   If EROI is low, the animal is inefficient, and susceptible to harm in adverse circumstances.  
By analogy, the same is true of societies.  By maximizing the efficiency with which we obtain energy, we have more time, capital, and energy available to produce food, build housing, and manufacture goods.  If we are inefficient in how we obtain energy, we have less time, capital, and energy available for those things.

Dr. Hall introduced the concept of EROI (Energy Return on Investment) into debates on Peak Oil and our energy future.  It concept is disarmingly simple:  Energy options can be ranked according to how much energy investment is required, in order to produce energy available to society.    The following chart shows a number of energy sources, ranging from hydroelectric, which returns about 100-fold energy to society for the energy invested, to corn ethanol and biodiesel, which essentially are break-even propositions, consuming as much energy as they produce.

High numbers are highly efficient: in the 1930’s, spending one barrel of oil (energy equivalent) to drill an oil well returned the investment 100-fold.  That’s why oil millionaires (e.g. Jed Clampett, Fred Astaire’s “Daddy Long-legs”, J.R. Ewing, and real millionaires, such as the Hunt and Koch brothers) became part of our folk culture.  However, exploration maturity and the law of diminishing returns nibbled away at the excess return.   By the 1970’s, domestic oil had about 30-fold return on investment, and currently, the number is less than 10.  (Keep in mind that there are other financial costs; this is just the return of energy produced compared to energy invested.) 

On Dr. Hall’s chart, the vertical axis is EROI.  This represents the efficiency of a particular enterprise in returning energy to society, compared to the energy consumed in the process.  The horizontal axis represents the volume consumed in the U.S. economy.   The entire United States uses about 100 Quads (quadrillion BTUs).    Note that coal represents about 30% of our current energy budget (about half of our electrical generation), and is very efficient in terms of EROI.  This cheap energy produces economic benefits throughout the economy, but with corresponding environmental costs, including those related to mining, air quality, and CO2 emissions.

Let’s look at how different energy sources appear on the chart, through some of our history.   First, domestic oil in 1930 yielded about 100-fold return on energy invested: for every barrel-equivalent of energy used to drill a well, the well would produce 100 barrels.   Domestic oil production produced about 5 quads annually.

By 1970 (US peak oil) production had increased to about 22 quads annually, but efficiency had fallen.  The EROI for domestic oil was about 30-fold.  

By 2010, production rates had fallen to about 12 quads, and EROI had fallen to 10-fold.  

New oil, and future oil from current exploration, will be located in very deep water, in the Arctic, or extracted with difficulty from low-quality shale reservoirs.  New and future oil is expected to have an EROI of about 3 to 5, which Dr. Hall considers to be the minimum required to sustain civilization (Dr. A.S. Hall, 2010 Complex Systems Lecture, UAA).

Renewable Energy

Now suppose that we want to replace our fossil fuel consumption with renewable energy.    Evidence for climate change is overwhelming, and there is scientific consensus that CO2 emissions from fossil fuels is the cause. 

But currently, Wind energy produces less than one quad of our 100 Quad total demand .   Solar produces less than 1/10 of one Quad.  Despite huge rates of growth, these renewable will not soon make a significant contribution to our energy mix.  

Further, there are likely to be significant limits or barriers to the growth of renewable energy.  For example, electrical system instability limits the use of wind power to about 20% of capacity of installed power, on a name-plate basis (Paul Morgan, electrical engineer with GVEA, personal communication).   And since even the best wind sites have about a 30% capacity factor (annual utilization), the limit of wind energy in a particular system is about 6% .  The availability and cost of rare-earth elements is likely to be another limit to growth, for both Wind and Solar energy.   It’s interesting to note that there are about 150 pounds of rare-earth elements in every large wind turbine.


Biofuels deserve special mention. Ethanol production from corn is supported by Federal subsidies, with are estimated to have cost $17 Billion from 2007 to 2010, and will cost $53 Billion by 2015, if the subsidies and mandated volumes are not repealed earlier.  In theory, corn ethanol contributes to American energy independence and reduces carbon emissions.   But, does it really?  Estimates for the EROI of corn ethanol are very weak, ranging from a maximum of 1.6 to a minimum of 0.9.   (Dr. Hall comments "....as compared to real fuels, which have EROI of 30 or 40).  If we assume the mean, about 1.35, it means that 135 gallons of fuel must be produced in order to deliver 35 gallons of fuel to society.  And in doing so, producing corn ethanol removes food from global markets, raising food prices in a hungry world; consumes large amounts of water; causes soil erosion and degradation of water runoff.  Corn ethanol is an inefficient fuel, and supporting corn ethanol is bad public policy.

So here is the dilemma, graphically.   How do we move renewable energy from the lower left-hand corner of Dr. Hall’s chart, to the far right?  

The short answer is: We can’t.  Or as Dr. Hall puts it:  At the present time, there is no renewable energy solution that is efficient, scalable, and timely. 

Any alternative to oil and coal must be Efficient, Scalable, and Timely.  1)  Alternatives must have a high EROI.   This is really easy to recognize, because energy is a large component in every investment dollar.   Phrased another way, alternative energy must be substantially profitable, without subsidy.   2)  Alternative energy must be scalable, in order to provide meaningful contribution to total energy supply.   3)Alternative Energy must be Timely.  It must be possible to implement the alternative before serious economic contraction begins, reducing the capital available to build the alternative.

So to make the required reductions in CO2 emissions, and provide a significant amount of power from renewable sources, we have to move the goalposts. 

Large-scale conservation is essential. 

We can start by driving smaller cars.    (Amory Levins, Winning the Oil Endgame http://www.oilendgame.com/)  Redesigning our cities to favor carpools, changing our lighting, and other steps can reduce our energy consumption.    But even with the most dramatic conservation measures imaginable, fossil fuels will be a necessary part of our fuel supply for a long time to come.

Conventional Fuel Supply

EROI  has implications for conventional fuel supply, as well.  As old oil fields are depleted, exploration and technology bring new supplies to the market.   For the last 2 decades, and for the foreseeable future, new oil supplies will come from deep water, in various parts of the world, from the Arctic, and from low-quality unconventional reservoirs, which can be produced by new production technology.    However, all of the new sources of oil have lower EROI than conventional sources.  

This brings up something that I call the Economist’s Fallacy.    Standard economic theory assumes that as price rises, additional production will become commercially viable, increasing supply.  

 So if oil can be extracted from oil at $150 per barrel, at today’s prices, economists assume that expanded supply will become available when oil prices rise to that level.  

However, the cost of extraction will rise as the price rises, because energy is a large component of the cost required to extract the oil.    If something requires more energy to extract than it yields, it will not be commercial at any price!  

Major sources of new oil are approaching EROI of 3 to 5, which is the minimum needed to justify production.  Oil which is more remote (e.g. the Kara Sea, the Chukchi Sea, or deepwater subsalt offshore Brazil) will have even lower EROI, and may not be viable at any price.  More energy is required to extract each barrel of oil, consuming what might have been available for other purposes in the economy.   This progression, requiring disproportionately more energy to produce more energy, may become a factor which will exacerbate Global Peak Oil.  

http://www.wesleyan.edu/econ/seminar/2009s/hall.pdf

http://www.theoildrum.com/node/3786

http://www.theoildrum.com/node/3800

http://teotw.net/energy_EROI.html

http://www.eia.gov/renewable/
http://www.ewg.org/files/EWG-corn-ethanol-energy-security.pdf

http://onlinelibrary.wiley.com/doi/10.1111/j.1749-6632.2009.05282.x/full