Meet the beneficiaries of the crisis in Ukraine: CNBC Interview with Robert Bensh and Others

By Dina Gusovsky for CNBC

The last few days have brought the worst violence yet since the ongoing struggle between the governments of Ukraine, Russia and their respective civilian supporters began, and power players on both sides are using the conflict to their advantage.

Russian President Vladimir Putin‘s spokesman, Dmitri Peskov, recently told reporters that thousands of people in Ukraine are calling for Russia‘s help, and claimed that human rights violations are becoming more widespread in Ukraine.

That rhetoric is similar to the language used by Russia before its invasion and subsequent annexation of Crimea, but sources who spoke with CNBC said they don’t expect an outright Russian invasion. What’s more likely, they said, is continued agitation and violence.

Russian President Vladimir Putin‘s spokesman, Dmitri Peskov, recently told reporters that thousands of people in Ukraine are calling for Russia‘s help, and claimed that human rights violations are becoming more widespread in Ukraine.

That rhetoric is similar to the language used by Russia before its invasion and subsequent annexation of Crimea, but sources who spoke with CNBC said they don’t expect an outright Russian invasion. What’s more likely, they said, is continued agitation and violence.

The sources spoke on condition of anonymity because of fears about their personal safety and/or concern about their financial interests.

Oil and gas are the lifeblood of the Russian economy, and in the midst of geopolitical unrest, oil prices usually rise.

“Higher oil and gas prices are always good for Russia, but Putin thinks far more strategically than that,” said Ian Brzezinski, a senior fellow at the Atlantic Council who focuses on trans-Atlantic security. “I would also note that he is not just benefiting from the unrest in Ukraine, he is driving it. This is because he wants to destabilize Ukraine so that he can seize more of it, if not all of it.”

Putin seeks to maintain some level of control over Ukraine as a crucial gas transit hub for Russian natural gas. Sources close to the Russian government said that Putin currently does not have plans to invade, but one of the sources said “he will not allow Ukraine to become Estonia”—that is, he’s highly unlikely to stand by and idly watch Ukraine integrate itself with the European Union or NATO.

“Ukraine’s economic crisis had been transformed into geo-economic warfare caused by Russia’s control of supply to Europe and Ukraine’s failure to develop its own internal energy resources,” Robert Bensh, managing director of Pelicourt, a private equity fund that owns assets in Ukraine, told CNBC.

“And it cannot be coincidental that Russian troops are building up close to Ukraine’s gas pipelines,” he added.

According to journalist Alexei Matsuka of eastern Ukraine’s Donetsk and alternative Russian news channel TV Rain, “the activity of separatists is mainly in the north of the region, where there is a lot of shale gas.”

Still, others say that the shale play is minimal here and that Russia is looking solely to retain control to make sure it has a firm hold on alternate routes of its own gas supplies.

More than one observer who spoke with CNBC predicted that only when there is an integrated government in Ukraine, with a substantial amount of Russian influence, will Russia finally back off.

How Ukraine’s Leaders Benefit

The Ukrainian government, which has warned repeatedly that the most dangerous days of the crisis still lie ahead, has used the unrest to its advantage as well.

The conflict allows acting Ukraine President Oleksandr Turchynov and Prime Minister Arseniy Yatsenyuk to appeal directly for assistance from the United States and the European Union. A source close to the situation told CNBC that in the earliest days of the crisis, Kiev refused to speak with the Russians, allegedly telling high-level Moscow officials that Ukraine no longer needed Russia because it had the EU and the United Stats on its side.

In the past week, Turchynov has presented a situation in eastern Ukraine that is beyond the Kiev government’s ability to handle alone, openly admitting that Ukraine’s police and security forces are “helpless” when it comes to dealing with violence and unrest. 

Oligarchs Playing Both Sides

Wealthy individuals within Ukraine have tried to cut deals with Russia in an effort to secure power in case Russia continues to have influence in certain regions of the country, sources told CNBC.

Stratfor Eurasia Analyst Eugene Chausovsky told CNBC that, although he can’t confirm the names of so-called “oligarchs” who have reached agreements with Russia, Moscow does have channels of communication to many leading Ukrainian business and political figures.

Sources who asked not to be identified cited former Prime Minister Yulia Tymoshenko as a power player in Ukraine who maintains close contact with the Russian side. Tymoshenko currently trails Petro Poroshenko, the front-runner in Ukraine’s upcoming elections.

Unrest in Ukraine helps Tymoshenko politically, a local source told CNBC, because she’s seen as an experienced politician who can provide leadership through the crisis.

The Washington Post, citing Russian news service Interfax, reported Tuesday that Tymoshenko called publicly for the formation of a “volunteer army” that can handle pro-Russian outbreaks in place of the country’s regular military.

Stratfor’s Chausovsky told CNBC that there is also speculation that some domestic oligarchs in eastern Ukraine could have fomented the separatist threat shortly after the uprising as a bargaining chip with Kiev’s new pro-Western leadership to preserve their domestic political power and business interests.

Stratfor’s Chausovsky said he doubts that Tymoshenko was behind any unrest in eastern Ukraine, however, saying such claims are unconfirmed and “dubious at the very least.”

The oil and gas issue is likely to remain front and center, experts said, with Putin playing his strong hand and attempting to determine just how far he can go without provoking the U.S. and European Union to hit back even harder than they already have. 

“People are genuinely nervous about what will happen. It’s a house of cards, everyone is under threat,” one source said.

By CNBC’s Dina Gusovsky.

Short-Sighted Europe Cannot Resist Russian Gas by Robert Bensh

By Robert Bensh | Mon, 28 April 2014 

As the rhetoric between Russia on one hand and the West and Ukraine on the other reaches an all-time high, and the situation in eastern Ukraine gets bloodier, Moscow holds the only gas card. Europe might complain, but in the end it will give in like a cheap gas junkie at the expense of its future.

In particular, Spain, Italy, France and Germany are eager for this crisis to end and to continue with major business and energy ties to Russia. But that era is over, according to Turkey, Poland, and the more recent EU members near the Russian border who have a more realistic view of the state of affairs.

Though the rhetoric right now is that Russian forces are poised to invade eastern Ukraine as tensions between pro-Russian militias and Ukrainian security forces mount, the reality is that Moscow does not need to occupy Ukraine to win.

Russia’s state-owned gas giant, Gazprom, already has the power to stop Russian gas transit through Ukraine’s pipeline system, which feeds Europe. Ultimately, what is happening is a heavy handed, near-term loss of credibility for President Vladimir Putin and Russia. They won’t invade Ukraine. President Putin will ensure that Russian troops remain on the border and continue their campaign of chaos and sabotage within eastern Ukraine. The goal is to ensure that Russia’s Crimea is recognised, Ukraine’s gas debt is paid in full, and constitutional changes are made in Ukraine that would give Russia significant leverage in creating discontent in the country for an indeterminate period of time.

Much hinges on the new government and the integration of eastern and western Ukrainian ministers representing all of Ukraine, not just the Maidan as the government is currently configured. Much also hinges on what sort of constitutional reform emerges. Russia wants a guarantee that Ukraine won’t join NATO. It also wants direct elections in the regions to both legislative and executive office.  Does anyone sense the irony here? One of the most centralized states on earth is demanding sweeping decentralization next door.

Russia has been working on alternatives to the Ukrainian pipeline system for years, most notably through the South Stream and Blue Stream pipelines.

Moscow is now deciding what form retribution will take if Ukraine’s debt to Gazprom is not paid. But invading isn’t as easy as it may seem from the perspective of the Russian troops lined up on the border. They aren’t necessarily supported by eastern Ukraine across the board.

Polls conducted have shown an overwhelming repudiation of joining Russia. The same polls have shown that there is little support for the current government in Kiev and the direction of the country overall. As much as Russia has tried, it has been unable to generate the support needed from the local populace.  

In the meantime, Europe is scared to death.

Gazprom, which controls nearly one-fifth of the world’s gas reserves and supplies more than half of the gas Ukraine uses each year, still supplies around 30% of Europe’s gas. Recall January 2006, when Russia stopped selling gas to Ukraine and Europe and the impact was immediate. More than a quarter of the EU’s total gas needs were met by Russian gas, and some 80% of it came via Ukrainian pipelines. Austria, France, Germany, Hungary, Italy and Poland soon reported gas pressure in their own pipelines was down by as much as 30%.  While it was eventually resolved, the EU warned of the dangers of becoming overly dependent on one source of supply.

Three years later, it happened again. Russia through Gazprom demanded a price hike to $400-plus from $250. Kiev refused, and on New Year’s Day 2009, Gazprom began pumping only enough gas to meet the needs of its customers beyond Ukraine.

Several countries–particularly in Southeastern Europe, almost completely dependent on supplies from Ukraine–simply ran out of gas.  

So aside from the annexation of Crimea and continuing internal discontent in Ukraine, what more prompting does Europe need to just attempt to get off the Russian gas treadmill?

There should be a great deal of skepticism as to whether Europe’s fear will actually prompt it to develop an energy strategy this late in the game. Europeans will cry foul and express alarm, but at the end of the day, they will be bought off with cheaper Russian gas.

Equally troubling, Turkey is paying lip service to a Russian deal to increase the capacity of the Blue Stream pipeline, which brings in Russian gas via the Black Sea, to 19 billion cubic meters annually. This would be up from 16 bcm annually, giving Russia another 3 billion bcm of gas to fortify the energy arsenal it holds over Europe.

What should be happening is some longer-term thinking on the part of Ukraine, Turkey and the European Union. But short-sightedness, diverging political and business interests, and corruption rule–which means that Russia rules the day.

Europe is positioning itself to become the next Ukraine, floundering without any real energy policy of its own and giving up any chance of energy independence. Turkey, consistently worried about its own dependence on Russia, is falling into the same trap, when it should be pursuing the strategic proposal of former vice-prime minister in charge of energy, Yuri Boyko. To wit: working to build a Black Sea gas dominion with Ukraine—a powerful combination that could control the market for liquefied natural gas (LNG) to Europe.  

In 20 years, Europe will be looking a lot like Ukraine and Turkey will be reflecting on how it failed to seize the opportunity to become the key energy hub connecting Europe and the Middle East. By then it will be too late.

By Robert Bensh, Special to Oilprice.com

Ukraine Falling to Economic Warfare and Its Own Missteps by Robert Bensh

As protests in Ukraine’s eastern region turned violent on Sunday leading to the death of a Ukrainian security officer in a shootout with pro-Russian militia, Kiev threatens military action while Moscow flexes its geo-economic warfare muscles.

Pro-Russian militia groups have seized government buildings and police headquarters in Ukraine’s eastern city of Donetsk and Slovyanks–where the shoot-out took place–and despite a Monday morningultimatum by the Ukrainian government, these groups have shown no sign of giving in.

There has been no movement by the Ukrainian military to make good on its ultimatum; indeed, the messages have been unclear and contradictory.

Acting president Oleksander Turchinov has dangled the idea of a referendum that would seek to address the demands of the region’s Russian-speaking population for more autonomy. In the same breath, Turchinov on Sunday promised a “large-scale anti-terrorist operation” to prevent another incident such as Crimea, which was annexed by Russia last month.

On Sunday, Moscow requested an emergency meeting of the United Nations Security Council (UNSC), while NATO came out with estimations that Russia had amassed up to 40,000 troops in more than 100 locations along its border with Ukraine.

This is the atmosphere that leads us up to 25 May presidential elections in Ukraine, which will be shaped by metamorphosing relations with Russia—and by energy.

Over the past few years, Ukraine’s relationship with Russia has become increasingly adversarial, in tandem with Russian President Vladimir Putin’s desire to increase his status and dominion.

Related Article: Ukraine Standoff Escalates, Could South Stream be in Doubt?

But it is through the spectrum of energy that we have seen the more poignant phases of this change. The current controversial gas supply agreement Ukraine has with Russia was put in place less because of Putin’s negotiating skills and more because of a concerted effort by former prime minister and current presidential candidate Yulia Tymoshenko to destroy the Ukrainian gas lobby run by oligarch Dmitry Firtash.

While Ukraine has always struggled with gas supply issues, this really changed the dynamic. Yuri Boyko—former energy minister and another current presidential candidate–has gone from a close working relationship to a very strained one with Russia as he sought to both keep the population supplied with cheap gas and to increase the country’s independent energy supply.

Boyko’s plans to further diversify the industry were halted when he was promoted to the position of vice-prime minister and Eduard Stavitsky, a member of ousted president Viktor Yanukovych’s inner circle, was given the energy portfolio. At that point, all efforts towards energy independence abruptly ceased.   

What’s going on now is geopolitical and geoeconomic battle for the region, driven by loss of Russian credibility and Moscow’s control of the Ukrainian presidency when Yanukovych was ousted in February.

But it’s important in all of this to pay close attention to what Russia is airing as its grievances, which included: an illegitimate Ukrainian government led by radicals; unprotected Russian speakers in the eastern regions; and $11 billion in unpaid Ukrainian gas debt.

What Moscow is saying, then, is that the current administration has zero representation from the eastern portion of the country. It is important to remember that over 40% of the Ukrainian population—all from the east—was against signing the economic cooperation agreement with the European Union, which was carried out immediately after the annexation of the Crimea in late March.

Russia can realistically argue that the Maidan protest movement drove the political section process, and that the current government is not representative of the country as a whole. The current administration was interested in placating the Maidan and moving towards Europe, not necessarily in united the country.

And what have they accomplished? Nothing. There are still people protesting in the Maidan; Crimea is gone; and eastern Ukraine is under threat of attack from Russia.

Related Article: Ukraine or Russia? How Would Economic Factors Influence a Vote?

The current leadership should also take responsibility for its role in provoking the current situation. They refused to speak with Russia once they assumed leadership, stating they had support from Europe and the United States. At the same time, some politicians and ministers are busy conducting their own brand of justice, accusing anyone that is of the former government of crimes with little to no justification and trying to take advantage of their few remaining weeks in office to position themselves for future power.

What Russia wants is an integrated representative government. If this is realized, Moscow will no longer be able to play the legitimacy card. If Petro Poroshenko, who is leading in the polls right now, wins the presidency, then Ukraine will need a prime minister that is accepted in the east in order to have an integrated government.

This new government will also need to find an effective way to pay the country’s gas debt to Russia, because that will not disappear. The only way to do that is to start selling off energy assets and privatizing the energy infrastructure.   

Russia has been able to manipulate Ukraine’s energy dependency to the benefit and pursuit of its foreign policy goals. We’re seeing this very clearly today as Putin has called for the payment of $38 billion from Ukraine, the result of unpaid gas sales and the removal of the discount for the Black Sea port in Crimea.  

Ukraine’s economic crisis had been transformed into geoeconomic warfare caused by Russia’s control of supply to Europe and Ukraine’s failure to develop its own internal energy resources. And it cannot be coincidental that Russian troops are building up close to Ukraine’s gas pipelines. 
  
Ukraine presents the most powerful example of Russia’s use of the energy weapon as a means to influence the foreign policy orientation of a post-Soviet state, and as “testing ground” for Russia’s possible use of energy as a foreign policy weapon elsewhere in the former USSR and beyond.

However, Ukraine’s new leadership has to take responsibility here as well. The current situation is not as black and white as our Cold War mentalities tempt us to believe. The onus is now on Kiev, and there are diplomatic and economic ways to halt the violent progression and render Moscow’s arguments moot.

By Robert Bensh for Oilprice.com

By Robert Bensh: The Most Profitable Gas in the World

There is only one certainty in Ukraine: The energy sector must and will be transformed, and how long this takes will depend on who ends up in the driver’s seat and how serious they are about becoming a part of Europe and reducing dependence on Russia. But by then, investors will have missed the boat.  

The driving factor for any energy investor in Ukraine is the pricing environment. There is nowhere else in Europe—or some would even argue in the world—where you are going to get significant access to resources and potential resources for the price.  Gas is selling at $13.66/Mcf, while it costs $4-$5 to produce and operate. That means producers are netting anywhere between $8 and $9/Mcf. 

Whether it likes it or not, kicking and screaming, Ukraine will have to transform its energy sector, if it hopes to see promised IMF money. Kiev will have to start selling off assets and making the industry much more transparent. Greater transparency coupled with an already-favorable gas price environment, will make Ukraine one of the best places to be over the next 5-7 years.

While everyone is now closely watching the campaigns unfold in the run-up to 25 May presidential elections, in the end who wins the presidency—and even the energy ministry—will determine not if, but how fast the country moves to transform its energy sector. 
The crucial next step is a psychological one: Ukraine’s new leaders must come to the realization that their energy assets, particularly the pipeline system, are not strategic assets, rather they are valuable commercial assets. Privatizing these assets could raise $50 billion.

Right now, the pipeline system is nothing but a conduit for Russian gas into Europe. It could be much more. The pipeline system, and the state-run company that manages it, should be turned into a transparent public company in London, for instance. The sale of 50% of the company could generate sizable profits—half of which could be used to pay down debt to Russia, while the other half could be invested in modernization, turning a potentially valuable assets into a commercially realistic one.

Without the right people in place in the new government, we could perhaps lose a year in getting the necessary reforms in place. And continued talk about the “strategic” nature of these assets could cause investors to lose faith in Ukraine’s seriousness about reducing its dependence on Russia. Eventually, it will happen, and what elections will tell us simply is how long it will take.

Related Article: Why Ukraine’s Next President Doesn’t Matter

There are a lot of resources to be developed in Ukraine, and there are also quite a few companies who have assets they cannot development, primarily due to lack of funding or marginal management teams. These companies will now be seeking to transact with larger players.  

Historically, the most significant red flag for new investors in Ukraine has been working with the government. It’s too early to determine whether that will change. Bureaucracy generally kills deals more than anything, and foreign companies coming in will never be able to understand how the bureaucracy works. The smart investor will employ capital through a Ukrainian private entity to maximize investment dollars. Western management teams, without help from local partners, won’t be able to operate in this venue even if they are top-notch managers.

The smart investor will also realize that there is no better time to invest in Ukraine’s energy sector. Once it is transformed, the best opportunities will have been seized.  

By. Robert Bensh for Oilprice.com

Interview with Robert Bensh: Why Ukraine’s Next President Doesn’t Matter

By James Stafford of Oilprice.com

Having ridden roughshod over Ukraine, Russia’s annexation of the Crimea is now over and a new chapter in Ukrainian politics is about to begin—but it won’t be much different than the last chapter, with the same old faces surfacing for May presidential elections.  

In the aftermath of the Maidan protests that overthrew president Viktor Yanukovych in February and Russia’s retaliatory annexation of the Crimea in March, Ukraine has moved presidential elections forward a year to 25 May.  

As of early Wednesday, the top four candidates for the presidency were independent businessman Petro Poroshenko, professional boxer and UDAR party leader Vitali Klitschko, banker and former ruling party figure Serhiy Tihipko, and controversial former prime minister Yulia Tymoshenko, who was recently released from prison to join the Maidan protests.

According to a survey conducted between 14 and 19 March, Poroshenko was polling with a significant lead of 24.9%, leaving Klitschko and Tymoshenko battling it out for second place with 8.9% and 8.2%, respectively, and Tihipko trailing slightly with 7.3%.

What the polls indicate is that Poroshenko is likely to make it to a second round of elections, which are expected to take place sometime around late June, while he would be running against Klitschko, Tymoshenko or Tihipko, who are each polling more or less equally.

But the situation is dynamic. Late on Wednesday, Oilprice.com sources in Kiev close to former energy and vice-prime minister Yury Boyko said he had officially placed himself in the running for president, as an independent candidate.

Regardless of who wins the presidential vote, the Maidan will be disappointed. The protest movement wasn’t just complaining about the Yanukovych government—it was complaining about over two decades of pervasive corruption, and now we are seeing those same faces again.

All of the top five candidates carry with them baggage from previous failed governments, but none more than Tymoshenko.  

While Poroshenko is a successful businessperson, Klitschko a successful athlete and Tihipko a successful banker, Tymoshenko is largely perceived as a failed politician.  

Of the four, Poroshenko and Klitschko have the cleanest records, and the least amount of negative political baggage.

“Tymoshenko is not a trusted political figure, and there have been quite a few polls stating such,” Ukraine energy expert Robert Bensh told Oilprice.com.

Tymoshenko spent three years in jail on what her supporters say were politically motivated charges of abuse of power before being freed last month; but her return to the political fray is a highly controversial one.

“She polls right in with current and/or former members of government. And the reason is that the rumors about her wealth and how she acquired her wealth are still quite prevalent and she is still very much viewed as a member of the failed government of Viktor Yushchenko. Indirectly, and with some success, people have been tying her to one of the reasons we’re having so many problems today. The Orange Revolution was a failure. We have the gas deal with Russia which she signed with Yury Prodan, the current acting energy minister,” said Bensh, who has been leading oil and gas companies in Ukraine for nearly a decade and a half.

Tymoshenko’s time has passed—a sentiment Bensh said was made clear when she was released from prison and joined the Maidan protests. “The reception she received was quite cool. It was a polite reception; not the roaring of the crowd that she was used to.”

At the same time, Bensh says, while Tihipko’s chances are more remote because of his ties to the former ruling Party of Regions, he may surprise us because he is the only one who has carved out a singular voice among the four.

Poroshenko, Klitschko and Tymoshenko are all going after the same voters, while Tihipko has to appeal to the industrial regions and to the Russian-speaking population with a pro-industry and pro-business platform.

“The other three candidates will come out with muddled messages,” Bensh said. “I don’t think they know what to be. Are they pro-Ukraine, pro-EU? Are they anti-Russian while at the same time being careful about the Russian message? For a political consultant, Tihipko and Boyko are certainly the most interesting candidates. Tihipko is a successful former national bank president, and Boyko an energy expert whose politics are less polarizing. Both would recognize the country’s development potential.”

With Boyko entering the fray, Tihipko’s chances are reduced because they will be competing for the same votes.

Related Article: Russia Looks East as Relations with Europe Deteriorate

But for Boyko, too, it will be challenging to overcome the stigma of ties to the former government. “He has to show how and why he should be trusted,” Bensh said.

Bensh cautions against attributing too much significance to Ukraine’s presidential elections.  

In response to the Yanukovych government and the Maidan protests, Ukraine has returned to its 2004 Constitution, which means that power will rest with the prime minister and the parliament. A new president will choose a prime minister, which must then be approved by the parliament. According to Bensh, the general belief is that once a new president takes office in July, there will be a call for parliamentary elections later in the fall, though nothing has yet been mandated.

“At the end of the day, the best person for Ukraine is a 35-year-old who isn’t running for president—who isn’t part of the system yet and hasn’t been involved in over 20 years of poor political leadership and corruption. We’re a generation away—hopefully—from a true leader who can turn Ukraine into a strong, independent country that sits between Russia and Europe,” Bensh said.

From a business standpoint, the economic and political situation will not show signs of stability until next year. At the same time, the intuitive investor may see opportunity ripening.

“For the contrarians out there, this is the time you should start jumping in. The situation is stabilizing, the currency risk is beginning to minimize. From an economic standpoint if you’re going to get into Ukraine and do something inexpensively, now is the time to come in. You’ve got nine months before it stabilizes, and at that point, the whole world is showing up,” Bensh said.

What the Loss of Crimea Means for Ukrainian Energy: Interview with Robert Bensh

Image

By James Stafford | Wed, 19 March 2014 23:30

Ukraine’s Crimean Peninsula is now Russia’s. It was done with an impressively organized non-violent military operation, and supported by the foregone conclusion of a referendum on independence from Ukraine. One Ukrainian soldier was reportedly killed on 18 March, after Russian President Vladimir Putin signed the treaty to annex the Crimea and troops moved to take over a Ukrainian military facility in Simferopol. The US has imposed largely symbolic sanctions on Russian officials who have no American assets to freeze and would be fine foregoing trips to the US, but the game is over.

Ukrainian troops have been ordered to disengage entirely, and Russia will keep its tanks from rolling into Eastern Ukraine. We’ll hear a lot of rhetoric for the next six months before Crimea is forgotten. From an energy perspective, the Crimea is not a major loss for Ukraine, and now it’s up to the new government to get real shale development in motion, and for Turkey to face up to its own strategic realities and join forces with Ukraine to harness LNG potential, according to Ukraine energy expert Robert Bensh.

Robert Bensh is an energy and energy security expert who has led oil and gas companies in Ukraine for over 13 years, and served as an advisor to former energy minister and former vice-prime minister Yuri Boyko on issues of Western capital markets and political systems.

In an exclusive interview with Oilprice.com from Kiev, Bensh discusses:

•    Why the Crimea game is over •    What Russia isn’t likely to roll into eastern Ukraine •    What Ukraine is losing from an energy perspective •    How Russia’s moves are strengthening Ukrainian resolve •    How the annexation of Crimea has heralded a new patriotism in Ukraine •    Why a lot rests of Ukraine’s next move on shale •    What opening the Bosporus to LNG would mean for Ukraine •    Why Turkey should be watching very closely

James Stafford: Now that Russia has annexed Crimea, are there fears that it won’t stop there, and that we could see Russian tanks entering Eastern Ukraine?

Robert Bensh: The reality is that this game is over. The Crimea is Russia’s and everyone’s let it go. Ukrainian troops are actively disengaging with Russian troops, even with Russian speakers in general. They will not engage, and in return, Russia will not attempt to move further into Ukraine.

If Russia rolls into Eastern Ukraine–even if they don’t kill anyone–we know that Poland, Romania, possibly Hungary, possibly Slovakia and definitely the Baltic states will invoke Article 5 of the NATO agreement. And when that happens, General Martin Dempsey, chairman of the US Joint Chiefs of Staff, has already stated that if NATO were called in, the US would stand behind it and support it militarily. The rhetoric has been pretty high, but it’s just that–rhetoric.

James Stafford: So the game is over, and Crimea is gone. What does this mean for Ukraine from an energy perspective?

Robert Bensh: With Crimea, Ukraine loses some prospective offshore oil and gas territory in the Black Sea, but it doesn’t lose any shale. All the shale is in Ukraine’s east and west.

But things are going to get tricky now. One of the bigger developments is likely to be the Russian nationalization of Chornomornaftogaz, Ukraine’s state-run gas company in Crimea. This, in turn, would impact Exxon Mobil’s proposed agreement for offshore Black Sea exploration. Exxon never signed the agreement because the Maidan protest movement was blowing up and they didn’t want to give anything to [now ousted] Ukrainian President Viktor Yanukovych, and rightfully so. But what happens next with that potential deal is up in the air.

Interestingly, I think we still have Ukrainian gas prices effective in Crimea but they would fall under Russian law. This is all completely new territory. This isn’t Africa, where something like this is par for the course. High-level government officials here have not been through this before so it’s a very unique, unwanted challenge. It’s upsettingly interesting.

James Stafford: What does this mean for Ukraine’s pipeline system?

Robert Bensh: Ukraine’s pipeline system would continue to belong to Ukraine unless Russia took over all of Ukraine. To get control of the pipeline system you have to roll up to the Ukrainian borders, side to side.  And it’s hard for me to believe that NATO wouldn’t react to something like that. It’s hard for me to believe that NATO wouldn’t respond to Russia taking over the Donbass, Ukraine’s heavy industry heartland.

The Russian annexation of the Crimea isn’t going to have a major effect on pipeline gas on either side. Gazprom executives aren’t exactly losing sleep over what could add up to the gain of Crimea and the loss of Ukraine. Russia already ships almost half of its gas to Europe via pipelines that bypass Ukraine, and in 2015, if Gazprom’s South Stream pipeline comes online as planned, it will be shipping a lot more gas to Europe without Ukraine.

James Stafford: How critical, then, will Ukraine’s development of its shale assets be to forging energy independence, and what needs to happen next?

Robert Bensh: We could see some positive developments courtesy of the Russian maneuvering. There may be more impetus to invest in Ukraine’s shale development once the dust settles on the Crimea debacle. We’ll hear a lot of rhetoric for the next six months or so, but then the Crimea incident will be largely forgotten.

Ukraine is a great place to operate, and now it will be more transparent, so the sector should be opened up to more investment, which will happen as energy independence assumes a higher priority on the government’s agenda. The country has 14 per McF gas prices, which is very attractive. But Ukraine has to take the first step—and there is a lot to do.

Clearly, Ukraine cannot be happy with the progress made by Shell and Chevron in the shale development process. The process has been open and transparent, but only on two enormous blocks. To truly get shale development in the country, Ukraine needs to auction off multiple blocks of shale acreage, and the best way to do that would not be through a data-room process in Kiev, but in Houston or Denver, where a majority of the shale industry is located. Ukraine needs about 15-20 oil and gas companies developing shale, not just Shell and Chevron.

James Stafford: What are the prospects for getting liquefied natural gas (LNG) to Ukraine?

Robert Bensh: If you can get it through the Turkish-controlled Bosphorus Strait, you would have an endless supply of LNG going to Ukraine. The US now is pushing very hard to open up new LNG facilities in the US to get US shale gas/LNG shipped to Ukraine–but that won’t happen for five years, if it happens at all. Ukraine can’t wait for that.

But the moment you have access to the Bosphorus you have LNG delivery in Ukraine approximately a year after that. There has been a lot of conversation between the Ukrainian and Turkish governments. It’s all rhetoric on both sides, from my point of view. Until the Turks are shown that LNG is a safe commodity to pass through the Bosphorus, which it is; until they’re shown undeniably from a third party, that’s when they will sign off.

LNG is safe and we have a study to show that. At present, LPG [liquid petroleum gas] passes through the Bosphorus, and LPG is significantly more dangerous. From an environmental standpoint, oil is significantly more dangerous than gas. Let’s not forget that naval warships also pass through the Bosphorus, which is by far the most dangerous thing that is ever going to pass through this strait.

One thing the study shows is that LNG passes through the Houston ship channel, Rotterdam port, Chesapeake bay, ports of New Jersey–all without incident. I’m very respectful of those who are wary of LNG passing through the Bosphorus, but this fear is not based on fact. It’s based on what they believe, and we have facts that prove otherwise; and at that point we would hope that the larger potential here for all involved would outweigh these erroneous beliefs.

James Stafford: How would Ukraine receive gas coming through the Bosphorus?

Robert Bensh: Given that Crimea no longer exists—at least from a Ukrainian perspective—an FSRU [floating storage and regasification unit] would sit off the coast of Odessa, most likely, or around that region, which would still remain in the Ukrainian Black Sea. That’s where you would gasify the LNG and put it into the Ukrainian pipeline system.

James Stafford: Does Ukraine have this capability yet?

Robert Bensh: Ukraine already has an FSRU, for all intents and purposes. The only thing we are waiting on is access to the Turkish-controlled Bosphorus. At that moment, Ukraine’s purchases the FSRU and then we’re only about a year away from LNG gas sales. It’s that close. This was all done under former energy minister and former vice-prime minister Yuri Boyko. The only thing Boyko was missing was access to the Bosphorus. The barge is ready. The facility exists and is waiting to be purchased from a Houston-based company. There are traders with LNG just waiting for an order.

James Stafford: Should Turkey be taking notes here on what is happening in Ukraine with Russia?

Robert Bensh: Ultimately, I think Turkey has to look at Ukraine and realize that it is in the same strategic position with regard to energy independence. Turkey should be using Ukraine as a very real example as to why they need energy independence. They should focus on crude oil from Iraqi Kurdistan, development of Turkish shale assets, a complete break-up of the state-run oil company, TPAO, and transshipment of LNG through the Bosphorus.

James Stafford: You’ve talked before about the possibility of Russia’s actions actually facilitating Ukraine’s move toward signing a trade agreement with the European Union. Is there any room for more optimism over this, and possibly other internal political matters for Ukraine?

Robert Bensh: Yes. Russia’s actions have given Ukraine significant resolve to sign the trade agreement with Europe. Prior to Russia’s occupation of Ukraine, there were a lot of Ukrainians in government and business who were willing to sit on the fence, or even gear themselves more toward Russia, with whom they felt  more comfortable, especially in eastern Ukraine. However, the violation of Ukraine’s sovereignty, the threat of recession, and the complete halt of work being done in the country has pushed even the most cynical businessperson or politician toward signing an association agreement.

I don’t meet many Ukrainians who think Ukraine should be part of NATO, but that could change with the annexation of Crimea. The Maidan protest movement was effective in giving the public a voice toward removing what they believed to be a corrupt and unjust government. What’s happening now is that the Russian move is further escalating Ukrainian patriotism. Indeed, it is creating fervent Ukrainian patriotism. I’ve been here for some 15 years, and I’ve never seen anything like it. I’ve never seen the country so united before. For me, this seems to be the birth of a new Ukrainian nation at this point.

I’ve never seen so many 22-40-year-olds completely charged and excited about their country and wanting to be a part of their government. I’m an American—we’re extremely patriotic. Canadians are patriotic, Russians are patriotic. Ukrainians weren’t,  and I’ve never seen Ukrainian patriotism higher than right now. And as a visitor to this country I find it quite heartening.

James Stafford: How would you measure the Obama administration’s response to this crisis?

Robert Bensh: Well, I’m not a politician. I’m a businessman on the ground. For 14 years, I’ve been very critical of how the US has handled relations with Ukraine. We’ve had good ambassadors here, some better than others. While I think the US was slow to respond to the Maidan protest movement, and at points in time did not approve of how the administration was handling the situation in Maidan, I am exceedingly proud of this current US ambassador, Geoffrey Pyatt, and how he is handling himself. Even the Ukrainians on both sides of the fence respect him, which is really hard.

I believe that Obama has been quite measured in his response; maybe not the way I would have responded, but I am very proud of how my country is dealing with the situation. I think we all have to recognize that Putin is a very unique world leader. Even other world leaders, such as German Chancellor Angela Merkel, are having a hard time discussing this current situation with Putin. I respect that.

This interview was conducted and published originally by Oilprice.com