A few days ago, American agency Bloomberg reported that Ukraine is firmly determined to stop the transit of Russian gas through its territory to Europe.
The current agreement with Gazprom expires at the end of 2024. Since Kyiv does not intend to extend it, an alternative option being discussed is the transit of Azerbaijani gas through Ukraine to Europe instead of Russian gas.
According to Bloomberg sources, this idea is “gaining momentum” because Kyiv is interested in maintaining its role as a gas transit country, which brought Ukraine around one billion dollars in 2021 alone. The negotiations are in the early stages, with a final decision expected by the end of this year. Bloomberg sources also report that representatives of the German company Uniper are involved in the negotiations.
Commenting on this topic at Bloomberg’s request, President Volodymyr Zelensky stated that several options for using Ukraine’s gas transit pipelines are being discussed. “We are now considering alternative steps to use the pipeline with another gas supplier, with another country. Negotiations are ongoing,” noted the Ukrainian leader, adding that Kyiv does not intend to extend the gas contract with Moscow. “We do not want them to make money here,” added the Ukrainian president.
It is important to clarify that after the sabotage of the Russian Nord Stream pipeline and the cessation of gas flow through the Yamal-Europe pipeline, the transit route through Ukraine remains the only direct route for Russian gas supplies to Central Europe.
Ukraine’s refusal to extend the agreement with Gazprom means that as of January 1, 2025, Ukraine will be unavailable for the transit of Russian gas. In February 2024, Kadri Simson, the European Commission’s Energy Commissioner, stated that the European Union is also not interested in extending the tripartite agreement on the transit of Russian gas to Europe through Ukraine.
The Azerbaijani side has not officially commented on the idea of transporting gas through Ukraine to Europe. As reported by haqqin.az, several scenarios are being discussed. According to one of them, the state company SOCAR Trading would buy Russian gas at the Ukrainian border and then transport Azerbaijani gas through Ukrainian pipelines.
Thus, Russia would lose revenue from the cessation of gas transportation through Ukraine to Europe but could compensate for the losses by selling blue fuel to Azerbaijan if the negotiations succeed. Naturally, not to the full extent, as prices at the Ukrainian border and in the European market will not be the same. If such a scenario is realized, Russia will become a participant in the potential deal, as separate negotiations between SOCAR and Gazprom will be required.
Azerbaijan already exports gas to several European countries via the Southern Gas Corridor (SGC) through Turkey, Italy, and Greece. Last year, the volume of supplies was about 12 billion cubic meters. Notably, the volume of gas that Russia transported through Ukraine to Europe last year was larger. Overall, the volume of Russian pipeline gas sales to Europe was estimated at 25 billion cubic meters in 2023, of which 14.56 billion passed through Ukraine. About 12 billion cubic meters were sent to EU countries—Slovakia, Austria, and Italy.
Austria is currently the main importer of Russian gas, accounting for almost half of the total imports over the past 12 months. Italy also received a significant volume of blue fuel through the pipeline via Ukraine (estimated by experts at 3 to 4 billion cubic meters). Slovakia, which annually purchases about two billion cubic meters, receives about a third of its gas imports from Russia through Ukraine.
Before the war, the volume of Russian gas transported through Ukraine to Europe reached an astronomical 155 billion cubic meters per year.
After the Russian invasion of 2022, the volume of Russian gas transported through Ukraine sharply fell for several reasons: sanctions, which caused Gazprom to lose dozens of major clients in Europe; a sharp increase in liquefied natural gas supplies from the US and Qatar to the European market; and changes in the pricing mechanism.
Gazprom’s export contracts generally include a link to spot prices, but with a payment delay of 1-7 months. As a result, in the first six months of 2023, due to a decrease in European spot prices, Gazprom’s pipeline gas was less attractive to EU consumers than the fuel on the spot market.
Gas supplies through Ukrainian pipelines are one of two active routes for exporting Russian gas to the EU. The second route is the Turkish Stream pipeline, one of the two lines of which is intended for pumping to EU countries.
As for the Nord Stream pipeline, it was shut down at the end of August 2022 due to a malfunction of Siemens gas pumping equipment, and on September 26, together with the unlaunched Nord Stream 2 pipeline, it was disabled due to sabotage in the territorial waters of Denmark and Sweden.
Finally, the pumping through the Yamal-Europe pipeline practically ceased at the end of 2021. Its resumption is impossible due to Western sanctions and Russia’s countermeasures.
Experts believe that for Ukraine, the continuation of transit after 2024 is not crucial from an economic or technological standpoint. Therefore, the Ukrainian side wants to maintain transit revenue while at least indirectly ending the situation where Gazprom profits from using Ukrainian infrastructure.
Another possible scenario for transporting Azerbaijani gas through Ukraine to Europe involves gas extracted from fields in the Caspian Sea. There is a 2022 declaration between Baku and Brussels to increase Azerbaijani gas exports to Europe to 20 billion cubic meters per year by 2023. This requires long-term contracts with buyers and billions of dollars in infrastructure investments. Specifically, new compressor stations and other necessary infrastructure must be built to increase gas production at Azerbaijani fields in the Caspian Sea.
Official Baku has repeatedly expressed dissatisfaction with the EU’s failure to take concrete steps to provide export and investment guarantees.
Negotiations on transporting Azerbaijani gas through Russian and Ukrainian pipelines to Europe suggest that Brussels may prefer gas transit through Ukraine over doubling SGC supply volumes. In other words, the EU’s strategy might be that if Azerbaijan doubles its gas exports to Europe, this will be done through Ukrainian pipelines. In this case, Russia would receive some revenue from the transit of Azerbaijani gas, but Gazprom’s share in the European market would decrease, and the Russian company’s export revenues would accordingly decline.
Even in this scenario, Russia must be involved in the deal, necessitating separate negotiations on transit.
For Azerbaijan, the EU’s strategy may only be attractive if the terms of gas transit through Ukraine are favorable. Additionally, official Baku will consider this issue from political and geopolitical perspectives, prioritizing its own interests and strategic relations with Russia.
Farhad Mammadov
Translated from haqqin.az
