European officials are negotiating to maintain gas supplies through a key pipeline in Ukraine after the transit contract between Naftogaz and Gazprom expires, according to Bloomberg.
According to the agency's sources, representatives of European governments and companies are in talks with their counterparts in Ukraine on how to ensure gas supply next year. One of the discussed options involves European companies buying and injecting gas from Azerbaijan into Russian pipelines leading to Europe. Such an arrangement would allow Europe to avoid the difficulties associated with buying Russian gas at a time when it seeks to limit Moscow's revenues.
The idea is gaining traction as it becomes clear that Ukraine will support it, writes Bloomberg. Transit revenues in 2021 amounted to about $1 billion, providing crucial funding for the war-torn economy. There are also concerns that unused pipelines could become military targets or fall into disrepair, with costly restoration required.
"There are two factors we should always remember," Oleksii Chernyshov, head of Naftogaz, told Bloomberg News. "One is that Ukraine has incredible infrastructure of transit and storage gas, which should be used, and Ukraine is predisposed to use this infrastructure because it brings a lot of advantages."
He ruled out any plans involving cooperation with Russia's Gazprom, stating that gas supplies from Azerbaijan "might have some future."
The plan to use Azerbaijani gas could benefit Russia theoretically if organized as a swap, allowing Moscow to direct its gas elsewhere. Russia is struggling to find enough new fuel consumers, as its infrastructure is set up for fuel supply to Europe, and China is playing hardball. Swap ideas are not far from oil and gas markets and are used when it is physically impossible to deliver fuel from one place to another. Azerbaijan is already using its pipeline to Europe to full capacity.
Negotiations
The talks are at an early stage, and those familiar with the matter expect decisions only by the end of the year when the deadline and the start of the European winter will increase pressure. Many details still need to be agreed upon, and it is unclear whether a deal will be reached. Developments on the battlefield could also be a factor.
According to some sources, gas giant Uniper SE, nationalized by Germany after the energy crisis wrecked its business model, has been involved in the discussions.
Slovakia is one of the key countries that could benefit from such a deal, and Prime Minister Robert Fico spoke about this possibility last month after a trip to Azerbaijan, without revealing details.
"Now, it depends on negotiations between companies such as Russian Gazprom, Azerbaijani, Ukrainian companies, and others to agree on economic and pricing conditions," he told reporters in May. "If they do, Slovakia could import gas from Azerbaijan, with part of it staying in Slovakia and part passing through to other countries."
Russia still sends about 15 billion cubic meters of gas to Europe annually, mainly to Slovakia and Austria, where Russia remains the dominant supplier. In Austria, Russian gas has covered more than 80% of consumption for five consecutive months. Europe also imports Russian LNG by sea, and despite frequent disputes about whether to do so, it has never sanctioned Russian gas.
The European Commission believes the bloc can withstand the cessation of Russian transit through Ukraine without serious security risks. It plans to rely on alternative suppliers and implement its ambitious climate strategy, including more renewable energy sources and energy savings.
Some member states are less optimistic and fear a repeat of the energy crisis. This aligns with Ukraine's interests.
"I’m doing everything to find a solution that the Ukrainian gas transportation system will continue to be operational because it’s a big asset and someone should be a customer," Chernyshov said. "Otherwise it’s loss generating."
The current transit agreement between NJSC Naftogaz of Ukraine and Russia's Gazprom was concluded at the end of 2019 for a five-year term. Ukrainian authorities have repeatedly stated they do not plan to extend the contract.
Read more about the situation after 2024 in the RBC-Ukraine article "Gas transit halted? Will Ukraine extend gas contract with Russia and what happens if not."