Who is pushing Ukraine to maintain the transit of Russian gas to Europe, and what can we expect moving forward?
In Kyiv, officials do not confirm any progress in the discussions regarding the continuation of gas supplies through Ukraine. On the contrary, informed sources within the government say that these talks effectively ceased several months ago. For more details, refer to the article by journalist RBC-Ukraine Yuri Doshchatov.
The Ukrainian side lacks information on any progress in the discussions about gas supplies through Ukraine to Europe. Any reports on this matter may currently be aimed at pressuring Kyiv to consent to gas transit to Europe as soon as possible after 2025.
Several sources related to consultations on this topic with Azerbaijan and EU partners have shared this information with RBC-Ukraine.
On October 31, the agency Bloomberg reported, citing informed sources, about the possible signing of contracts soon between European gas buyers in Slovakia and Hungary with Azerbaijan.
"According to the commercial agreement, the Azerbaijani state energy company Socar will supply gas to Sudzha (a gas measuring station on the Russian-Ukrainian border – ed.). After that, the Hungarian MVM Zrt and Slovak Slovensky Plynarensky Priemysel AS will take over the management of its supplies to Europe," the agency reported.
Thus, the gas transiting through Ukraine will no longer be legally Azerbaijani gas, but rather Hungarian and Slovak. The transit volume could be 12-14 billion cubic meters annually.
However, Azerbaijan cannot independently provide such a volume of gas – it will likely have to supplement the flow with Russian gas. "Everyone understands that Azerbaijan does not have the spare 12-14 billion cubic meters of gas. Its total export to the EU currently amounts to 13 billion (via Turkey – ed.). This means it will be the same Russian gas, but disguised in documents as Azerbaijani," said former head of the Gas Transmission System Operator Sergey Makogon.
Who needs Ukrainian transit
Sources from RBC-Ukraine stated that reports about the potential signing of any contracts for gas transit through Ukraine currently appear to be an attempt to present wishful thinking as reality. "Right now, this looks very much like a 'duck'," said one source.
Another source described the information as a deliberate "leak" designed to draw attention to the issue and activate its discussion somehow. After all, concluding contracts for gas purchases before understanding the routes and conditions of its transportation is at least unreasonable. And Ukraine has not yet provided, let alone agreed to, any conditions for this.
The state company SPP of Slovakia denied the report about plans to sign a contract for the transit of Azerbaijani gas through Ukraine. "We regularly discuss this topic with our partners, but the information about the upcoming contract for gas supply involving SPP is not true," the company stated.
Slovakia, as a buyer, and Russia, as a seller, are primarily interested in the continuation of gas supplies through Ukraine. Besides Slovakia, Hungary and Austria may potentially show interest. The fact that there could be up to 14 billion cubic meters of possible transit indicates that, apart from Slovakia, other countries are also interested in transit gas, while Slovakia itself, by various estimates, only needs 2-4 billion cubic meters per year.
There is no official confirmation that Hungary is expressing a desire to receive gas transit through Ukraine. According to Hungarian Foreign Minister Peter Szijjarto, in 2024, his country will purchase 6.7 billion cubic meters of gas from the Russian Federation at a competitive price and is quite satisfied with the contract signed in 2021. Supplies under this contract are bypassing Ukraine. However, if an opportunity arises to buy gas through Ukraine, Budapest is unlikely to refuse it.
Among the potential buyers of Russian gas labeled as Azerbaijani, experts consulted by RBC-Ukraine believe Germany may also be interested, as it previously received Russian gas through Ukraine and the "Nord Stream".
Ukrainian game without trumps
As of today, the Ukrainian side has not ruled out the potential for gas supplies through its territory but has set conditions that RBC-Ukraine reported on in detail in October.
"Naftogaz" proposed to Slovakia and Azerbaijan to replace transit with re-export. This scheme involves European companies purchasing gas in Azerbaijan for storage in Ukrainian underground gas storage facilities, with subsequent sales on the European market. However, the purchasing companies must somehow ensure agreements with the Russian Federation regarding the security of supplies through Ukrainian territory.
According to information from RBC-Ukraine, this proposal did not generate interest from any of the involved parties. Director of Energy Programs at the Razumkov Center, Vladimir Omelchenko, citing his sources close to the Slovak government, stated that the interest of Bratislava and Baku in gas supplies through Ukraine has practically vanished, as they do not want to take on risks associated with gas supplies through a war-torn country. "Currently, Ukraine and Gazprom bear these risks. But if gas is purchased at the eastern border (of Ukraine – ed.), then these risks will fall on the buyers," he noted in a comment to RBC-Ukraine. The insurance for transit in such a situation will significantly increase.
"From my information, there is nothing new about gas supplies right now. On the contrary, the issue of continuing transit, in whatever form it may take, has become even more complicated precisely due to security risks. Azerbaijan has cooled to this topic and has not raised it at all for at least 3 months. There is no activity from Slovakia either. They believe it is not beneficial for them, as the risks could fall on their companies," said Omelchenko.
According to him, the EU is currently looking for ways to diversify gas supplies through LNG, and this issue is a priority for them.
What do human rights and "Nord Stream 2" have to do with this
The start of Azerbaijani gas supplies, regardless of its origin, complicates matters further due to the recent decision by the European Parliament regarding Azerbaijan. On October 10, MEPs condemned the human rights situation in Azerbaijan in their resolution and called on the EU to end its gas dependency on Baku.
"Citing ongoing human rights violations in Azerbaijan and concerns that increased gas imports from Azerbaijan to the EU may be offset by imports of Russian gas from Baku, MEPs urge an end to the EU's dependence on gas exports from Azerbaijan," the European Parliament reported.
The extension of gas supplies through Ukraine could prompt Germany to raise the issue of restarting "Nord Stream 2," according to Makogon. "Don't you see the risks that soon 'Azerbaijani' gas might also flow through 'Nord Stream 2'? One string there is operational at 27.5 billion cubic meters. Why, if it is acceptable for Slovaks, shouldn't it be for Germans?" said the former head of OGTU.
Currently, "Nord Stream 2" has been under U.S. sanctions since 2020 (NDAA 2020 law), but the duration of these sanctions ends at the end of 2024 and has not yet been extended.
Moreover, traders may also play a role in the anticipation of agreements on the extension of gas supplies. After the information about the imminent signing of gas contracts with Azerbaijan was released, gas prices in the market immediately dropped by 7%. And someone likely made a good profit from this price fluctuation.
Screenshot: TTF
It cannot be ruled out that information about progress in discussions regarding gas supplies to the EU will periodically appear until the end of the year, when the transit contract expires. However, the likelihood of supplies extending into 2025, especially under a standard transit contract, is low.
Most likely, if an agreement is reached, it will require European companies to purchase transit capacities from Ukraine. In this case, Ukraine will be able to refuse to provide transport services at any moment, ceasing to offer the capacities of its gas transmission system for auction.