Replacing Russian gas with Azerbaijani gas via the Ukrainian pipeline risks "turning into a plot related to the export of Russian gas in the form of Azerbaijani gas to the European market," said Mykhailo Gonchar - Chairman of the Global Strategic Research Center XXI, a leading expert on Ukrainian gas.
The issue was raised in the agenda of diplomats and executives of oil and gas companies because the Russian gas transit contract between Naftogaz - the state energy company of Ukraine - and the Russian state energy corporation Gazprom will expire at the end of this year. The final contract between Russia and Ukraine in effect is currently unlikely to be extended.
EU diplomats say the termination of the contract increases the risk of gas shortages in the bloc's eastern member states, including Slovakia, Hungary and Austria.
Oleksiy Chernyshov - CEO of Naftogaz - told the Financial Times that the proposal to exchange Azerbaijani gas is the main alternative that Ukraine is considering. Under the proposal, Azerbaijan imports gas from Russia and then exports Azerbaijan's gas to Europe via a pipeline in Ukraine.
Russian gas passing through the Ukrainian pipeline currently accounts for about 5% of Europe's total gas supply. Meanwhile, Mr. Chernyshov informed that Azerbaijan can only supply 2 billion cubic meters of the 14 billion cubic meters of gas that the EU receives via the gas pipeline in Ukraine.
Azerbaijani President Ilham Aliyev confirmed that negotiations with Ukraine and Russia are still ongoing. At a conference in Azerbaijan earlier this month, he stressed that the accusation that Azerbaijan is reselling Russian gas to Europe is "fake news". It is accused of being a form of Russian gas export channel that is completely unfair, he said.
Energy expert Dennis Sakva at investment firm Dragon Capital said that Russia will not accept this. Russia is in the business of gas production and sale. The transfer of Azerbaijani gas will bring too little commercial benefit to Russia, he noted.
Ukrainian President Volodymyr Zelensky confirmed that Kiev is negotiating with Azerbaijan and said that the proposal to exchange Azerbaijani gas is one of many options.
Another option is for EU traders to buy gas themselves at the Ukraine-Russia border and then hire it to transport via Ukrainian pipelines, Chernyshov said. Currently, both options should be considered.
After the Russia-Ukraine conflict broke out in 2022, Kiev still complied with the 2019 contract with Gazprom, allowing Russian gas to transit through the country to Europe. Kiev collects about $1 billion in transit fees a year, but the majority is spent on maintenance of gas transit infrastructure, said Serhiy Makagon, a former Ukraine transit system operator.
Azerbaijan has agreed to double its gas exports to the EU by 2027. But as long-term contracts have not yet been reached, Baku is struggling to mobilize the financial resources needed for deeper drilling in the Caspian Sea to exploit target gas.
A harsh winter or strong demand for liquefied natural gas supplies in Asia could led to a serious situation this winter, an EU diplomat said.
