Page 10 - bne IntelliNews monthly magazine September 2024

10 I Companies & Markets bne September 2024
hefty tax on the supplies, driving up the price. And again, there would not be much extra Azeri gas available anyway. There is not much incentive for Azerbaijan to divert Southern Gas Corridor (SGC) supplies through Russia, and even if it wanted to do this, these supplies are mostly committed to buyers, primarily in Greece, Bulgaria and Italy, under long- term contracts, so limited extra gas would be available for buyers in those countries currently reliant on Russian gas transit through Ukraine.
Furthermore, transit through Russia is risky. Moscow could close its pipelines anytime it wants to assert pressure on the EU. Russia and Ukraine would still also need to negotiate an interconnection agreement for gas flow via their border. Alternatively, Russia and Azerbaijan could enter a gas swap
“We assume that most likely it will be a virtual swap, with no physical transportation of Azeri gas through Russia and Ukraine”
deal – physical or virtual. Russia could send more of its own gas to Turkey, via the Blue Stream, replacing Azeri supplies that currently head there. Azerbaijan would then send an equivalent amount through Russia to Ukraine. Azerbaijan could make use of the 5 bcm per year interconnector linking it directly with Russia, and also deliver extra volumes to Russia through Georgia, Ilham Shaban, founder of the Baku- based Caspian Barrel Oil Research Center, told Newsbase.
Armenia currently gets all its gas from Russia via Georgia, and reversing the flow of the pipeline to carry Azeri gas to Russia would cut Gazprom off from the Armenian gas market – something Brussels may see as a positive, given it would reduce Armenia’s economic dependence on Russia. Armenia- Russia relations have steadily worsened in recent years, as Yerevan has fiercely criticised Moscow for failing to prevent Azerbaijan’s “aggression” that culminated in its seizure of the Nagorno-Karabakh region last September.
If Azerbaijan sends its gas to Russia through Georgia, Armenia would then have to rely on Azeri gas in the absence of Russian supplies. And this could only happen if a peace deal between Armenia and Azerbaijan materialises, and if Armenia were comfortable relying on its long-term adversary for energy supply. That is a big if.
A virtual swap
It would take considerable political effort and logistical costs to reorient Azeri and Russian supplies, and a far simpler option would be a virtual swap. In other words, Russia could continue delivering gas to Ukraine, but at the two countries’ border, that gas would be rebranded as Azeri gas and sold by
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Azerbaijan’s producers. Azeri gas would meanwhile become titled as Russian gas when it enters Turkey. But for political reasons, this may be untenable. Azerbaijan has already faced criticism for importing Russian gas and re-exporting it to Europe via SGC – an accusation Baku has strongly denied.
Still, for all the above reasons, in practical terms this would be the simplest option to implement.
“We assume that most likely it will be a virtual swap, with no physical transportation of Azeri gas through Russia and Ukraine,” Mitrova told Newsbase. “But for obvious political reasons, all sides are likely to pretend that it’s real physical transportation.”
Katja Yafimava, senior research fellow at the Oxford Institute for Energy Studies, told Newsbase she sees the concept of Azeri gas via Ukraine as “a red herring.”
Ukraine’s gas grid operator GTSOU would still have to sign an interconnection agreement, “and if such an agreement is possible to sign for Azeri gas transiting Ukraine, there is no reason why it would not be possible to sign it for Russian gas transiting Ukraine.”
“I would expect more realistic proposals to be made closer to the end of 2024 such as finding a new arrangement allowing for Russian gas to transit through Ukraine post 2024,” she said.
Rather than arrangements with Azerbaijan, Thierry Bros, energy expert and professor at Sciences Po Paris, believes the easier and more pragmatic solution would be for European buyers to group together and purchase Russian gas at the Russia-Ukraine border and take responsibility for its transit. This would mean Europe keeping its Russian gas supply while it still needs it and Ukraine’s gas transit system remaining in operation. Russian gas buyers in Europe could
“I would expect more realistic proposals to be made closer to the end of 2024 such as finding a new arrangement allowing for Russian gas to transit through Ukraine post 2024”
also maintain their existing contracts with Gazprom, rather than having to switch to contracts for Azeri supply, which could be a complicated process. Like the other options discussed, this would also require an interconnection deal between Kyiv and Moscow.
“But if there is a political agreement, this will follow,” Bros said.