Page 9 - bne IntelliNews monthly magazine September 2024

bne September 2024 Companies & Markets I 9
Of course, these positions could change over the next five months. After all, the current contract was only signed on December 30, 2019, one day before its expiry. But at present there seems to be no political will for a renewal.
Still, Kyiv, Brussels and the countries importing Russian gas through Ukraine all have an interest in continued gas transit in some form. Ukraine does not wish its vast gas transit system to become obsolete, putting it at risk of Russian attacks. Thus far, Moscow has only spared these pipelines because they continue to flow its gas. The EU wants to keep the infrastructure intact for the same reason, while European buyers do not want to scramble to find higher-priced alternative gas supplies.
Enter Azerbaijan
One solution that has been frequently debated in the
media over the past month has been the transit of Azeri gas through Ukraine to Europe. Ukrainian President Volodymyr Zelenskiy confirmed his government was in talks with Baku on this option in an interview with Bloomberg on July 3. It
is “one of the proposals” currently being discussed, he said. Azerbaijan’s Aliyev also confirmed on July 20 that Baku had been approached by Ukraine and the EU for assistance in maintaining gas transit via Ukraine post-2024.
“It seems that both sides are interested in that,” he told delegates at a forum in Azerbaijan. “We are also in the process of negotiations with Russia on this matter. If we can help, we will .... I think that it is possible to prolong this deal.”
The European Commission has not commented publicly on the matter. A spokesperson for the commission said it did not have a comment on “diversification options.”
“The EU has been preparing for many months for this scenario and, as Commissioner for Energy Kadri Simson said several times, we are ready to live without this Russian gas. Thanks to our preparations and diversification efforts, Europe can satisfy its demand for next winter and refill its gas storage in spring 2025 without using Russian pipeline gas,” the spokesperson told Newsbase. “We have been working very closely with the member states, especially those most affected by this transit agreement, on their diversification options. In the spirit of
our REPowerEU Plan, agreed by all the 27 member states, the Commission will not push Ukraine to the negotiating table with Russia for an extension of this gas transit agreement.”
So there is little detail on how Azeri gas transit through Ukraine would work in practice. But there are several ways it could be arranged, and none of them would be easy to implement. The most straightforward option would be for Azerbaijan to simply assume ownership of Russian gas at the Russia-Ukraine border. But this will be a tough sell politically, as it does nothing to reduce Europe’s reliance on Russian supply.
What gas, which route
The first obstacle is that Azerbaijan will have limited spare gas supply, at least in the near term. The country’s production
has increased significantly in recent years, from 19.6 bcm in 2017 to 35.9 bcm last year, thanks to the launch of the Shah Deniz Stage 2 project in the Caspian Sea. There are several other projects in the pipeline, including the Absheron
field, the initial phase of which was launched by national
oil company SOCAR and France’s TotalEnergies last year. This phase will only contribute 1.5 bcm per year of gas at its peak, however. Another phase is slated to start up in 2028, contributing 4 bcm per year, and a third in the early 2030s, bringing output to 7 bcm per year. All told, there are seven projects set to be approved or commissioned by the end of the decade, according to Rystad Energy, including the Umid, Babek and Shafag-Asiman fields.
However, while output continues to grow, Azerbaijan is only targeting 40 bcm per year of production by 2030, or 4.1 bcm more than last year.
“The most straightforward option would be for Azerbaijan to simply assume ownership of Russian gas at the Russia-Ukraine border. But this will be a tough sell politically, as it does nothing to reduce Europe’s reliance on Russian supply”
The next question is how any extra gas could reach Ukraine. As energy experts Anne-Sophie Corbeau and Tatiana Mitrova note in a blog post for Columbia University’s Center on Global Energy Policy, the gas could be delivered via the 24 bcm per year South Caucasus Pipeline (SCP) and the 17.5 bcm per year Trans-Anatolian Pipeline (TANAP) in Turkey, and then pumped northward through Bulgaria-Romania pipelines to Ukraine. But these two pipelines, which form parts of the Southern Gas Corridor, are already running at full capacity. There are plans to expand SCP and TANAP’s capacities to 34 bcm per year and 31 bcm per year respectively, but these projects have not yet reached a final investment decision (FID).
As Azerbaijan’s government has stressed, these expansions would need to be underpinned by long-term supply contracts with European buyers, which have so far been reluctant to enter into such commitments. Even if such deals are reached, it would take some years for the expansions to be completed, and as noted, there will not be much more Azeri gas available to fill the pipelines. In other words, this can be ruled out as an option for 2025 transit.
Another option is that Azerbaijan pumps gas through Russia to Ukraine. But it is unclear why Moscow would agree to such an arrangement, and even if it did, it would likely charge a
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