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Details of the gas transfer plan from Azerbaijan to Europe through Ukraine

Eviralnews, citing the media of the Republic of Azerbaijan, the European Union is preparing to abandon Russian gas in 2025. To achieve this goal, Brussels wants to pursue a new cooperation with its more reliable partners in the field of energy, including the Republic of Azerbaijan.

For this purpose, Europe has offered Azerbaijan to sell its gas through the Russian gas pipeline that passes through Ukraine. The parties discussed this issue at the 5th Europe-Azerbaijan Security Dialogue held on June 13 in Brussels.

In an interview with the Politico news agency, Hekmat Hajiyev, assistant to the President of Azerbaijan for political affairs, said that Baku is currently negotiating with the European Union and transit countries about this proposal.

If this proposal is realized, the second energy route from the Republic of Azerbaijan to Europe will be opened. It should be noted that the Republic of Azerbaijan was able to export gas fuel to the European market for the first time in late 2020 through the Southern Gas Corridor. Since the same year, this country has been selling gas to Greece and Italy, and from 2021 to Bulgaria.

In 2022, the parties signed an energy memorandum in Baku and agreed to double the volume of gas transported. This agreement was made 5 months after the start of the war between Russia and Ukraine.

The war between Russia and Ukraine has been going on for more than 2 years, and both sides regularly carry out missile and drone attacks on each other's territories. In such a situation, how realistic is the transfer of Azerbaijani gas to Europe through Ukraine? What are the risks and what do the parties have to offer each other?

What does the European Union want?

The European Union intends to provide gas fuel needs of eastern members, especially Slovakia, Hungary and Austria, which are more dependent on Russian gas, at the expense of Azerbaijan's energy reserves.

Robert Fico, the Prime Minister of Slovakia, during his visit to Baku in May of this year, in a meeting with Ilham Aliyev, the President of Azerbaijan, expressed his interest in buying this country's gas through the territory of Ukraine.

He added: There is a project to import Azerbaijani gas from Ukraine through a station on the border of Russia and Ukraine. We not only want to buy gas from Azerbaijan, but we also want to import gas from Ukraine to Slovakia.

The 5-year gas transportation contract between Russia and Ukraine, signed in 2019, expires at the end of this year. As a transit country, Ukraine does not want Russian gas to be transferred to Europe through its territory and has announced that it will not renew the contract.

Brussels also announced that it supports Kiev's decision to reduce Russian financial resources in the field of energy.

The European Union, which consumes about 400 billion cubic meters of gas fuel annually, took steps to diversify its energy sources after Russia annexed Crimea in 2014. However, the lack of infrastructure to transport additional gas did not allow the EU to meet this target by 2022.

In fact, the war started by Russia against Ukraine that year accelerated the diversification of the EU's energy sources. Therefore, according to the energy report of this organization for 2023, while until 2021 EU countries paid 45% of their annual gas needs to Russia, in 2023 this figure decreased by 3 times to 15%.

Why is Ukraine important?

According to Bloomberg, the European Union wants to keep the part of the pipeline that passes through Ukraine active, even if it reduces gas imports from Russia.

The main reason for this is related to the infrastructure problem of some Eastern European countries that are members of the European Union.

A European diplomat, who did not want to be named, said in an interview with the Politico news agency: “Stopping the activity of the gas pipeline that passes through Ukraine may lead to risks in the security of energy supply, because the existing transit infrastructure in the European gas system has very limited capabilities.”

Another concern of the European Union is the possibility of price changes. Commodity markets expert Aura Sabados told Politico that supplying gas via alternative routes to Ukraine could raise gas prices for consumers in Slovakia, Austria and Hungary.

Additionally, by keeping the pipeline open, the EU is trying to turn war-torn Ukraine into a transit country.

Bloomberg wrote: To solve this problem, European authorities are working on the possibility of injecting Azerbaijani gas into Russian pipelines, among other options.

What is Baku's attitude to this proposal?

Hekmat Hajiyev, assistant to the Azerbaijani president for political affairs, said that Baku is currently “talking with the European Union and transit countries,” Politico wrote.

In an interview with Politico, Hekmat Hajiyev said: We are currently looking for various options to help this process. I don't want to give a specific date on this, but I want to mention once again that there is a request on this and we are taking it seriously, because it is an issue of energy security in Europe.

If this proposal is realized, the second energy route from Azerbaijan to Europe will be opened. For the first time, at the end of 2020, Azerbaijan was able to export gas fuel to the European market through the Southern Gas Corridor. Since the same year, Azerbaijan has been selling gas to Greece and Italy, and from 2021 to Bulgaria.

The website of the Republic of Azerbaijan wrote: Ilham Aliyev said last month that the volume of gas transferred from Azerbaijan to the European Union will increase to 12 billion cubic meters this year.

Aliyev also noted that this figure will reach 20 billion cubic meters per year by the end of 2027.

Currently, 8 member countries of the European Union buy gas from the Republic of Azerbaijan.

Ilham Aliyev said in a meeting with the Prime Minister of Slovakia: I hope Slovakia will be the ninth country.

Politico quoted Hekmat Hajiyev as saying: “At the most appropriate time, we look forward to expanding the geography of Azerbaijan's gas importers to the larger European family.”

Is the Russian agent dangerous?

While the war between Russia and Ukraine continues, the transfer of Azerbaijani gas to Europe through Ukraine raises certain questions, but Ilham Shaaban, the head of the Oil Research Center of the Republic of Azerbaijan, said in an interview with reporters that it is possible.

According to him, although the military-political tension between Moscow and Kyiv continues, economic interests, especially the security of energy pipelines, in which billions of dollars are spent, are also in the interests of the Kremlin.

Russia's attitude to these negotiations between Azerbaijan and the European Union is not yet clear.

While in Baku, Slovak Prime Minister Robert Fico said that a special agreement could be reached between Russia and Ukraine on Azerbaijani gas. It will be beneficial for everyone, both for Slovakia, for Azerbaijan and for Ukraine. Because they will do the transit. This can be a sample project.

Elham Shaaban said: The fact that the Russian energy giant Gazprom ended last year with a decrease in income shows that Moscow will not oppose this agreement.

According to the Reuters news agency, “Gazprom” lost 7 billion dollars in 2023 due to the reduction of gas sales to Europe. This is the company's first annual loss since 1999.

“Gazprom” is in a difficult financial situation. In an interview with Politico, Aura Sabados, senior analyst at ICIS market information company, said: Gazprom's production has reached its lowest level and the company wants to sell its gas fuel.

What is the position of Ukraine?

Kiev is against the sale of Russian gas through its country. Instead, Ukraine offers to buy gas from other energy-rich countries and inject it into Russian pipelines that pass through Ukraine.

According to the Ukrainian media, Kiev has expressed its interest in injecting Azerbaijani gas into Russian pipelines on its territory.

On June 20, Ukraine's ambassador to Azerbaijan, Yuri Husyev, said on his X social network account that he met with Parviz Shahbazov, Azerbaijan's energy minister, and discussed energy cooperation between the two countries. However, the Ukrainian diplomat did not mention the details.

A few days ago, Oleksiy Chernyshov, executive director of the Ukrainian Oil and Gas Company, said in an interview with Bloomberg that they positively evaluate the offer to buy gas from Azerbaijan.

How is Azerbaijani gas transferred to Ukraine?

Although there is no official announcement about the transfer of Azerbaijani gas through Ukraine to Russian pipelines, analysts focus on two possible options:

– Gas transmission through Russian territory to a point on the border between Russia and Ukraine.

– Swap operation between Azerbaijan and Russia;

According to Elham Shaaban, transportation of gas fuel takes a little time for both options.

Considering the existence of the Hajigobul-Mozduk gas pipeline between Azerbaijan and Russia, this analyst believes that although there are existing infrastructures for transferring gas from Azerbaijan to Russia, it needs relative improvement.

The carrying capacity of this pipeline is 5 billion cubic meters per year. But this volume is not enough for Europe. The head of the Azerbaijan Oil Research Center said: The annual volume of gas transfer from Russia to Europe is 15 billion cubic meters.

According to him, the remaining volume can be transferred using the gas pipeline of Russia and Georgia. But he considers the exchange operation to be a more optimal option.

Elham Shaaban says: Azerbaijan sells about 10 billion cubic meters of gas in the Turkish market. Azerbaijan can transfer this volume to Russia, and Russia can inject its gas to the Russian and Ukrainian regions in exchange for the same volume.

However, the analyst said that for the exchange operation, it is necessary to update the agreements between Azerbaijan, Turkey, Russia, Ukraine and the European Union.

What are the risks for Azerbaijan?

Azerbaijan wants to answer two important questions about gas transmission to Europe through Ukraine.

Baku says more production is needed to increase gas sales to Europe. New investments are needed to increase gas production. The first question on Baku's mind is whether the EU will allocate the necessary investment.

Azerbaijan's presidential website wrote: Ilham Aliyev said in his speech in April this year that there is a limit on financial institutions to finance fossil fuel projects. For example, the European Investment Bank has completely removed this topic from its portfolio. The European Bank for Reconstruction and Development has earmarked a small amount for fossil fuel projects.

Ilham Aliyev said, then how Europe wants to receive additional gas from Azerbaijan, when it does not even provide financing.

The second thing that worries the president of Azerbaijan is that Europe does not give “any guarantees” regarding the long-term nature of this agreement.

According to him, if the agreement covers a period of 5-10 years, Baku may face the risk of “investing billions and then not returning those costs”.

Ilham Aliyev pointed out that the investments made in the second phase of the “Southern Gas Corridor” and “Shah Deniz” projects have not reached zero today. We are still paying the debt. We use the funds we get from gas sales to pay off debt.

Elham Shaaban, head of the Azerbaijan Oil Research Center, says: Baku's concern is understandable. Gas projects are different from oil projects because the funds invested in the gas sector can be returned over a longer period of time. For example, oil was removed from the Azari-Chirag-Gonsheli oil field at the end of 1997. In the second quarter of 2008, all the capital invested there returned, that is, for a period of 10 years. But now we turn to the Shah Deniz gas field. Production here began at the end of 2006. Production has been going on for 18 years, but only after another 3-5 years can the capital invested there be withdrawn. In other words, it took almost twice as long as oil, but the invested funds have not yet fully returned.

According to him, if the European Union and Azerbaijan reach an agreement on gas production tomorrow, the development of the Absheron field will take at least 4 years. It will take another two years for the gas extracted from there to reach the project's capacity. In other words, the realization of this idea will be possible around 2030. Europe's policy is to reduce traditional energy sources to a minimum by 2040 and reach its decarbonization targets by 2050. In this case, will it be possible to return the funds invested in this project? of course not.

Ilham Shaaban emphasized: In order for Azerbaijan to start this project, the duration of the contract should be at least 20 years so that Azerbaijan can withdraw the invested funds.

Although the EU has not yet disclosed the details of the project's financing, it has confirmed that talks are underway with Baku to make the idea a reality, a senior European official told Politico on condition of anonymity.

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Mhd Narayan

Bringing over 8 years of expertise in digital marketing, I serve as a news editor dedicated to delivering compelling and informative content. As a seasoned content creator, my goal is to produce engaging news articles that resonate with diverse audiences.

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