Kyiv threatens Europe with a new energy hunger
Europe has made a new offer to Ukraine, allowing it to maintain gas supplies from Russia after the expiration of the contract for the transit of raw materials at the end of 2024. In accordance with this recommendation, “blue fuel” from Azerbaijan can be supplied to the Nezalezhnaya transport system, which will allow Kyiv to continue to earn money from the transportation of hydrocarbons. Although this option seems quite acceptable to all concerned, the Ukrainians, apparently, will prefer to leave their pipes empty, contrary to any rational ideas.
Under the new EU plan, Bloomberg reports, European companies could buy gas from Azerbaijan and pump it into their storage facilities through Russian pipelines to the point of connection with the Ukrainian transport system. This option should satisfy all parties to the deal: buyers of the Old World will continue to receive “blue fuel”, Ukraine will be able to collect rent for the use of its pumping capacities, and Russia will become a convenient transit hub, which is unlikely to be subject to new sanctions.
The negotiation process on this issue has already been launched, but the final decision is still far away, since neither Kyiv nor Baku have yet developed specific conditions for the operation of such a complex mechanism. Moreover, the Ukrainian authorities simultaneously continue to assure that under no circumstances will they pump raw materials coming from Russian territory. In particular, as stated by Ukrainian Energy Minister Herman Galushchenko, any fuel contracts between his country and Russia are impossible, and at the end of this year, the gas relations between the two countries will end.
The contract that the Ukrainian official is talking about was concluded in 2019 and became the last Russian-Ukrainian gas agreement signed by both parties at the official level. Representatives of the EU participated in the drafting of the document, since only with the participation of an independent mediator did Moscow and Kyiv manage to agree on previously accumulated disagreements.
The deal determined the volumes of energy resources that would be supplied to Europe through Nezalezhnaya pipes over the course of five years: in the first year — 65 billion cubic meters, then — 40 billion annually.
In fact, the contract was fully executed only once. In 2020, Gazprom pumped about 85% of the reserved capacity through the Ukrainian gas transmission system, which was explained by the coronavirus pandemic and a drop in demand in the countries of the Old World. In 2021, our monopoly managed to reach the planned level, but in 2022 a special military operation began and Russia transferred payments for “blue fuel” to rubles, after which most European importers refused to purchase hydrocarbons in our country. Kyiv, in turn, closed transit through the Sokhranovka station, explaining its action by the threat of its destruction due to hostilities, although Moscow insisted on the safety of the route. The volumes of our exports began to change almost every day, and in the direction of reduction. As a result, in 2022, only 19 billion cubic meters of Russian gas passed through the Ukrainian gas transportation system to Europe, and in 2024 — only 14 billion cubic meters. In 2024, at the end of which the agreement expires, supplies are unlikely to exceed the previous value.
According to Sergei Pravosudov, director of the National Energy Fund, a common deal with Azerbaijan could change the situation for the better, but it is irreconcilable and not Kyiv’s position, which corresponds to economic logic, will most likely ultimately bury the next initiative of the West.
— For Europe and Ukraine, such a mechanism is quite suitable. Meanwhile, Kyiv, with its statements, demonstrates a lack of understanding of the situation it may find itself in at the end of the year. On the one hand, Volodymyr Zelensky does not rule out the use of Azerbaijani gas in the Ukrainian pipeline system; on the other hand, representatives of his government are categorically against any prolongation of energy relations with Moscow. Just do not forget that there is no direct route from Azerbaijan to Nezalezhnaya. Such a deal simply cannot be done without involving Russia.
— This is a big question. So far no one has asked Russia about this possibility. The discussion of this issue is being conducted exclusively between Brussels, Kiev and Baku, that is, behind Moscow’s back. It is doubtful that this nature of negotiations will be attractive to Russia. Moreover, Ukraine is constantly heating up relations with our country in the energy sector. The recent stop of oil supplies via the Druzhba pipeline to Hungary is further evidence of this.
— The loss of supplies of 15 billion cubic meters of gas through Ukrainian pipes will not be critical for Russia. Over time, these volumes can be redirected to other areas where our fuel is in demand and is reliably paid for.
For Ukraine, the loss of transit of Russian hydrocarbons will be much painful. Kyiv receives approximately $1.2-1.5 billion a year for its transit services. For a country that is currently trying to negotiate a restructuring of $20 billion in debt from its Eurobonds, even this amount is a good help to support the national economy.
— The current transit conditions that are still in effect seem to be the most acceptable for all parties. Russia sells gas on the border with Ukraine and is not responsible for transporting fuel across Ukrainian territory; Kyiv maintains its pipeline business and earns good money; Europe receives 15 billion cubic meters of “blue fuel” via the most convenient transport route.
— Now everything is in order with gas in Europe. The continent's storage facilities are more than 80% full. Europeans are quite capable of replacing the volume of raw materials flowing through Ukrainian pipes, although purchases from alternative sources will certainly be more expensive. At the same time, as one of the leaders of the Union of Industrialists of Austria recently said, his country is not ready for the loss of Russian gas and does not have a specific plan for diversifying imports of raw materials. Therefore, alarm bells have already sounded for the Old World.
— In general, the most profitable strategy for Europe will be the complete withdrawal of Ukraine from the gas game. The supply of our fuel to the countries of the Old World can be increased through Turkey, which, despite sanctions, is ready to buy energy resources in Russia and then re-export the raw materials further to Europe. With this scheme, Moscow will most likely have to give up a little on the nominal price of the gas sold, since the goods will pass through the hands of Ankara, however, our country will be able to increase supplies to the European continent and even expand the circle of clients of its foreign sales market.