Experts have suggested a plan to replace Russian gas flowing to Europe through Ukraine with gas from Azerbaijan risks becoming a conduit for the disguised export of fuel from Russia.
Gas from Russia is pumped to Europe through pipelines that transit Ukraine. Kyiv is considering trying to replace that supply with Azeri gas.
But that replacement fuel would probably have to travel through Russia and Ukraine to reach Europe — and Baku would only be able to provide a small proportion of the quantity now reaching the continent from Russia, raising questions about how the scheme would operate in practice.
Mykhailo Gonchar, president of the Centre for Global Studies Strategy XXI and a leading expert on Ukrainian gas, said the deal risked “turn[ing] into a scheme involving the hidden export of Russian gas in the form of Azerbaijani gas to the European market”.
The question has risen up the agenda for diplomats and executives because a transit contract between Naftogaz, Ukraine’s national energy company, and Russian state energy group Gazprom expires at the end of the year. There is no prospect of renewing this contract, as Kyiv has declined to negotiate directly with the Russians since Moscow launched its full-scale invasion of Ukraine in 2022.
The end of the contract raises the potential for gas shortages in countries on the bloc’s eastern flank, including Slovakia, Hungary and Austria, EU diplomats have said.
Oleksiy Chernyshov, chief executive of Naftogaz, told the Financial Times that the Azeri swap proposal was the main alternative being considered by Ukraine. It would involve Azerbaijan importing gas from Russia and then exporting its own gas to Europe through the Ukrainian pipe.
Russian gas arriving through the Ukrainian pipe currently accounts for about five per cent of the EU’s total supply. Azerbaijan could only supply 2bn cubic metres of the 14bn cubic metres that the EU receives via the Ukraine pipeline, Chernyshov said.
Gonchar said Kyiv was willing to tacitly accept Russian gas running through its pipeline in the guise of Azeri imports, because it believed the presence of the Russian fuel would act as a kind of insurance against attacks organised by Moscow as it pursues its war in Ukraine.
This was a “weak argument”, he added, because Russia was striking Ukraine’s gas compressor sites.
Russia and Gazprom have not commented on whether they would be willing to accept the Azeri plan.
The Azeri president, Ilham Aliyev, has confirmed that negotiations with Ukraine and Russia are ongoing, but at a conference in Azerbaijan earlier this month he said that accusations it was reselling Russian gas to Europe were “fake news”.
“Being accused of being a kind of a channel for Russian gas exports is absolutely unfair,” he said.
Dennis Sakva, an energy expert at investment firm Dragon Capital, suggested that if Russia did accept the deal, it would not do so purely for the transit fees.
“Russia is . . . in the business of producing and selling gas. Transmitting Azeri gas would bring too little to be of commercial interest to Russia,” he said.
Volodymyr Zelenskyy, president of Ukraine, has confirmed Kyiv is in negotiations with the Azeris, but said the plan was one of several options. Chernyshov said another option — EU traders buying gas at the Ukraine-Russia border — would tie Ukraine closer to Gazprom.
“[The] Azeri proposal is more solid because they do have the production of gas which they can channel [to] Europe,” Chernyshov said. “Whereas EU traders would be acting as a conduit for Russian gas.”
He said that for now, both options should be considered.
After Russia’s full-scale invasion in 2022, Kyiv stuck to the contract with Gazprom, agreed in 2019, that allowed Russian gas to flow through the country to Europe, in order to support the EU as Moscow cut supplies to the bloc that had been arriving by other routes, the Naftogaz chief said.
Kyiv made about $1bn in transit fees a year, but the majority was spent on maintenance of gas transit infrastructure, said Serhiy Makagon, former chief executive of Ukraine’s transit system.
But the transit has added about $5bn a year to Moscow’s war coffers, going directly against Ukraine’s pleas to western allies to impose sanctions on Russian fuels.
Azerbaijan’s state oil company did not respond to a request for comment.
Azerbaijan has an agreement to double its gas exports to the EU by 2027. But without long-term contracts agreed, Baku is struggling to raise the finance needed to drill deeper into the Caspian Sea to extract the gas required to meet the target.
A deal is unlikely to be agreed until later in the year, Chernyshov said, but keeping gas flowing through Ukraine’s pipelines to European countries could be crucial to the war-torn country’s future plans to export gas.
An EU diplomat said a harsh winter or strong demand for supplies of liquefied natural gas in Asia, which have to a large extent replaced the bloc’s Russian imports, “could lead to a critical situation this winter”.
Makagon said the drive to covertly continue importing Russian gas might be driven by pressure from pro-Russian politicians in the neighbouring EU countries, along with the interests of traders.
“Russia is critically interested to keep their foot in the European gas market door through Slovakia and Hungary. They are interested to be present in those countries to support pro-Russian political forces there,” he said.