Europe struggles to find ways to keep gas flowing through Ukraine

European officials are negotiating to keep gas flowing through a vital pipeline between Russia and Ukraine, as they race to prevent the Russia-Ukraine conflict from further damaging energy supplies to the continent, Bloomberg reported on June 11.

Europe has been trying to wean itself off Russian gas, but some Eastern European countries continue to receive it via pipelines through Ukraine, according to Bloomberg. That transit agreement expires at the end of the year, and with the conflict continuing, most market watchers believe the flow will eventually stop.

However, government officials and European companies are negotiating with their partners in Ukraine about how to maintain gas flows next year, Bloomberg reported, citing people familiar with the matter.

Feasible idea

One option that has been discussed is for European companies to buy gas from Azerbaijan and pump it into Russian pipelines to the continent, according to Bloomberg. Such an arrangement would allow Europe to avoid the embarrassment of buying Russian gas at a time when the European Union is trying to limit Moscow’s revenue.

The idea is looking increasingly likely as it appears to have support in Kiev. Ukraine has already collected around $1 billion in transit fees in 2021, a vital source of funding for an economy battered by conflict. There are also concerns that unused pipelines could become military targets or fall into disrepair that would be extremely expensive to repair.

“There are two factors to remember,” Oleksiy Chernyshov, CEO of Naftogaz, Ukraine’s state-owned energy giant, told Bloomberg on June 10. “One is that Ukraine has an excellent gas transportation and storage infrastructure that should be used. And, Ukraine tends to prioritize the use of this infrastructure because it brings a lot of benefits.”

The CEO ruled out any plans to partner with Russian energy giant Gazprom PJSC, and said gas transit from Azerbaijan “could be a possibility”.

Workers walk between pipes and valves at the Dashava gas facility in Ukraine, 2014. Photo: Newsweek

The parties, including Azerbaijan's state energy company SOCAR, the Azerbaijani Ministry of Energy, the Russian government and Gazprom, did not respond to Bloomberg's request for comment on the idea.

In theory, Azerbaijan’s gas plan could benefit Russia if it were implemented as a swap deal, in which Russia supplies Azerbaijani gas to the EU, while Azerbaijan sends “Russian” gas elsewhere, allowing Brussels to maintain its trade embargo on Moscow.

The idea of ​​swaps is not new to the oil and gas market and is used when parties are unable to transport fuel from one location to another. Baku has repeatedly sought to increase energy exports to Europe, but Azerbaijan’s pipeline to the EU is already operating at full capacity and the country has no direct connection to Kiev’s network.

Still negotiating

Talks are at an early stage and decisions will only be made later this year, when a gas transit deal between Russia’s Gazprom and Ukraine’s Naftogaz expires and winter energy demand puts more pressure on Europe, Bloomberg News reported.

Many details remain to be worked out and it’s unclear whether a deal will be made. Developments on the battlefield could also be a factor, Bloomberg said.

Uniper SE, the gas giant that the German government nationalized when the energy crisis pushed it to the brink, has joined the discussions, according to people familiar with the matter. A Uniper spokesman declined to comment. A spokesman for the German Economy Ministry said the government was in talks with the EU.

Slovakia is one of the key countries that could benefit from such a deal, and Slovak Prime Minister Robert Fico spoke of the possibility last month after a trip to Azerbaijan without providing details.

“Now it depends on negotiations between companies like Russia’s Gazprom, Azerbaijani companies, Ukrainian companies and others to agree on economic conditions and prices,” Fico told reporters in May. “If they do, Slovakia can import gas from Azerbaijan, part of which will stay in Slovakia and part will go through other countries.”

A government spokesman in Bratislava declined to comment further. The Energy Ministry in Austria, another country that would benefit if the idea were to materialize, did not respond to a request for comment.

Russian gas pipeline through Ukraine to Europe. Photo: Financial Times

Russia still ships about 15 billion cubic meters of gas to Europe each year, mainly to Slovakia and Austria, where Moscow remains the main supplier. In Austria, Russian gas has met more than 80% of the central European country’s consumption for five consecutive months. Europe also imports Russian liquefied natural gas (LNG) by ship.

Since Russia launched its extraordinary military campaign in Ukraine more than two years ago, the EU has imposed numerous restrictions on economic relations with Russia, gradually ending oil and coal imports, but has never sanctioned Russian gas, despite frequent debates about whether to do so.

The European Commission (EC), the EU’s executive body, believes the bloc can withstand Russia’s halt to gas transit through Ukraine without facing any major security risks. Its plan is to rely on alternative suppliers and pursue an ambitious climate strategy that includes more renewable energy and energy efficiency.

But there is one subject that European politicians do not like to talk about: LNG prices. In addition to supplies from Russia, Europe also imports LNG from “transatlantic” sources, such as the United States. LNG prices have fallen significantly since their peak in mid-2022, but they are still not as high as the average price of gas Europe receives from Russia via pipeline .

Minh Duc (According to Bloomberg, RT, Oil Price)

Source: https://www.nguoiduatin.vn/chau-au-tran-tro-tim-cach-de-dong-khi-dot-qua-ukraine-tiep-tuc-chay-a667847.html