Ukraine’s gas transit system has historically played an important role in the transportation of Russian gas to Europe. During the Union of Soviet Socialist Republics (USSR), large pipelines were constructed and a significant amount of Russian gas was transported to Europe via Ukraine. After the collapse of the USSR, Russian energy giants continued to transport natural gas to Europe via Ukraine. Thus, Ukraine has maintained its role as an important transit country for the transportation of Russian natural gas to European markets.
Gas transit on this route has been frequently disrupted by political disputes between Russia and Ukraine at various times. Pricing disputes, payment delays and geopolitical tensions have disrupted gas supplies to Europe via Ukraine, highlighting the vulnerability of this route on several occasions.
On December 30, 2019, Ukraine’s Naftogaz and Russia’s Gazprom signed a gas transit agreement for a five-year period. This agreement, which regulates the transit of Russian gas through Ukraine to Europe, will expire on December 31, 2024. This raises questions about the future of Russian gas transit through Ukraine and its implications for European energy security.
While most EU countries have reduced their dependence on Russian gas, countries that still buy gas from Russia, such as Hungary, Slovakia and Austria, have called for talks to secure new agreements or alternative routes for the transit of Russian gas. However, Ukraine and European Union (EU) officials are not keen on this idea.
Naftogaz CEO Oleksiy Chernyshov stated that Ukraine cannot extend the current contract with Russia for gas transit to the EU, which expires at the end of 2024.[i] “I can confirm that we have no plans to enter into any additional agreements or extend the existing agreement,” Ukrainian Energy Minister German Galushchenko said.[ii]
EU Energy Commissioner Kadri Simson stated that he did not see the need to extend the agreement and said: “Based on our preliminary analyses, there are alternative solutions to supply those countries that still receive some gas via the Ukrainian route.”[iii]
Ukrainian Prime Minister Vladimir Zelenksi also said that Ukraine was in talks to send natural gas from Azerbaijan to the EU in order to maintain its role as a transit country and help its western neighbours ensure energy security.[iv]
Since the Russia-Ukraine War that started in February 2022, Europe has been trying to reduce its dependence on Russian gas by diversifying its energy suppliers. These efforts aim to make the EU more resilient to crisis situations. Azerbaijan has emerged as an important partner for the EU due to its strategic location and its diverse energy resources, particularly natural gas.
In this regard, the President of the European Commission Ursula von der Leyen signed an “Energy Memorandum of Understanding” with Azerbaijani President Ilham Aliyev during a high-level visit to Azerbaijan in July 2022. This agreement outlines plans to significantly increase the volume of gas supplied by the EU from Azerbaijan. “The Parties intend to support bilateral natural gas trade of at least 20 billion cubic metres per annum by 2027 in line with commercial viability and market demand, including exports to the European Union through the Southern Gas Corridor,” the document states.[v] This target is of great importance as part of Europe’s strategies to increase energy security and ensure supply diversification.
The Southern Gas Corridor (SGC), comprising the Trans-Adriatic Pipeline (TAP) and the Trans-Anatolian Natural Gas Pipeline (TANAP), is a critical infrastructure project that aims to diversify Europe’s natural gas supply routes and enhance energy security. The SGC has the potential to reduce Europe’s dependence on Russian transit lines by providing Europe with a direct and alternative route for natural gas imports.
The Russian-Ukrainian war and other geopolitical developments have made Europe’s energy security even more important. In this context, the expansion and modernisation of the SGC is of great importance. It is expected that the SGC-related infrastructure will be further expanded and modernised in order to meet Europe’s gas needs when the agreement signed between Russian and Ukrainian energy companies expires or, as some experts predict, if Russian gas transit is interrupted before that date.
The capacity of TANAP, currently 16.2 bcm, could be expanded to 31 bcm, and that of TAP from 10 bcm to 20 bcm. This expansion could strengthen Europe’s energy resilience and create a more resilient energy infrastructure against possible crisis situations.
Saltuk Düzyol, General Manager of the TANAP consortium, stated that Europe has not sent clear signals about its gas demand, adding that “long-term gas purchase agreements should be signed between Azerbaijan and European buyers and transit agreements should be concluded to supply additional volumes through TANAP.” [vi] Azerbaijani Vice President Hikmet Hajiyev pointed out that the infrastructure and financing to facilitate this expansion are not yet sufficient.[vii]
At this point, it is of great importance for the EU to provide incentives and support to projects within the scope of the SGC. For example, the EU could provide direct grants and long-term low-interest loans for the expansion and modernisation of the SGC. This financial support could facilitate the rapid progress of projects and the necessary infrastructure investments.
The EU can secure gas supplies and ensure price stability by signing long-term gas supply agreements with Azerbaijan. Such agreements could reduce uncertainties in the markets by creating a reliable energy supply chain for both Azerbaijan and the EU.
The EU could also contribute by providing engineering, consultancy and project management support to meet the technical requirements of projects. With technical support to improve the quality of projects and ensure their timely completion, Europe’s energy infrastructure can be made more resilient.
Consequently, EU support could accelerate the expansion and modernisation of the SGC. These processes can reinforce Europe’s energy security and provide a more resilient energy infrastructure against crisis situations. They can also reduce vulnerability to geopolitical tensions and potential disruptions in existing supply routes by enabling Azerbaijani gas to reach European markets more efficiently. Thus, energy deliveries to European markets can become more stable and reliable.
[i] “Ukraine plans to end Russian gas transit contract in 2024 – interview for Deutsche Welle”, Naftogaz, https://www.naftogaz.com/en/interviews/ukraine-will-not-extend-gas-transit-contract-with-russia-interview-deutsche-welle, (Date of Access: 25.05.2024).
[ii] “Ukraine has no plan to extend Russian gas transit deal”, Reuters, https://www.reuters.com/business/energy/ukraine-has-no-plan-extend-russian-gas-transit-deal-2024-03-17/, (Date of Access: 25.05.2024).
[iii] “EU sees no need to extend deal on Russian gas transit via Ukraine”, Reuters, https://www.reuters.com/business/energy/eu-sees-no-need-extend-deal-russian-gas-transit-via-ukraine-2024-02-15/, (Date of Access: 25.05.2024).
[iv] “Zelenskiy Says Ukraine Discussing Transit of Azeri Gas to EU”, Bloomberg, https://www.bloomberg.com/news/articles/2024-07-03/zelenskiy-says-ukraine-discussing-transit-of-azeri-gas-to-europe, (Date of Access: 10.07.2024).
[v] “EU and Azerbaijan enhance bilateral relations, including energy cooperation”, European Commission, https://neighbourhood-enlargement.ec.europa.eu/news/eu-and-azerbaijan-enhance-bilateral-relations-including-energy-cooperation-2022-07-18_en, (Date of Access: 15.07.2024).
[vi] “TANAP Considers Expansion to Supply More Gas to European Markets”, Pipeline Technology Journal, https://www.pipeline-journal.net/news/tanap-considers-expansion-supply-more-gas-european-markets, (Date of Access: 15.07.2024).
[vii] “EU and Ukraine ask Azerbaijan to facilitate Russian gas transit, says official”, Reuters, https://www.reuters.com/business/energy/eu-ukraine-ask-azerbaijan-facilitate-russian-gas-transit-says-official-2024-06-13/, (Date of Access: 15.07.2024).
