Why Ukraine needs gas from Azerbaijan: New route has strategic importance

Naftogaz Group has signed its first agreement to purchase Azerbaijani gas with a company from the SOCAR Group — SOCAR Energy Ukraine, the company announced on July 28.

The deal involves small volumes of gas, but as Naftogaz notes, it is a strategic step "toward expanding cooperation."

Imports have been ongoing since last week

So far, only test deliveries of Azerbaijani gas are being carried out via the Trans-Balkan corridor through Bulgaria and Romania. According to the outlet, the import of Azerbaijani gas began at the end of last week.

The daily volumes are small. If the cooperation proves promising, it will be expanded, sources familiar with the process told RBC-Ukraine.

"As of today, the volumes of gas supplied from Azerbaijan may be very small — within several tens of millions of cubic meters per month," Volodymyr Omelchenko, Director of Energy Programs at the Razumkov Center, told RBC-Ukraine.

Storage filling rates won’t increase significantly

Compared to the current daily gas imports of around 30 million cubic meters, the deliveries of Azerbaijani gas will not have a significant impact on the pace of filling Ukraine’s underground storage facilities.

"There is no reason yet to say that these supplies will have any serious impact on our energy security," Omelchenko noted.

At the same time, he emphasized that opening a new route could, in the long term, contribute to greater diversification of supplies.

According to Omelchenko, negotiations are currently underway regarding Ukraine’s potential assistance in implementing renewable energy projects in Azerbaijan. If this cooperation proves successful, the gas freed up as a result of those projects could be redirected for increased imports to Ukraine.

The Ministry of Energy has not yet commented to RBC-Ukraine on the status of these negotiations.

Strategic importance of the new agreement

Energy Minister Svitlana Hrynchuk emphasized the strategic significance of the launch of Azerbaijani gas supplies.

"Although the supply volumes are currently small, this is of strategic importance as it opens up the prospect of long-term and mutually beneficial cooperation between our countries. Moreover, it is another clear example of the successful diversification of energy sources," she said in a public comment.

However, a significant increase in import volumes should not be expected anytime soon, according to Omelchenko, as nearly all of Azerbaijan’s extracted gas is already under contract.

Still, gas production in Azerbaijan is increasing every year. Since 2021, exports of Azerbaijani gas to European countries have grown from 8 billion to 13 billion cubic meters, which is nearly half of Azerbaijan’s total gas exports.

"Today, we supply gas to 12 countries, 10 of which are European nations, including eight EU member states," Azerbaijani President Ilham Aliyev said recently. He added that Azerbaijan is ready to continue increasing production.

Another new source of gas

Another new import gas route started operating at the beginning of summer. This involves American LNG, which has been entering Ukraine since June via a reverse flow from Greece through Bulgaria, Romania, and Moldova.

The entry point for this gas from Moldova is the Hrebenyky gas metering station in the Odesa region.

Currently, agreements are in place to supply approximately 400 million cubic meters of gas from June to September. If these agreements are extended, imports of American LNG along this route could reach 800 million cubic meters by the end of the year. These are more significant volumes that will substantially impact the formation of gas reserves ahead of the next heating season.

As RBC-Ukraine reported, NJSC Naftogaz of Ukraine plans to purchase and inject about 6 billion cubic meters of gas into underground storage by winter. The company is already negotiating funding for the purchase of 4.5 billion cubic meters.

Prior to this, NJSC Naftogaz of Ukraine signed a loan agreement with the state-owned Ukrgazbank for 4.7 billion hryvnias. This is the second loan of this amount.