Gas supplies to Ukraine are calculated for economic benefits and political bonuses for Baku

The novelty of the signed agreement between Kiev and Baku is that for the first time the Azerbaijani side will supply gas via the Trans-Balkan Corridor. Although the deal is mainly commercial in nature for Azerbaijan, it will allow it to count on political dividends from Ukraine's Western allies.

As "Caucasian Knot" wrote, on July 28, the Chairman of the Board of the Ukrainian company "Naftogaz" Serhiy Koretsky announced the conclusion of the first agreement with SOCAR Energy Ukraine (a subsidiary of the Azerbaijani state oil company SOCAR) for the purchase of gas. The agreement provides for a test supply of a small volume of gas.

SOCAR's subsidiary in Ukraine, SOCAR Energy Ukraine, was established back in 2009. It is engaged in the retail sale of petroleum products through a network of gas stations, as well as the supply of fuel for ships sailing along the Dnieper, said Ilham Shaban, head of the Caspian Barrel Oil Research Center. SOCAR Energy Ukraine also supplies crude oil to Ukrainian refineries.

As for gas cooperation, according to him, SOCAR has been supplying gas to Ukraine in the last five years in the order of a billion cubic meters per year from Slovakia. The new gas agreement on gas between SOCAR Energy Ukraine and Naftogaz, according to Shaban, may be associated with the termination of supplies from Slovakia.

"Slovakia used to receive gas from Russia via a pipeline through Ukraine. However, Ukraine stopped gas transit on January 1. Now Slovakia not only does not have additional volumes for re-export, but it itself is in critical need of alternative sources of supply,” Shaban explained.

Ukraine is also experiencing a need to replenish its sources of gas supply. “In this sense, the choice of an Azerbaijani company as a partner for the new agreement is not accidental. Firstly, there is long-standing cooperation between SOCAR and its structures, which is also based on interstate relations. Secondly, SOCAR Trading is one of the top ten world leaders in international oil and gas trade. It has experience in deliveries not only from Azerbaijan, but also from other countries. For example, it supplies liquefied gas from Africa to Malta, where a new large power plant operates on this fuel. In addition, the Azerbaijani company supplies liquefied gas from Qatar to Pakistan,” Shaban continued.

He drew attention to the fact that the new agreement so far concerns test deliveries of gas to Ukraine. "Most likely, 3-5 million cubic meters of gas will be pumped to check the technical condition of the pipeline and the reliability of the logistics chain. If it turns out that there are no technical problems with deliveries, a commercial agreement with the agreed volumes and tariffs will be signed," Shaban believes.

In his opinion, Azerbaijan can supply no more than 1.5 billion cubic meters of its own gas to Ukraine, since all other available resources are reserved by other buyers. "This gas can be supplied to the Trans-Balkan gas pipeline via the existing infrastructure of the Southern Gas Corridor through a branch from Turkey to Bulgaria, built by the Turkish company BOTAŞ. SOCAR Trading can provide additional volumes by supplying liquefied gas from North Africa to a terminal in Greece and then via pipeline to Bulgaria, Romania and Ukraine," Shaban said.

He believes that SOCAR structures can in this way provide gas supplies to Ukraine in the amount of up to 2.5-3 billion cubic meters of gas, which is about 20-25 percent of the country's import needs.

Shaban believes that the said deal is "more of a commercial agreement than a political one." "Of course, oil and gas projects are often associated with politics. But for Azerbaijan in this case, the commercial component is a priority. Oil production in the country is falling and it is necessary to diversify sources of income for both SOCAR and the country, and Ukraine is a promising market in this regard,” Shaban noted.

The extreme media attention to this deal, in his opinion, is connected with the coincidence of the signing of the agreement with the tension in Russian-Azerbaijani relations.

Another expert, who wished to remain anonymous, also saw political aspects in the new gas deal between Azerbaijan and Ukraine.

“Any agreement that provides assistance and support to Ukraine is welcomed in the West. In this sense, Azerbaijan receives political dividends. On the other hand, Ukraine, which completely refused gas cooperation with the Russian Federation, signed an agreement with another country, thereby demonstrating its energy independence,” the expert said.

Recall that relations between Moscow and Baku have noticeably worsened after the plane crash. You can read more about this in the “Caucasian Knot” report “Baku-Grozny plane crash” and in the article “Geopolitical confrontation: what did the AZAL plane crash lead to?”.

A new round of deterioration in relations between the two countries was the ethnic raids in Russia and the retaliatory detentions of Russians in Azerbaijan. Baku accuses the Russian authorities of extrajudicial reprisals against Azerbaijanis, and footage of the brutal detention of Russians in Baku looks like a demonstrative response to Moscow's actions, according to the "Caucasian Knot" report "Crisis in Relations between Azerbaijan and Russia".

Materials about the deterioration of relations between the two states have been collected by the "Caucasian Knot" on the thematic page "Collapse of Relations between Baku and Moscow".