The Gazprom's political illnesses: why Ukrainian transit is more important than Power of Siberia 2

Alexey Gromov, Principal Director on Energy studies, and Alexey Belogoryev, Research and Development Director of the Institute for Energy and Finance, commented to the newspaper Novye Izvestia on the prospects for future gas transit through Ukraine after December 2024 and the Power of Siberia-2 gas pipeline construction.

Gazprom has reported for the first half of 2024. After the disastrous 2023 with a net loss of 629 billion rubles, data on the company's net profit of 1.04 trillion rubles in the first half of the year indicate that the gas monopolist passed the "bottom" last year, Alexey Belogoryev said.

Production increased by 26 billion cubic meters of gas in six months — the company added 8%, Alexey Belogoryev notes:

— The indicators of physical gas exports were quite good, but they were strongly adjusted by a sharp decline in prices. In the first half of the year, spot prices were a third lower than in the first half of 2023. In terms of gas sales in financial estimations, the first half of 2023 was not the best, despite the growth in physical volumes in China, Europe, and Central Asia.

The Ukrainian transit of Russian gas to Europe is of concern not only to Gazprom's management, but also to Austria, Hungary and Slovakia. Currently, European sales amount to 15 billion cubic meters of gas. If pumping through Sudzha stops, Gazprom will lose a quarter of its revenue base. But European countries will also have a difficult time.

— The entire Ukrainian direction is about 15 billion cubic meters of gas per year. Naturally, the Turkish Stream will not provide such volumes. it's loaded itself. Its capacity is 16 billion cubic meters, as a rule, 13-14 billion are pumped through it. But for Hungary, the capacities of the Turkish Stream that are there will be enough. The question is further on the Ukrainian transit: What to do with the Austrians? - Alexey Gromov asks.

— Everyone agrees that it is necessary to continue. There is a legal basis for the Ukrainian contract continuation, which is not really needed. It was not needed in 2019 either. It is enough to reserve capacities on a long-term basis. This has all been tested for a long time, and it does not present any difficulties. The question here is purely political, in the political will of Ukraine, to what extent they are ready to continue," Alexey Belogoryev notes.

The idea of supplying Azerbaijani gas in the Ukrainian direction, from the business point of view, sounds absurd. Azerbaijan does not have excess gas. Even if it were, it would be impossible to deliver it to Russia, since countries must invest in infrastructure expansion. There is no time for this, nor is there any certainty that a new pipe will be needed. As Alexey Belogoryev figuratively put it, we can only talk about "gluing labels." Physically, it will be Russian gas.

Vladimir Putin's visit to Mongolia revived the topic of the second gas pipeline to China. The Russian president himself spoke about this.

— China was not encouraging Russia in any way. The Chinese leadership chose very careful formulations regarding the "Power of Siberia — 2". No promises were made to Russia. Gazprom and the government are soberly assessing the situation. Of those who are engaged in negotiations, no one expects any breakthrough in the near future," Alexey Belogoryev says.