Bulgaria on course to diversify gas supply sources

Bulgaria has recently moved ever closer to diversifying its sources of natural gas supply. This time, it seems it may be happening with less geopolitical grandeur and fanfare. After years of flirting with Russia over its monster pipeline projects on the Balkans, a 182km long gas interconnector link with Greece may do the trick. The source? Most probably Azeri gas.

On 17 May in the Greek city of Thessaloniki, the Trans-Adriatic pipeline project (TAP) was given official start. It is to bring Azeri gas from the Caspian Shah Deniz field to southern Italy, serving as an extension to the Trans-Anatolian pipeline (TANAP), already under construction on Turkish territory. The initial capacity will be 10 billion cubic meters per year (bcm/y), with an option to double in the future.

TAP and TANAP pipelines
The EU’s Southern Gas Corridor overview

The end of 2015 saw the official inauguration of the Bulgaria-Greece gas interconnector (ICGB). It will connect the existing gas transit infrastructures of the two countries from Komotini in northern Greece to Stara Zagora in central Bulgaria. The ICGB pipeline is intended to use available gas capacities once the blue fuel starts flowing through the TAP.

ICGB, Kula-Sidirokastro and TAP pipelines

The overall cost of the ICGB will be roughly 220 million Euro, while the annual capacity is earmarked to be between 3 and 5 bcm, including reverse flow possibilities. The three owners of the project are the  state-owned  Bulgarian Energy Holding, the Greek public gas corporation Depa, and Italy’s Edison.  The expected completion deadline is in 2018. At the end of April, ICGB announced that more than 4 bcm/y have already been booked by several companies under a “non-binding” market test, a positive sign for the viability of the project.

Attending TAP’s first dig, Bulgaria’s energy minister Temenuzhka Petkova said: “One of the main priorities for the Bulgarian government is the diversification of sources and routes of natural gas supply. Our country attaches priority to the realization precisely of the interconnector with Greece.”

Currently, there is just a single interconnector existing between Bulgaria and Greece – the Kula-Sidirokastro pipeline in southeastern Bulgaria.  It is used exclusively for the transit of Russian gas to Greece. The annual capacity falls short of 4 bcm. The pipeline has an option for reverse flows, amounting to no more than 1 bcm/y. So far there has been no gas available for reverse supplies and the possibility has been seen as an emergency measure in case of shortages or supply disruptions on the Bulgarian side.

Bulgaria consumes less than 3 bcm of natural gas per year and is almost entirely dependent on imports from Russia. Despite all the media fuss when South Stream and Turkish Stream were making headlines, the Bulgarian economy and energy mix do not essentially depend on gas. The blue fuel is mostly used for heating in the capital Sofia, while the rest of the country’s households are poorly gasified. Bulgaria produces its electricity primarily from nuclear, coal, and hydro power. The industry depends mostly on diesel and oil. Bulgaria’s key position is that of a transit route for gas imports and exports in and out of Europe along the southeastern axis.

In this line of thought, if the ICGB will ever become operational, Bulgaria will be able to almost fully cover its entire current annual gas consumption, of course with the appropriate set of contracts. Moreover, another gas interconnector, between Bulgaria and Romania, is scheduled to be completed in August. The pipe will have a capacity of 1.5 bcm/y from Bulgaria to Romania. (More on the Vertical Interconnector: here)

Bulgaria has also licensed an international consortium to probe its exclusive economic zone for oil and gas reserves. There is also an option for imports of liquefied natural gas (LNG) from terminals in Greece and Turkey. One such terminal is operational in the vicinity of Athens, but probably what is more interesting for the ICGB, is the one planned for construction in the northern port city of Kavala, not far from Komotini. The Marmara LNG terminal in Turkey is also much closer than the one near Athens.

All in all, it may seem that the sky is clearing up for Bulgaria’s gas diversification policy. Indeed, the country has long delayed pressing reforms on its energy security due to complacency, lack of political will, meddlesome corruption rings, and fears of “angering Moscow”. However still, when it comes to Bulgarian politics, seeing is believing.

More to the point, after the relationship between Ankara and Moscow crumbled in November last year with the shooting down of a Russian military jet, the Turkish Stream pipeline came to an abrupt end. Many had anyway believed that the project would have had no future even before this event. Shortly after, strange signals started reaching the public ears on the revival of South Stream, Turkish Stream’s predecessor on Bulgarian territory. Bulgaria’s prime minister Boyko Borissov was for some time talking of “Bulgarian Stream” and was reluctant to exclude the possibility for Russian gas making land in Bulgaria.

The situation around Russia’s portfolio of gas pipeline projects is as usual very vague. It seems now that all efforts are put on doubling the Nord Stream corridor, a direct pipeline link to Germany under the Baltic Sea. A Bulgarian MP recently made claims about ongoing “staggering” spending on behalf of South Stream Bulgaria, the company charged with the project’s local management. There has been no official confirmation of the claim.

Athens has also recently pulled out of the Russia-backed Poseidon pipeline project between Greece and Italy under the Adriatic. The de facto cancellation of what has been seen as a TAP competitor came at just about the same time as the inauguration ceremony in Thessaloniki kicked in. Clearly, regional realities have shifted for the time being, at least.

Mr Borrisov’s aspirations of Bulgaria becoming a Balkan “gas hub” are given steam by two more regional interconnectors – with Serbia and with Turkey. The former is progressing to meet its operational deadline in 2018, while the latter, which is an expansion of an existing pipeline, is undergoing a feasibility study and there have been no shovels in the ground. Turkey has long been reluctant to really make progress on the interconnector with Bulgaria, using it as a bargaining chip in political negotiations with Russia over other energy projects. It still remains to be seen what the new geopolitical situation may bring about in this respect.

All that said, even if all these projects are completed within their respective deadlines, they will remain just empty pipes without freely available gas flows.  Gas from the Shah Deniz field in Azerbaijan is still not flowing and it is not clear whether all pre-booked capacities on the way can be satisfied. Baku has given signs that it may be willing to solve some long-standing issues with its Caspian neighbor Turkmenistan and bring in Turkmen gas into the TANAP.

US LNG is also a possible supply option, but low market prices deter imports to Europe. So far, only one US delivery has reached the EU, in Portugal. Quatar is may be a more likely LNG supplier in the eastern Mediterranean. Iranian gas available for export will be out of question for some years to come, according to most observers.

These are essential issues to be resolved. Bulgarian diversification policies may still end up hanging in the loop, much to Gazprom’s benefit. Furthermore, there is no national political consensus on the issue in Sofia. The current central-right coalition maintains a Euro-Atlantic foreign policy, but there are traditionally pro-Russian opposition parties on the left, which would gladly reverse the diversification process if granted more power. However, the European Commission seems to be placing great focus on its efforts to operationalize the Southern Gas Corridor in the near future in order to really diversify sources rather than just routes. Under EU pressure, in 2014, a government then headed by the  tacitly pro-Russian Bulgarian Socialist Party had to block the South Stream project due to the EU’s legal requirements in the Third Energy Package and quite some pressure from Brussels. The current Bulgarian center-right coalition government of Boyko Borrisov has a record far from perfect, having failed in many of the essential domestic reforms like the fight against corruption and a promised reform of the judiciary. Still, there are at least indications for cautious optimism on the long-overdue reforms in Bulgaria’s energy sector.

Images: all courtesy to Trans Adriatic Pipeline (TAP) AG