RCEM: Views on Energy News

The aspirations of Bulgaria to become a major regional energy hub have acquired some solid ground. By the end of April, nine companies have submitted non-binding expressions of interest (EoI) to book capacity in the Greece-Bulgaria gas interconnector (ICGB), which is in tune with the European Union’s energy policies. The list of companies features UK Noble Energy, Italy’s Edison, Azerbaijan’s Socar, Greece’s Depa and Gastrade, Bulgaria’s Bulgargaz, etc. The timeline stipulates submission of binding offers by mid-2016.

Bulgarian Prime Minister Boiko Borysov has long mounted a campaign, reaching out to Brussels as well, in favour of ensuring energy security in the mid-term (see. “Bulgaria's energy agenda. The virtue of flexibility”, http://www.eiranews.com/volume-3-issue-6/bulgarias-energy-agenda-the-virtue-of-flexibility/) by using every chance of bringing on board various suppliers, constructing a network of interconnectors linking up with Greece, Romania and Serbia, and earning revenues from tariffs to be paid by Austrian OMV for the use of Bulgarian pipeline network to channel gas produced at the Neptun concessionary block in the Black Sea.

Evidently frustrated by lack of viable alternatives of natural gas providers after the collapse of the South Stream project, derailed by the EU objections of its incompatibility with the Third Energy Package directives, Bulgarian PM dared to criticize the European Commission for applying double standards in its energy policy. In the words of Borisov, “it is not easy to explain to Bulgarians why South Stream is not of benefit for the EU, while Nord Stream is. Why this is good for Shell, while for Bulgargaz it is not.”

This is the principal motive of Sofia endorsing the €220 million ICGB that will run 182 km from the vicinity of Komotini in Greece to the Bulgarian town of Stara Zagora (one of the ancient settlements in the Balkans). The original design of the interconnector envisages 4 bcma to flow from south to north with an ambitious plan to up the throughput capacity to 5 bcma by adding compression. ICGB has the full backing of the union’s authorities in Brussels but only one fifth of the costs are due to be covered from the EU budget.

More importantly, Bulgaria might be entering unmapped minefield. A look at the composition of the ICGB shareholders detects risks. There are two of them: state-owned transmission system operator Bulgaria Energy Holding (BEH) and IGI Poseidon, registered in Greece, and comprised, as shareholders, of Greek public gas corporation Depa (50%) and EDF's Italian subsidiary Edison (50%). Three European companies joined Russia’s Gazprom by signing a memorandum of understanding in Rome on 24 February approving of a project on delivering Russian pipeline gas to Italy via Greece.
 
The MoU specifies the construction of Interconnector Greece-Bulgaria with its Poseidon infrastructural link (see. “Poseidon Pipeline: The Ghost Is Back!”, Volume 4, Issue 3, March 2016). Bulgaria’s Energy Minister Temenuzhka Petkova played up the prospects of ICGB specifying that Sofia views it as a contribution to security of supply and market development. But the devil hiding in the fine print raises the usual crucial question: what would be the origin of gas to fill in the ICGB? Where would it come from?

The answer was provided by Bulgarian PM in an interview with Deutsche Welle on 5 January 2016. Borisov placed bets on gas pumped along the EU-supported Southern Corridor from Azerbaijan’s Caspian offshore fields, and possibly from Turkmenistan (provided Azerbaijan and most notably China allow it), and also from the new offshore discoveries in the Bulgarian and Romanian sectors of the Black Sea. Apart from the politically accepted sources, PM Borisov would not exclude receiving some gas from Russia. In total, it would elevate Bulgaria to the status of a regional energy hub, eventually covering all the domestic energy demand and forcing neighbours to count with Sofia’s interests.

This is where Poseidon comes in, being technically feasible: the only amendment of the 787-km Interconnection Turkey-Greece-Italy (ITGI) would be to implement the concept of a Vertical Gas Corridor. The entry point for imported gas would be at Greece's border with Bulgaria rather than at Greece's border with Turkey (see. “If Poseidon sinks, will it please the Greek gods?”, Volume 4, Issue 4, March 2016). But then again, where from would the base load capacity come from?

Since last autumn when Russo-Turkish relations have sunk to its lowest level after the Turks shot down a Russian jet, PM Borisov kept pushing for the revival of the aborted project South Stream, but under a different name. The attempt by Russia to replace it with a Turk(ish) Stream stumbled over the current Cold war with Turkey.

Now, PM Borisov would like to capitalize on the momentum and keeps regularly marketing Bulgaria as the best destination for the offshore trunk pipeline to reach after crossing the Black Sea from the gas terminal built at the Russian city of Anapa. Local media have already picked it up and widely use the term 'Bulgaria Stream', thus hinting that it is not a mere phantasy.

Energy experts point out that since the preparatory works on the now defunct South Stream, the European consortium that planned to construct the offshore section had ordered some €1bn of pipe for the first 15.75 bcma string of the overall four-string pipeline and a further €0.8bn of pipes for the second string. Most of steel hardware is stockpiled in the dockside at the Bulgarian seaport of Varna.

There is a certain degree of business sense that three European energy companies with Bulgarian BEH ‘leading from behind’ decided to diversify their eggs into different baskets. John Roberts writing for Natural Gas Europe sees the rationale for Russia’s Gazprom in “lessening Italian opposition to Nord Stream 2 by delivering more gas to southern Italy, thus supporting Italy's ambitions to become a major gas hub.”

Yet, Roberts just like many other energy market observers remains basically sceptical on whether this is fair play, quoting an unnamed corporate source: “This is mischief making by Gazprom.” Moreover, European Commission and US officials keep likening the Poseidon project to ”a white elephant” and voice their staunch opposition. Whether or not Bulgaria and Greece would be allowed to proceed with the dissident energy policy and show eagerness to embrace Russian gas, will depend of several factors: the actual potential of the Azeri Shakh Deniz II field to increase output, the price ‘at the end of the day’ for American LNG reaching Europe, the prospects of filling in the interconnectors in South East Europe with gas sourced from reliable producers, and last but not the least the effects of climate change distorting the textbook weather patterns.

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