By Ilin Stanev
Until recently, Bulgarian attempts to restart South Stream, albeit in curtailed form, were kind of political posturing, but in the recent weeks the plan has begun taking shape. At the end of May Bulgaria negotiated with Gazprom a road map for the development of the Bulgarian gas pipeline grid. The official announcements did not specify why does the Russian company need such an agreement with the Bulgarian authorities, but it is obvious that a new pipeline project is being conceived.
The news is important, not only because it signals the next step of Gazprom’s efforts to bypass Ukraine in gas deliveries to Europe. More importantly, it shows that the recent, more conciliatory stance by the European Commission on Nord Stream II, a gas pipeline connecting Russia and Germany via the Baltic sea, was not missed by the Bulgarian and the Russian authorities. One possibility is to mimic the Baltic pipeline with a smaller analogue via the Black sea. Next, by accepting some pretty vague and weak commitments from Gazprom regarding its anti-trust investigation, the European Commission incentivized countries to go alone in sorting out their relations with the Russian company.
South Stream II
South Stream – the gigantic gas pipeline that was intended to bypass Ukraine via the Black sea and Bulgaria, and to bring the Russian gas to the Central European markets, was terminated at the end of 2014. The Russian president Vladimir Putin accused Bulgaria of cowardly following external orders and declared that the pipeline will go instead to Turkey. The revengeful act followed Sofia’s refusal to build the Bulgarian segment of South Stream in violation of the EU rules.
Since then the Bulgarian authorities have been trying to resurrect the project in one form or another in hope to preserve the transit status of the country. Shipment of Russian gas to Turkey and Greece brings around 100 mn euro in annual revenues for the Bulgarian pipeline operator Bulgartransgaz. Bulgaria unofficially claimed that Turkish Stream is impossible and after the worsening of the relations between Turkey and Russia at the end of 2015, the only route any gas pipeline could take is via Bulgaria again. Sofia proposed to create a gas hub in Bulgaria, with the idea to get Brussels approval for the new pipeline plans.
But the tension between Moscow and Ankara didn’t last for long and the Turkish Stream construction officially began in 2017.
There are two possibilities for new pipeline projects in Bulgaria. One is a new pipeline via the Black sea which is the preferred option by the Bulgarian authorities. It will follow the route of the abandoned South Stream, but will deliver significantly lower amounts of gas than the original project, because the gas deliveries to Turkey will go via Turkish Stream.
The Bulgarian Prime Minister Boyko Borissov directly spoke about such a scenario. However, it is not clear if is this just a wish or an option that is being actively negotiated. Even though Gazprom’s number one person for foreign projects – Alexander Medvedev was not very positive, the Russian state-sponsored media (Sputnik) reported that Serbia and Hungary are negotiating about South Stream as well.
The second option is for an extension of the Turkish stream from the Turkish territory to the existing transit pipelines in Bulgaria. This means that Turkish Stream will have bigger capacity to meet not only Turkish, but also the needs for other countries.
Bulgarian authorities are trying to argue that changing Ukraine for Turkey as a major gas transit country is not a wise move. But the argument is not aggressively pushed, because Sofia doesn’t want to spoil its relations with Turkey.
In both scenarios the gas will be intended for the Hungarian, Serbian, FYROM and possibly the Greek market. Gazprom actually has interest in a new arrangement with Bulgaria since it has a firm transit agreement with Bulgaria until 2030 – if it ceases the shipments, Bulgaria could reasonably claim 1 billion euro in damages. The new pipeline will solve this issue.
EU is too mild with Gazprom
Bulgaria has tried to negotiate restart of South Stream since the begging of 2015, but until recently Gazprom looked with disdain. Now things are changing in EU context which makes Gazprom more willing to listen.
It is obvious that the European Commission is bowing to some extend to the Russian gas company. The Commission’s sweeping investigations into Gazprom marketing practices in Eastern Europe, instead of the imposing of a major fine, will end amicably. Most of what the Russian company proposes in its commitments that will end the investigation is already in place. The important parts of the Gazprom’s proposals – the possibility to buy gas from different delivery points is very tightly controlled by Gazprom (i.e. Polish PGING selling some of its Gazprom supplied gas to Bulgaria or Estonia). And it actually helps keeping the status quo.
Gas companies from the East European countries, before looking for new supplier, will try to find better priced Russian gas. Basically the Russian company could allow some freedom every time it needs to deter a possible competitor. But if there is none, it doesn’t have incentives to allow swap deals.
In return the European Commission approved Gazprom’s use of almost the whole capacity of Opal pipeline (now blocked again after a Polish intervention). To that, it used some very broad reading of the EU legislation which requires the owner of the infrastructure to reserve at least 50% of its capacity for external companies. Now it is giving mixed signals about Nord Stream II.
A few years ago, in order to prevent the construction of South Stream, the European Commission held the opinion that “EU law applies to any infrastructure under EU jurisdiction, this includes Bulgarian territorial waters and Bulgarian exclusive economic zones”. Now Commissioner Canete says that sea part of Nord Stream “requires a specific legal framework… that derives from the European law”, i.e. the Third Energy Package will not be fully applied to Nord Stream II. This is explained by “change of the opinion of the Commission’s legal service”.
At the same time the Competition Commissioner Margarethe Vestager said several times that Nord Stream II is not a project of common interest. Then the European Commission request from the member states a negotiating mandate in order to hold talks on Nord Stream II with Gazprom. The last move was negatively met by the Nord Stream II representatives.
If the European Commission is not able to rein in Gazprom, the member states like Bulgaria will naturally follow their own strategies.
Source: “EnergyWorld” magazine, July-August 2017, No 19