A quick read of President Plevneliev’s visit to Azerbaijan

Azerbaijan’s gas is looming high on the diversification hopes list of South and Central Europeans but there are strings attached. In line with the approaching start of the Shah Deniz-2 gas export to Turkey and onwards to SEE and CEE, Russia is stepping up its pressure on Baku and tranist countries using a plethora of levers and most recently the frozen conflict in Nagorno-Karabakh and its bases in Armenia.

The Ukrainian-Russian gas conflict only adds to the background against which President Plevneliev’s visit should be judged. Both the Bulgarian and the Azeri sides preferred to keep a low profile and the visit went largely uncovered in the Bulgarian media. But what happens to Bulgaria’s attempts to import Azeri gas has direct implications to chances of this gas reaching Romania, Hungary and beyond.It is difficult to extract the gist and the mark of difference of Plevneliev’s visit  – notably against the history of hyped previous trips to Azerbaijan and signed documents by  BG presidents and PMs.

The new flash points – the official launch of the South Gas corridor and the looming threat of interruption in gas supplies from Russia this winter have certainly added to the motivational base of the trip, but the fine print at least on the Azeri side has more to do with the imminent takeover by Socar of the Greek gas transport system operator Desfa – the majority 66% stake. The procedure has been stalled at the EC for compliance review with the EU Third package. Greek government officials claim that by the end of the month the EC will give a go-ahead and this is likely to be the case.

The Azeri government prefers to deal with the utmost caution when dealing with the option of redirecting Azeri gas northward to Bulgaria and onwards to Central Europe fearing reprisals from Moscow. Moscow successfully managed to kill the Nabucco pipeline that threatened competition in what Gazprom perceives at its market backyard.

In order to increase Baku’s interest and the stakes the Bulgarian president offered a deal Socar would find difficult to resist – an interest in the expansion of the Chiren gas storage facility that will increase substantially Socar’s ability to trade its own gas (although that still has to comply with the Third energy package).

Worth noting is that all of the gas transit infrastructure in Greece –  including LNG terminals – existing and new – as well as these in Turkey dependent heavily on Gas storage facilities for transiting larger volumes and Chiren is the largest available nearest option for companies operating in Greece and the European part of Turkey.

Although the signed document between the CEOs of Bulgartransgas and SOCAR – is just a statement of intention – this is a notable development and Moscow is likely to step up pressure on Bulgaria (via local proxies) and on Baku  moreover that Chiren GS has not been offered to service the nearby passing South Stream pipeline – adding substantial cost for a loop system.

Also worth noting is the deal struck between Bulgargas and SOCAR for sales of 250 million cubic meters starting 2016. Although Bulgargas still has the option to buy 1 billion cub m per year after 2018 both companies are careful to start at a low base below the radar of Gazprom. Bulgargas could explain this as quantities needed to replace falling indigenous gas production and not competing with Gazprom’s supplies. Local gas production has fallen from above 400 million cubic meters to slightly over 230 million this year.