Quod licet Jovi, non licet bovi.
The Balkan gas hub has become synonymous and in many ways a substitute for Bulgaria’s energy policy in the field of natural gas. In order to avoid speculating about the concept’s different variations, hereinafter is the official project draft, as presented by the national TSO, Bulgartransgaz, with a price tag above USD 2 billion.
Although this might not be the latest update, as it does not fully accommodate developments from Turkish Stream, the map is a fine departure point for an analytical exercise, explicitly demonstrating the virtues and the shortcomings in the conceptual design and implementation phase.
The key question is – what does Bulgaria strive to achieve?
To begin with, the country’s energy policies should not be exhausted with the overriding perception that Bulgaria’s role should be confined to mediation of others countries’ plans to transact with energy resourses, focusing on a short segment in the mid and mostly downstream of the gas industry, ignoring the upstream and a range of opportunities in gas-fired power generation, chemical industry, transport and trade.
Ab initio, state institutions are tasked with securing basic consumer gas demand at competitive and affordable prices. No one expects the state to prioritize doing business with gas and earn profits trading energy via state-owned companies (SOEs). This should transpire as the red thread in the governance philosophy in the area of natural gas – encourage competition between suppliers, supply routes for a liquid and functioning gas market and provide ample choices to consumers at all times.
The fact that natural gas trade is more important than transit is further testified by the respective financial flows implied – below $100 million for Bulgartransgaz’s (BTG) transit business and between $0.6 and $1.4 billion in gas imports by Bulgargaz. The direct and indirect benefits for public finances from transit and trade proceeds also trail an identical pattern. This has little relevance to the asset base – as BTG’s assets are worth more – not that trade can happen without transport. But it is a fact that once infrastructure reaches a critical point of minimal capacity sufficiency, adding new infrastructure against lowering occupancy rates, engaging in capital-intensive billions of euro investment programs, projects become exponentially riskier and less bankable.
That’s why the Balkan Gas Hub (BGH) is worth a preliminary bird’s eye overview and a “reality check” – juxtaposing conceptual metaphysics with the gravity of market basics. Moreover, the Bulgarian government, the companies involved and the public in general deal with a wide range of probables and variables – there are no fixed contracts and guaranteed revenues for transit and capacity take-up that warrant planet-stricken project enthusiasm. Sales of gas and transport capacity add uncertainty shifting from long-term and fixed to short-term and spot markers.
Let’s take a look and weigh in the assumptions made that reflect on the project’s viability.
On the project inputs – assumptions on quantities.
There is no chance for a new “stream” of Russian natural gas – 62 billion cubic meters – coming in directly from the Black sea. Gazexport could in theory change the delivery terms or threaten to terminate the contract. It should concurrently release capacity in the TBP. However, this is not a fact yet – all statements made at political or corporate level in Russia carry no legal weight until procedures are activated.
Russian gas for Bulgaria will for the time being continue to be delivered to the point specified in the supply contract – Isaccea. As for the transit contract – Negru-Voda via Trans-Balkan gas pipeline (TBP).
Unless Bulgaria agrees to shift the delivery point of the supply contract – Gazprom might end up in arbitration court with substantial penalties and loss in market shares. Releasing capacity in key transit infrastructure invites competition and alternative shippers. Bulgargaz has strong cards if it chooses to play hard ball, which is less likely, if it opens up to alternative supplies from northern and southern routes. Gazexport loses substantial market shares. Regrettably, the latest exchange between Gazprom and the Bulgarian authorities alludes to an arrangement where Bulgaria would offer not to contest the shift in the delivery point in the supply contract to Turkish-Bulgarian border in exchange for vague promises for hypothetical transit via Bulgarian territory of 15.7 billion cubic meters (on the map above 20 billion) of Russian gas to Serbia and Romania.
Forecasts for incoming gas from Turkey, do not perceive any volumes that could par the current transit of Russian gas through Bulgaria, even if Sofia honors Moscow’s wishes. Unless Gazprom’s monopoly falls, and the other Russian companies start making up for the loss of market share and capacity take-up, there is little chance that the transit of Russian gas via Bulgaria will reach levels anywhere near the ones indicated in the Balkan Hub chart.
Despite attempts to present Commissioner Canete’s recent letter as validating the EC’s consent to allow any quantities of Russian gas to enter the EU in Bulgaria, regardless of entry points, the reality is somewhat different.
The problem with securing free flow for Russian gas within the EU is beyond the command and control of the Bulgarian authorities, well into the domain of the direct EC-Gazprom dialogue. The European Commission has not passed any final judgement so far. It will certainly greenlight an interconnector with Turkey to assist cross border gas flows, helping to create balance in both systems. When the project talk assumes a mini-Nabucco format, considering mainly Russian gas and volume levels well above interconnector parameters, nothing should be taken for granted.
The Balkan gas hub, in many ways, justifies its own existences on the credibility of the assumptions on the quantities entering Bulgaria from the east and the southeast. At the moment when 15 billion cubic meters of Russian gas seek to enter the EU market at the Turkish border with Bulgaria, then the EU regulations take precedence and the TPA and 50% capacity cap rule become a must.
There have been speculations that the gas at Turkey-Bulgaria Interconnector (TBI), although sourced from Turkish Stream, should not be treated as Gazprom, but will feature new owners – Turkish companies, EU partners of Gazprom (watch President Macron’s visit for French ones), even Bulgarian companies. This is theoretically possible but not probable.
Gazprom can’t easily swap its national for an EU hat, using its subsidiaries – WIEE, Wingas, WIEH or European partners in key states. Compliance with EU directives takes more than place of registration and touches on control.
In the case of the Turkish stream, Gazprom has made a deliberate effort to relinquish ownership in its Turkish subsidiaries, serving a strong notice that it is unlikely, at least for the moment, to allow Turkish, Greek or Bulgarian companies the same right it has awarded German and French companies in Nord Stream to broker its gas in the Turkish stream.
What is permissible for Jove is not permissible for the bull.
We should make a clear distinction when referring to regulatory compliance and the ‘greenlight’ in Commissioner Canete’s letter between the import of Russian gas for Bulgaria’s own needs – where the Commission would not mind – and the transit of Gazprom gas destined to the EU. When delivery points for transit changes from the Romanian-Bulgarian to Turkish-Bulgarian border, the EC regulatory compliance procedure starts from scratch.
The case for shifting the delivery point of Gazprom’s 3 billion cubic meters of gas imports to Bulgaria, reflects the gas mix and the self-imposed 100% dependence levels on Russian gas. Sofia could easily translate this into arguments for exemption from the capacity cap and TPA restrictions, citing national energy security grounds. The transfer of five times larger gas flows, owned by Gazprom, to Bulgaria’s Serbian or Romanian borders is a somewhat different case.
The shift in delivery points has already been contested in the letter of the interim government to the DG COMP at the end of April. The new energy team in the government of Boyko Borissov has left the door deliberately open.
It is logical to expect that should Gazprom’s natural gas export monopoly fall, other Russian gas exporters could step in as ‘third parties’ in the North, Turkish and Blue streams, making full use of the spare capacities in the transit system of Ukraine and the TBP. These scenarios should also be accommodated in the Balkan Gas Hub concept as their probability ratios are in incremental mode. For now, it seems that the Kremlin would keep Gazprom’s pipeline gas export monopoly, while allowing Russian LNG exporter Novatek access the EU market. Things could change – one man decides at the Kremlin.
The main question while assessing the virtues of the BGH concept is whether it will use Gazprom mainly or only pivot in design and planning phase, determining the investment size, routes, extensions, expansions, etc. in the development plan of the transit and transit network of the country, or try to balance it off with a non-Russian paradigm.
Despite reassurances that gas re-export bans will be lifted, Gazprom officials have repeatedly stated that they do not plan to use a Bulgarian-based company to trade gas in the region beyond their short-term excess gas, which might emerge on their balances. This should come as no surprise. Neither Bulgargaz nor Bulgartransgaz have demonstrated the will and the ability to build up on their national champion claim and expand into the regional realm. Both companies have consistently demonstrated a lack of character, against an overwhelming practice in CEE, backed by the EC, to seek compensations for gas overpricing by Gazprom – where the estimate goes above USD 1.5 billion (Bulgargaz) or artificially low transit tariffs – the underpayment ranges over USD 650 million (BTG). A small fraction of these geopolitical bonuses, which Gazprom receives on a regular basis, returns to Bulgaria to ‘oil’ the leniency of the top management and politicians, sustaining the perception in Gazprom headquarters that “when it comes to Sofia, anything goes” and “they do not have a capacity to act as regional partners”.
Gazprom’s strategic partners in the EU have well established trading networks and client base across Europe, including the CEE region. Bulgargaz has not sold a single cubic meter of gas outside the country. How credible could be its potential pledge to Gazprom that it could safely trade all or part of the 15 billion cubic meters of Russian natural gas that BTG could help transit from the Turkish border?
This is a key assumption for the BGH team when trying to sift the content for substance. The other option is for Bulgaria’s domestic gas demand to grow to match the offering – which is unlikely.
Unless some of the EU majors agree to consolidate regional market demand in SEE and partner with Gazprom, Turkish Stream’s extension into the EU seem implausible, hence the Balkan Gas Hub project would be perceived as unrealistic with the dominance of Gazprom gas.