The Turk Stream is not only about bypassing Ukraine. It is a direct response by Gazprom to challenge the Southern Gas Corridor and natural gas from the Caspian Sea. The race to secure parallel routes, block transmission and storage capacities have been part and parcel of the strategy to protect market shares and pre-empt competitors from the gas market in South East, East and Central Europe, where Russia used to sell more than 70 billion cubic meters. The CEE market has long been considered ‘isolated’ thus doomed to be captured. Yet it remains critical for Gazprom’s revenue base as regional gas prices also include a monopoly premium. Natural gas prices for Moldova, Ukraine and Bulgaria are over $220 per thousand cubic meters, while at gas hubs in “old Europe” they are below $160.
The Turk Stream extension, now dubbed Balkan Stream, serves a key purpose of Kremlin’s policy – to secure an independent energy bridge between Russia and its main geopolitical partners and markets in the region – Serbia and Hungary. Very much a copycat of Russia’s attempts in the near past, when it tried to secure direct access for its military aid – weapons and troops transfer – to Serbia and the West Balkans. Energy has always been a prime instrument of Russia’s foreign policy in the Balkans and a major source of cash to sustain its overt or undercover operation in the region.
The Russia-Serbia strategic bond is a fact and Bulgaria seems to act as the transmission and facilitator, underwriting the exclusive status of Gazprom’s gas on the Serbian and Hungarian markets, allowing the Russian company to control 90% of the transit capacity of the Turk-Balkan stream pipeline.
Letting Gazprom undermine its competitors in delivering gas to Serbia equals allowing Russian military aid to cross Bulgaria.
The low transit tariffs charged in Bulgaria are a forbear of state aid, which complements Russia’s system of non-market state support for Gazprom from well to consumer. Instead of complying with the EU’s policy line of fostering competition, diversification, and liberalization of gas markets, Bulgaria’s government opts to strike non-transparent deals with Russia’s gas monopoly, prolonging its dependence and forestalling the entry to the regional market of EU and US competitors. At the heart of creating an efficient gas market remains the evening up of the market level field for all potential routes and suppliers.
Turkey has a legitimate pretense to serve as the regional hub as it has the largest consumption, and at least 7 different land supply routes and three LNG terminals and FSRU entry points. This has allowed it to reduce the share of the largest supplier – Gazprom substantially – from 66 to 45 percent and generate sustainable surpluses in its internal gas balance, allowing consumers to receive the best supply terms, including prices at peak level demand, and traders to export gas to neighboring markets.
Promoting Russia’s Turk Stream and its dominant role in Bulgaria’s transit market contravenes the EU strategy to promote supplies via the Southern Gas Corridor while removing Gazprom perks. Suffice it to recall the ‘bargaining’ on tariff rates between Bulgartransgaz and Gazprom, where the Russian gas monopoly flatly refused to pay the suggested rates, which were set at the critical minimum needed to recover investments. No wonder the ‘rate’ in the final contract reflects more Gazprom’s than BTG’s opening, which ceteris paribus means that the revenues from the Turk-Balkan stream might not be enough to pay back the debt. This imperils the Bulgarian TSO’s balance sheet, potentially forcing the company to raise tariffs for Gazprom’s competitors and above all allows the debt holder to make good on BTG’s assets pledge.
Bulgaria’s government has long insisted that it is simply following the German pattern in partnering with Gazprom – Nord Stream 1 and 2. The difference though could not be starker. Russian gas is sold before it enters Germany and henceforth German and all other traders and shippers operating on the German gas market can trade Russian gas and profit from it. Germany is no transit country. Bulgaria is.
Neither Turkish, nor Bulgarian, or Serbian or Hungarian companies have been allowed to buy Russian gas at the EU border in Turkey and trade with it in the EU.
Comparing transmission tariffs is also self-explanatory – entry and exit tariffs for OPAL’s entry point – Greifswald and Brandov – at the border with the Czech Republic are each 540 Euro/MWh (on average for different product types). For natural gas to be shipped to the border of the Czech Republic, the total rate amount to 1080 Euro/MWh.
In the Turk-Balkan Stream case even assuming the opening ask price by BTG, before Gazprom’s ultimatum, the entry tariff after Markoclar was 165 Euro/MWh and the exit before Zaijcar – 278 Euro/MWh. Thus the combined cost for Russian gas to cross Bulgaria is 443 Euro/MWh – more than twice lower than in OPAL.
Other tables of comparison on a cost-benefit basis do not bid well for Turk-Balkan Stream either. OPAL’s cost was roughly Euro 1 billion (for 470 km length and 35 billion cubic meters capacity), while the Turk – Balkan Stream – the ‘Provadiya-Rasovo-Kireevo” segment with compressor stations and added substantial financial cost to service the supplier’s credit, would exceed Euro 1,4 billion (for 440 km length and 15 billion cubic meters capacity). Higher cost per km and lower tariffs – entry and exit – the difference between the OPAL and Turk – Balkan Stream pipeline could be more impressive.
Gazprom’s strategy to circumvent Ukraine has evolved over recent months and in its latest shift focuses more on the need to retain market shares in Central and Eastern Europe and block competition via the TANAP/TAP and LNG. Drying up the Ukrainian transit and circumventing the country seems to drop slightly from the priority list. The head of the National Energy Security Fund of Russia Konstantin Simonov has recently sounded out this possible change of mind at the Kremlin: “There is nothing more important than the supplier’s reputation. It is important for the consumer not to back away (from Gazprom-IV), which could trigger a desire in Europe to buy gas from the United States or from anywhere, at any price, just not to buy it from Russia, which is believed to be waging a gas war for poor old Europe”.
This line of thought could further gain ground in the event of registered progress in the direct talks between Russia and Ukraine and within the Minsk format.
Germany’s hope to broker Russian gas and earn billions in brokerage fees will inevitably dry up in line with both the rise in the competitiveness of LNG and non-Russian alternative supplies to East Europe.
Because of the size of the economy, Germany’s gains or losses in the ‘Nord Streams’ could be well accommodated within its geopolitical balance sheet. Bulgaria does not stand the same chance.