Russia's hidden wars in the Sothern Gas Corridor - is the IGB facing the fate of the Nabucco pipeline?
Shortly after President Aliev inaugurated the first phase of the Southern Gas Corridor and announced the opening of the TANAP pipeline on June 12-th, Russia beefed up its wartime machine to block competition to its gas supplies in Turkey, Greece and Bulgaria. The timing of the agreement between the Turkish Government and Gazprom, on the onshore segment of Turkish Stream, matched to the day the news from Azerbaijan. Ostensibly, this a legitimate defense of Gazprom's market shares, having already lost substantial chunks in the diversified market of Turkey and Greece - where it accounts for 50-60% of the imports.
When the periscope moves on to Bulgaria - the bounty is a complete and seemingly durable monopoly. Yet even in this small market the Russian state company has fresh reasons to worry - its market share and revenues from gas sales are due to drop. In the event Bulgaria opens its transit infrastructure to alternative gas streams from the Southern Gas Corridor reach CEE markets further north - Gazprom will be in real trouble.
Building new transit infrastructure is costly and time consuming - hence Kremlin's strategy of maximizing its incumbent status and book the capacity of the key Trans-Balkan Pipeline to disallow Romanian off shore gas reaching Turkey, Bulgaria, Greece, while denying SGC sourced gas reach Ukraine, Hungary, Austria and Slovakia via the TBP.
The Bulgarian Gas Hub's so far has had only one vested anchor - Russian gas. Neither the Bulgarian government, nor the state companies - BEH, Bulgargas or the operator Bulgartransgas - have publicly voiced any interest, nor have they taken steps to invite gas producers or traders from Ukraine, Romania to use the free capacities on the Bulgarian part of the TBP. The politicians and managers have excelled all through the process in mastering the art of liberalization and diversification of the gas market with one player - Gazprom, subjugating their policies and behaviour to accommodate its interests in the region.
Bulgaria and the Bulgarian energy companies are not alone, nor the pioneers in sch endeavors.
Gazprom successfully navigated its Hungarian partners in blocking the competition in Central Europe of gas produced by Exxon and OMV in the Neptune block after 2020.
Late in 2017 - the Hungarian gas transmission system operator FGSZ shocked the EC and other operators in the region by declaring that it is not interested in transiting gas via BRUA, but rather trading it via the interconnector Romania-Hungary. Mr. Orban's move dealt a lethal blow to the EC sponsored project BRUA project and to the whole EU concept of interconnecting transmission systems, generating free flows and greater competition.
This was Act - 1 of the gas play of Gazprom - block Black sea gas. Although the potentially traded quantities could hardly impress - up to 6-7 billion cubic years annually, they could make the difference when added to the rest of alternative gas supplies against relatively small consumption base.
Time for Act -2 - block competitors using Russia's leverage in Bulgaria by denying fair and free access to Bulgaria's gas transmission system, which is key to the access of alternative gas flows from the Southern Gas corridor to Central and East Europe.
The Bulgarian government is failing to use its tramp cards against Gazprom and the latter's fear of losing shares and revenues. In spite of all the talk of releasing transit capacities and denying the country transit revenues, Russia is unlikely to facilitate the entry of competitors to the region via Bulgaria. It will not give up voluntarily capacity use in regional infrastructure and is currently contemplating a more complex game - formal compliance with EU directives, using as front proxies and strategic partners. The key contention point is the Trans-Balkan pipeline, which is the gate to the gas markets in CEE as the cheapest and easiest access route for alternative north bound gas flows.
When it comes to Kremlin's interest it is always geopolitics.
Moscow's has been working to circumvent EC directives limitations as it is clear that Gazprom is unable to trade or transit gas in EU territory unless it allows others to buy its gas at EU borders. Easier said than done - as what is permissible for Jove (the German, Dutch, French traders) - to broker Russian gas to other importers in the EU, is not permissible to the bull (the regional players in the CEE and SEE region). In spite of hopes and promises - neither Turkish, nor Bulgarian, nor Greek companies have been allowed so far to trade Russian gas above standard contracted volumes and beyond national borders. This might change but will not come soon as amendments have to be made in the supply and transit contracts. Moscow faces a choice - either to invite to the SEE region for joint action some of its 'strategic EU partners' - including its Nord Stream -2 partners or find a regional replacement among its closest and largest partners.
Most of the ''strategic" bypass moves by Gazprom to ward off competitors failed.
The Blue Stream did not manage to crowd out Azeri gas, moreover that Baku was keen to engage in head-on collision as it benchmarked its sales prices to Gazprom less 12% (this is the latest price formula for Botas). Blue Stream - 2 never materialized for economic reason.
The game-plan to flood the Turkish market with Russian gas via many entry points - via the TBP, the Turkish and Blue Stream, decry Moscow's resolve to secure its preponderence and pre-empt competition beyond Greece and Bulgaria.
With the imminent alternative gas supplies and swap deals, even before the TAP becomes operational, importers in Greece and Bulgaria could benefit from the excess gas in the Turkish market, following the launch of the TANAP. This is exactly what Gazprom is scared of - customers buying gas at gas exchanges and traders instead of visiting Moscow and buying Russian gas at new delivery points at Turkish-Bulgarian and Turkish-Greek borders. Which is essentially what the onshore segment of Turkish stream will essentially provide.
No need to fancy out new grand infrastructure at the moment - all the Kremlin needs is to secure for its gas entering via the Turkish stream access to the Trans-Balkan Pipeline. The TBP already has a direct and reverse mode capacity above 15 billion cubic meters that could either be used to ship Russian or alternative gas northward (the so called Northern Route to Ukraine, Serbia and Romania) or southward to Turkey and via the TANAP and the TAP to Greece and Italy.
The Russian government can do little to undermine the competitiveness of alternative supplies along the Southern Gas Corridor, moreover that the list is rapidly expanding with new gas fields in the Azeri offshore of the Caspian (Absheron and Shah Deniz 3), Turkmenistan, Iran, Northern Iraq and the Eastern Mediterranean, clearly alluding to the feasibility of alternative gas exports via Greece and Bulgaria to the rest of the EU. Gazprom's nightmares are just starting to mature as soaring production and transportation costs within Russia do not leave much room for further cost-cutting.
To block developments and export of Caspian gas, including via the Trans-Caspian pipeline Moscow decided to relocate its flotilla from Astrakhan to Kaspiysk at the cost of nearly $ 1 billion dollars. The only sensible explanation for engaging in such a costly exercise at a time of budgetary constraints and falling to unstable oil and gas revenues is that Moscow seeks a first-strike capability in order to police the Caspian sea and be able to hit targets in the Middle East.
One of the prime motives behind Russia's strategy in the Middle East - including Syria, the rapprochement with Turkey and the growing military build up in the Mediterranean has been to control the route for alternative gas supplies that might compete with Gazprom's in Europe.
The geopolitical shadow of gas streams spreads over the whole region, including on new born projects for capacity expansion and interconnectors.
The infighting between the pro-Russian and pro-EU free-marketeers in Bulgaria mushroomed exponentially, epitomized in the underbelly blows against the Interconnector Greece - Bulgaria. The surge of activity from lobbyists close to Russia and Gazprom with the extension of the Turkish stream into the EC is visible, culminating in the visits of the Bulgarian President and Prime Minister to Russia.
The background is simple - Moscow is under pressure to secure its market share both in Turkey and the region and block alternative gas access to the infrastructure. This entails use and abuse of Gazprom's incumbent role and holding back liberalization and diversification in Bulgaria for as long as possible. Monetary stimulae for key members of the political elite are key as loyalty on 'fraternal' ties, common history and orthodox religion is not reliable and enduring.
Ever since the ICGB tenders came on stream in late November 2017, attempts to block them - for owner-engineer, for pipes procurement and EPC, have never ceased. The incurred delay approaches 5 months and the process is essentially stalled. Complaints and procedural administrative tricks, engaging anonymous local companies with Euro 25 capital or in deep financial trouble are indicative of a common coordinating center. None of the plaintiffs have evinced any material interest in challenging the procedure - one of first companies belongs to a wine producer. The rest have been in a sleeping mode for the last few years, ready to serve a new purpose at first call. Taking such companies to court for intentionally blocking projects and inflicting damage and losses worth hundreds of millions of euro, is doomed as their liability is limited to the equity capital.
This is nothing new for Bulgarian business annals.
Worth recalling is a recent of a member of environmentalist group, himself part of the expert team on the environmental impact assessments study of the South Stream. His complaint with the Supreme Administration Court, blocked South Stream's rival - the Nabucco project - for months. The Gazprom lobbyists seemed extremely anxious to block the progress of competing infrastructure, then Nabucco, now the Interconnector Greece-Bulgaria, that connects the South Gas Corridor with the markets in Central and Eastern Europe. The IGB is not only beyond Russia's control by also delivers gas well into Bulgarian territory direct into the national and transit system, opening potentially unfettered access to regional infrastructure for physical and virtual gas.
The Bulgarian Government and the Bulgarian Parliament are slow to amend the current legislation and deny legal recourse to shady plaintiffs that offer proxy services in blocking essential infrastructure. The draft amendments are first watered down, then stalled in the commissions of Parliament, trying to accommodate conflicting interests of lobbyist political and business groups, linked to Gazprom and to Turkey - which both hope to reroute Azeri gas and SGC via reverse flows via the Trans-Balkans pipeline, helping Russian gas sustain its monopoly status.
The IGB is a thorn in the heel for one more reason - the access it offers to the region to gas from the global LNG market, a threat that could be amplified in the event of Alexandroupolis FLNG. US shale and Qatari gas could present a formidable competition, undermining Gazprom's regional market dominance.
Russia's plan is simple - if proxies succeed in delaying the IGB project start to 2019, which is not unrealistic, the interconnector will implode, failing to meet contract terms for north bound gas via the TAP, forcing shippers to seek alternative delivery routes and clients - repeating the fate of the Nabucco gas pipeline - the Shah Deniz - 2 gas' final destination is Italy not Central Europe.
When the periscope moves on to Bulgaria - the bounty is a complete and seemingly durable monopoly. Yet even in this small market the Russian state company has fresh reasons to worry - its market share and revenues from gas sales are due to drop. In the event Bulgaria opens its transit infrastructure to alternative gas streams from the Southern Gas Corridor reach CEE markets further north - Gazprom will be in real trouble.
Building new transit infrastructure is costly and time consuming - hence Kremlin's strategy of maximizing its incumbent status and book the capacity of the key Trans-Balkan Pipeline to disallow Romanian off shore gas reaching Turkey, Bulgaria, Greece, while denying SGC sourced gas reach Ukraine, Hungary, Austria and Slovakia via the TBP.
The Bulgarian Gas Hub's so far has had only one vested anchor - Russian gas. Neither the Bulgarian government, nor the state companies - BEH, Bulgargas or the operator Bulgartransgas - have publicly voiced any interest, nor have they taken steps to invite gas producers or traders from Ukraine, Romania to use the free capacities on the Bulgarian part of the TBP. The politicians and managers have excelled all through the process in mastering the art of liberalization and diversification of the gas market with one player - Gazprom, subjugating their policies and behaviour to accommodate its interests in the region.
Bulgaria and the Bulgarian energy companies are not alone, nor the pioneers in sch endeavors.
Gazprom successfully navigated its Hungarian partners in blocking the competition in Central Europe of gas produced by Exxon and OMV in the Neptune block after 2020.
Late in 2017 - the Hungarian gas transmission system operator FGSZ shocked the EC and other operators in the region by declaring that it is not interested in transiting gas via BRUA, but rather trading it via the interconnector Romania-Hungary. Mr. Orban's move dealt a lethal blow to the EC sponsored project BRUA project and to the whole EU concept of interconnecting transmission systems, generating free flows and greater competition.
This was Act - 1 of the gas play of Gazprom - block Black sea gas. Although the potentially traded quantities could hardly impress - up to 6-7 billion cubic years annually, they could make the difference when added to the rest of alternative gas supplies against relatively small consumption base.
Time for Act -2 - block competitors using Russia's leverage in Bulgaria by denying fair and free access to Bulgaria's gas transmission system, which is key to the access of alternative gas flows from the Southern Gas corridor to Central and East Europe.
The Bulgarian government is failing to use its tramp cards against Gazprom and the latter's fear of losing shares and revenues. In spite of all the talk of releasing transit capacities and denying the country transit revenues, Russia is unlikely to facilitate the entry of competitors to the region via Bulgaria. It will not give up voluntarily capacity use in regional infrastructure and is currently contemplating a more complex game - formal compliance with EU directives, using as front proxies and strategic partners. The key contention point is the Trans-Balkan pipeline, which is the gate to the gas markets in CEE as the cheapest and easiest access route for alternative north bound gas flows.
When it comes to Kremlin's interest it is always geopolitics.
Moscow's has been working to circumvent EC directives limitations as it is clear that Gazprom is unable to trade or transit gas in EU territory unless it allows others to buy its gas at EU borders. Easier said than done - as what is permissible for Jove (the German, Dutch, French traders) - to broker Russian gas to other importers in the EU, is not permissible to the bull (the regional players in the CEE and SEE region). In spite of hopes and promises - neither Turkish, nor Bulgarian, nor Greek companies have been allowed so far to trade Russian gas above standard contracted volumes and beyond national borders. This might change but will not come soon as amendments have to be made in the supply and transit contracts. Moscow faces a choice - either to invite to the SEE region for joint action some of its 'strategic EU partners' - including its Nord Stream -2 partners or find a regional replacement among its closest and largest partners.
Most of the ''strategic" bypass moves by Gazprom to ward off competitors failed.
The Blue Stream did not manage to crowd out Azeri gas, moreover that Baku was keen to engage in head-on collision as it benchmarked its sales prices to Gazprom less 12% (this is the latest price formula for Botas). Blue Stream - 2 never materialized for economic reason.
The game-plan to flood the Turkish market with Russian gas via many entry points - via the TBP, the Turkish and Blue Stream, decry Moscow's resolve to secure its preponderence and pre-empt competition beyond Greece and Bulgaria.
With the imminent alternative gas supplies and swap deals, even before the TAP becomes operational, importers in Greece and Bulgaria could benefit from the excess gas in the Turkish market, following the launch of the TANAP. This is exactly what Gazprom is scared of - customers buying gas at gas exchanges and traders instead of visiting Moscow and buying Russian gas at new delivery points at Turkish-Bulgarian and Turkish-Greek borders. Which is essentially what the onshore segment of Turkish stream will essentially provide.
No need to fancy out new grand infrastructure at the moment - all the Kremlin needs is to secure for its gas entering via the Turkish stream access to the Trans-Balkan Pipeline. The TBP already has a direct and reverse mode capacity above 15 billion cubic meters that could either be used to ship Russian or alternative gas northward (the so called Northern Route to Ukraine, Serbia and Romania) or southward to Turkey and via the TANAP and the TAP to Greece and Italy.
The Russian government can do little to undermine the competitiveness of alternative supplies along the Southern Gas Corridor, moreover that the list is rapidly expanding with new gas fields in the Azeri offshore of the Caspian (Absheron and Shah Deniz 3), Turkmenistan, Iran, Northern Iraq and the Eastern Mediterranean, clearly alluding to the feasibility of alternative gas exports via Greece and Bulgaria to the rest of the EU. Gazprom's nightmares are just starting to mature as soaring production and transportation costs within Russia do not leave much room for further cost-cutting.
To block developments and export of Caspian gas, including via the Trans-Caspian pipeline Moscow decided to relocate its flotilla from Astrakhan to Kaspiysk at the cost of nearly $ 1 billion dollars. The only sensible explanation for engaging in such a costly exercise at a time of budgetary constraints and falling to unstable oil and gas revenues is that Moscow seeks a first-strike capability in order to police the Caspian sea and be able to hit targets in the Middle East.
One of the prime motives behind Russia's strategy in the Middle East - including Syria, the rapprochement with Turkey and the growing military build up in the Mediterranean has been to control the route for alternative gas supplies that might compete with Gazprom's in Europe.
The geopolitical shadow of gas streams spreads over the whole region, including on new born projects for capacity expansion and interconnectors.
The infighting between the pro-Russian and pro-EU free-marketeers in Bulgaria mushroomed exponentially, epitomized in the underbelly blows against the Interconnector Greece - Bulgaria. The surge of activity from lobbyists close to Russia and Gazprom with the extension of the Turkish stream into the EC is visible, culminating in the visits of the Bulgarian President and Prime Minister to Russia.
The background is simple - Moscow is under pressure to secure its market share both in Turkey and the region and block alternative gas access to the infrastructure. This entails use and abuse of Gazprom's incumbent role and holding back liberalization and diversification in Bulgaria for as long as possible. Monetary stimulae for key members of the political elite are key as loyalty on 'fraternal' ties, common history and orthodox religion is not reliable and enduring.
Ever since the ICGB tenders came on stream in late November 2017, attempts to block them - for owner-engineer, for pipes procurement and EPC, have never ceased. The incurred delay approaches 5 months and the process is essentially stalled. Complaints and procedural administrative tricks, engaging anonymous local companies with Euro 25 capital or in deep financial trouble are indicative of a common coordinating center. None of the plaintiffs have evinced any material interest in challenging the procedure - one of first companies belongs to a wine producer. The rest have been in a sleeping mode for the last few years, ready to serve a new purpose at first call. Taking such companies to court for intentionally blocking projects and inflicting damage and losses worth hundreds of millions of euro, is doomed as their liability is limited to the equity capital.
This is nothing new for Bulgarian business annals.
Worth recalling is a recent of a member of environmentalist group, himself part of the expert team on the environmental impact assessments study of the South Stream. His complaint with the Supreme Administration Court, blocked South Stream's rival - the Nabucco project - for months. The Gazprom lobbyists seemed extremely anxious to block the progress of competing infrastructure, then Nabucco, now the Interconnector Greece-Bulgaria, that connects the South Gas Corridor with the markets in Central and Eastern Europe. The IGB is not only beyond Russia's control by also delivers gas well into Bulgarian territory direct into the national and transit system, opening potentially unfettered access to regional infrastructure for physical and virtual gas.
The Bulgarian Government and the Bulgarian Parliament are slow to amend the current legislation and deny legal recourse to shady plaintiffs that offer proxy services in blocking essential infrastructure. The draft amendments are first watered down, then stalled in the commissions of Parliament, trying to accommodate conflicting interests of lobbyist political and business groups, linked to Gazprom and to Turkey - which both hope to reroute Azeri gas and SGC via reverse flows via the Trans-Balkans pipeline, helping Russian gas sustain its monopoly status.
The IGB is a thorn in the heel for one more reason - the access it offers to the region to gas from the global LNG market, a threat that could be amplified in the event of Alexandroupolis FLNG. US shale and Qatari gas could present a formidable competition, undermining Gazprom's regional market dominance.
Russia's plan is simple - if proxies succeed in delaying the IGB project start to 2019, which is not unrealistic, the interconnector will implode, failing to meet contract terms for north bound gas via the TAP, forcing shippers to seek alternative delivery routes and clients - repeating the fate of the Nabucco gas pipeline - the Shah Deniz - 2 gas' final destination is Italy not Central Europe.
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