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November 17, 2019

Europe and Russia continue to speak in different languages for natural gas supplies

natural gas suppliesWhen talking about natural gas, Europe and Russia not only use different languages ​​but also do not hear what the other side says. When the EU insists that all projects in this area comply with community law, Moscow explains that it has concluded all major contracts for their realization, or that the construction itself is already in progress and in pursuit of the set goals.

Examples of this are a lot – with regard to the expansion of Nord Stream, and for a while – for South Stream. For both, Gazprom reports that everything is ready for construction – the contracts are signed and the pipes delivered. Only the “little detail” remains, which include getting permission from Brussels.

Russia explains all its plans only with the economic necessity, showing each month how supplies are growing on the future routes of Nord Stream 2 and Turkish Stream, but it does not answer the question “Why”. When looking for economic logic alone, gas pipelines are being built tens of billions of EUR (over 11 billion EUR for Turkish Stream and over 9 billion EUR for North Stream 2), rather than using the existing route through Ukraine.

This dissonance in the energy relations between Russia and the EU has existed for years and continues in 2017.

In May, without much fanfare, Gazprom gave the start of the Turkish Stream construction, the project that replaces South Stream. The pipes went to the Turkish coast, but it is not yet clear what will be the route from Turkey. The plan envisages two pipelines with a capacity of 15.7 billion cubic meters of natural gas per year. One is very clear – for the consumers in Turkey. With its implementation, Turkey will receive directly Russian natural gas. The country is currently supplied by Blue Stream and transit through Bulgaria.

The second tube has to go to Europe, and Russia’s demands are controversial for now. On the one hand, Moscow wants “reinforced concrete”, according to Russian President Vladimir Putin, guarantees that the EU will buy gas from it before embarking on anything in this part of the project. On the other hand, there are reports of how far it has been built.

In September, Bulgarian Energy Minister Temenuzhka Petkova met Gazprom head Alexei Miller. From the short messages, it became clear that at the meeting were discussed also the gas supplies. A few months later, Bulgarian Prime Minister Boyko Borissov officially revealed that the second Turkish Stream pipeline that will enter the Balkan gas hub and from there will be traded and transported.

“The gas interconnector with Turkey will be ready in 2018”, said Boyko Borissov after the last European Council meeting in Brussels in December. However, the Bulgarian gas interconnector with Turkey has frozen for years. A Memorandum of Understanding was signed in 2014, but since then the work was stopped. The capacity is furthermore projected at 3 billion cubic meters, which is far from enough to absorb the Turkish stream gas.

Another issue is that if Turkey gets all its gas on the Black Sea gas pipelines, transit through Bulgaria will become redundant, so Gazprom may release the capacity of the current pipeline. Then the actual investment needed and the time to reverse the flow will be relatively minimal.

The opportunity Bulgaria to receive gas from Turkish Stream is also the eight-year-old IGB gas connection that links the Bulgarian and Greek gas transmission grids between Stara Zagora and Komotini. Its volume is also insufficient (from 3 to 5 billion cubic meters of gas per year) compared to the ambitious plans of the government, but it is an option for the country to receive gas when Russia decides to stop gas supplies to Ukraine.

As far as the European Commission is concerned, there is still no official position on Turkish Stream because it would depend on Russia’s specific requests and commitments. For the time being, Gazprom does not give official answers to what their intentions are after the pipes reach Turkey.
At the end of October, the Russian Energy Minister Alexander Novak commented that the authorities are analyzing all options for the Turkish Stream route. This probably means also through Bulgaria, but the other option – the pipeline to go through Greece and even to the facilities of the Southern Gas Corridor – is not excluded, in an effort to find a way to obtain approval of Brussels. For the latter option, the Russian company will benefit from European rules providing for the right of third parties to tender for the allocation of gas pipeline volumes.

Concerning Nord Stream 2, the Commission is clear – the community does not need the new infrastructure from the scale of the expansion of the existing gas pipeline linking Russia and Germany. This position is being discussed in bilateral meetings between the two countries. However, the pipes for this project are ordered and the main contracts – concluded.

At the end of the year, the accident in Gas Hub Baumgarten in Austria returned the fears of Europe from the winter of 2009, when stopping supplies on the main gas route from Russia to Western Europe left Italy without raw material. The country, however, was well-stocked enough to cover consumption, and with liquefied gas terminals operating as an alternative to tubular gas.

And although the natural gas crisis burns literally hours, it also raises a lot of questions to Bulgaria, which has the ambition to build a gas distribution center in the Balkans. The country is preparing to be a gas trader, along with all the responsibilities to guarantee supplies at peak times of consumption without the availability of sufficient repositories. The maximum daily yield of Chiren under force majeure is just over 4 million cubic meters and can not cover the Bulgarian consumption in the winter season.

So far, the Balkan hub is moving forward. In 2016 it received the approval of the European Commission, and at the end of 2017 a company was already selected to carry out the pre-project preparation for the facility.

The main goal of the European Commission is to create a diversified (Gas Hub Baumgarten again draws attention to this) and a competitive market to ensure good prices for consumers. But there is no evidence of serious deposits in Europe, and that means import dependence.

Russia has deposits – and one of the richest in the world – and is looking for a place to sell them. So, if both regions do not speak one language, it is good at least to be able to listen, especially when they do it economically arguments.

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