Following recent events around the IGB, TANAP, and TAP, one can feel a growing sense of optimism, with more gas coming into the South-East European gas market, more competition and lower prices should come in the short term. Nevertheless, Gazprom is ready to fight back, using every lever it has to ward off possible loss of market shares and, more importantly, loss of revenues.
Hungary, Romania, Serbia, Croatia, and Bulgaria import some 16 bcm/year, which accounts for $ 4 billion in revenues. The regional monopoly premium Gazexport collects, i.e., the difference between the announced average EU price of $169/tcm and the regional average of $ 232/tcm amounts to $1 billion in 2018.
These figures give an idea of the resource pool and the ‘motivation’ Kremlin has recourse to, in securing market shares and pre-empting access to the regional market by competitors.
While competition from traditional EU gas companies is handled by Gazprom within the broader EU gas business framework of ‘gives and takes’, offering lucrative deals, including asset swaps in Russia and beyond, the entry of tough-to-tame newcomers, such as US LNG, is a challenge.
Hence the strategy that the gas monopoly applies, is focusing on the vulnerable ‘weak spots’ for LNG - access to terminals, transmission capacities and tariffs, and storage.
The only entry EU entry point for LNG is the Greek LNG terminal at Revithoussa. The operator of the terminal has unexpectedly limited access to the regasification slots in 2020 to non-Greek traders, thus adding to the costs and hurdles, adding suspicion of a foul play to benefit Gazprom.
The alternative LNG terminal at Marmara Ereglisi is theoretically an option, but again the Turkish Botas is adamant about letting a free flow of LNG to Bulgaria and beyond. Next, come the new FSRUs in Turkey - Gulf of Saros, and Greece - off the coast of Alexandropoulos, that have been in a slow-motion, effectively denying LNG importers a credible imminent alternative.
Another way to limit the competitiveness of LNG imports to Gazprom is to drag feet on the extension of UGS capacity in the region. The project to expand capacity at the Chiren UGS (550 million cubic meters at present) in North-Western Bulgaria has been shelved for more than ten years, despite clear signs of growing demand, exceeding 1,5 billion cubic meters, and the indispensable need for storage space for LNG imports. The other potentially accessible UGS in the region at Banatski dvor (500 million cubic meters) has also been off-limits to independent LNG traders. The planned interconnection between the Bulgarian and the Serbian gas grids via Turk Stream is a non-starter too, as 90 percent of the exit and 100 percent of the entry capacities are blocked by Gazexport, making it impossible to import and store gas in Serbia.
Where progress has been achieved in opening the gas market to competition, it has come at a considerable cost and delays. The most notable case is the Interconnector Greece-Bulgaria (IGB), which has long been a target of a dedicated malign campaign, aimed to discredit the project, inflict higher cost and setbacks. The end goal is to make sure Russian gas overwhelms the region via the Turk Stream before competitors can bring LNG en masse via the IGB.
The government of Bulgaria is casting a blind eye on the procedural haste, inadequate project management, and cost control at the IGB competitor – the Turk Stream section in Bulgaria. The nominal main contractor - the Saudi Arkad Company, has effectively given up on its initial plans to use its procurement channels and in-house project management. Instead, the real control has passed on to Gazprom appointed subcontractors and suppliers, including those involved in construction works and pipes procurement on the Serbian segment. Such moves effectively undermine the pretense for a legitimate and competitive EPC tender, announced by Bulgartransgaz. It turns out that the Bulgarian Turk Stream is a government and BTG-engineered project.
Gazprom’s ‘agents of influence’ have been called to arms, tasked to discredit the rival IGB procedure and work progress, in line with similar attempts in the past on Nabucco. Funny enough, the lady that led the Nabucco team is currently one of the Executive Directors of the ICGB, and her experience pays off.
The chosen tactic for the attack - to exert pressure and force hasty and risky decisions, generating unrealistic expectations for a project completion date, while blaming the ICGB management for the delay. All paved with good intentions and concern for the timely project execution.
Kremlin’s latest pressure campaign is embodied by a sequence of public appearances by the former interior minister Rumen Petkov. A typical excerpt from Kremlin’s playbook is to present his politically branded campaign as a concern for letting down and ‘misleading our American friends.’
The history of attempts to put a spoke in the wheel of the IGB ranges from procedural tricks to all-out challenges following reviews at the Anti-Trust Commission and Supreme Administrative Court levels. These have already caused a delay of a year and a half. The companies behind those complaints had no relevance to the interconnector works and the scope of suggested activities. Media investigations tied them to a notorious Bulgarian media mogul, a close to Russia oil oligarch and one of the leaders of the Nationalist parties - who were all acting on behalf of Gazprom.
A new pseudo-patriotic refrain is in circulation - the IGB has denied Bulgarian companies an equal chance to participate. The game plan is to block work, forcing a replacement of the Greek EPC contractor. The substitution will inevitably cause a further significant delay, as this will be challenged in court and at the EC level, but will also bring the project in line with the average corruption standard in other infrastructure projects. Worth recalling - there were three BG companies shortlisted as part of different consortia - but only one presented a bid that was substantially overpriced and uncompetitive, possibly due to accommodation of corruptive interests.
Both the government, the State Agency for National Security, and the General Prosecutor’s office had been alerted on the attempts to block the IGB.
There has been no reaction whatsoever, including from the Prime Minister or other senior state levels, which is yet another proof that the IGB project is a strange bird in the constellation of new Bulgarian infrastructure projects. It is professionally managed, with adequate cost control - which would make it the most cost-effective infrastructure built in recent years.
However, that is not a certainty, only an option.