IHS Global Insight Perspective | |
Significance | Officials from the two countries signed a memorandum of understanding on the supply of 1 bcm of gas from Azerbaijan to Bulgaria starting in 2011 or 2012, but with Azerbaijani-Turkish gas transit talks in a stalemate, the question is how this gas will be delivered. |
Implications | As part of the deal, the two sides agreed to explore the prospects for delivering compressed gas from Azerbaijan and Georgia via the Black Sea to Bulgaria, bypassing Turkey and at the same time allowing Bulgaria to reduce its own reliance on Russian gas and the problematic import route via Ukraine and Romania. |
Outlook | The agreement on exploring the feasibility of compressed gas deliveries is, in all likelihood, geared to put additional pressure on Turkey to come to an agreement on transit terms with Azerbaijan, thereby facilitating construction of the proposed Nabucco gas pipeline, which would be a far more economical delivery system for Azerbaijani gas to Bulgaria and Europe. |
Bypassing the Bridge?
Although state-owned firms from both Turkey and Bulgaria are members of the Nabucco gas pipeline consortium, the countries have very different objectives as regards the actual operation of the planned 3,300-km, 31-bcm/y pipeline running from Turkey to Austria. For Bulgaria, which was hard hit by last January’s Russia-Ukraine gas war, Nabucco represents the chance not only to diversify its suppliers, but also its supply route. Bulgaria is almost entirely dependent on Russian gas imports, but the Balkan state is equally reliant on Ukraine for transit services to deliver this gas. Thus, the prospect of yet another Russia-Ukraine gas war in the near future will not be comforting to Bulgaria.
Turkey, on the other hand, is keen to play a key transit role with the Nabucco pipeline, realising its vision of becoming a "bridge" between Caspian-region suppliers and European consumers. Turkey is also looking for gas imports from Nabucco to meet its own growing needs, but the country is using its geographic position to great effect in extracting concessions on revenues from its Nabucco partners, as well as holding out on price and transit negotiations with Azerbaijan (see "Related Articles"). With the continued stalemate in Azerbaijan-Turkey talks, the Nabucco project has fallen behind its original timetable, and the pipeline faces stiff competition from Russia’s own South Stream pipeline proposal.
Rather than playing a "bridge" role, Turkey is—from the vantage point of Bulgaria and Azerbaijan at least—acting more like a roadblock, mimicking Ukraine’s virtual blackmail approach to Russian gas and the security of European imports. Hence, on Friday (13 November), Azerbaijan and Bulgaria took an important step towards bypassing this "bridge", signing a memorandum of understanding (MoU) for the supply of over 1 bcm of gas, beginning in 2011 or 2012. In all likelihood, this gas will eventually be delivered via Turkey, perhaps via Nabucco or an interconnector between Bulgaria and Greece (sourcing gas via Turkey), but in a pointed indication that Azerbaijan is becoming increasingly impatient with Turkey, the MoU calls for Bulgaria and Azerbaijan to explore the possibility of transporting compressed gas from Azerbaijan via the Black Sea directly to Bulgaria.
A Project in Danger?
Bulgaria is not the first state among the supporters of Nabucco to ink a supply agreement with Azerbaijan, nor is Azerbaijan the first Caspian-basin supplier with whom the Bulgarian government has already set up close ties. Last month Azerbaijan concluded an energy transit agreement with Romania, while back in August Bulgaria and Turkmenistan confirmed an agreement under which Turkmenistan will provide 2 bcm of natural gas to Bulgaria. Certainly, Bulgaria’s actions are motivated by the country’s desire to secure sufficient supplies ahead of time and fill up its quota in both Nabucco and the Italy-Greece-Turkey Interconnector (ITGI), but the spurring of diplomatic activity between the governments in South-Eastern Europe and those in the Caspian basin should be attributed to other factors as well. The most pressing is the continued delay of Nabucco and the perception that the project is losing ground to its undeclared competitor, South Stream. The partners in Nabucco reached a key milestone in July when they reached an intergovernmental agreement (IGA) for the project, but since then little progress has been achieved, and in fact, it became clear last week that the final investment decision (FID) will be postponed for six months. South Stream, on the other hand, has continued to score points and, after Russia reached an agreement with Turkey to lay the pipe via the latter’s exclusive economic zone (EEZ) of the Black Sea, on Saturday (14 November) it also sealed a deal with Slovenia for its participation in the project. Considering the uneven degree of success between the two projects, the recent efforts of Bulgaria and Romania in striking agreements with potential Nabucco suppliers could be interpreted as attempts to provide impetus for further progress on Nabucco.
Outlook and Implications
The next few months will tell whether the tactic of pressuring Turkey will bring the anticipated results for Bulgaria and Azerbaijan. As noted above, the eventual realisation of the plans to supply Azeri gas to Bulgaria via either Nabucco or the ITGI is contingent upon a number of external factors, including the progress of South Stream.
The compressed gas alternative is an innovative solution, but when assessing its feasibility it has to be noted that it will require more infrastructure, not only in Bulgaria but also Georgia, which will be expensive and time consuming. Even if it is not implemented, however, this option has to be credited with the potential it holds for putting pressure on Turkey and for the achievement of a gas supply deal for Nabucco, even if the transit fee dispute still remains unresolved.
Related Articles
- Russia - Slovenia - Europe: 16 November 2009: South Stream Takes Another Step Forward as Slovenia, Russia Ink JV Agreement
- Bulgaria - Azerbaijan: 12 November 2009: Bulgartransgaz, SOCAR Set to Form JV for Gas Transport
- Romania - Azerbaijan: 29 October 2009: Romania, Azerbaijan Sign Energy Transport Co-Operation Accord
- Turkey - Azerbaijan: 29 October 2009: Turkey Willing to Compensate Azerbaijan in Gas Price Dispute
- Turkey: 23 October 2009: The Ebb and Flow of Turkey's Oil and Gas Transit Ambitions
- Bulgaria - Russia: 26 October 2009: Bulgaria, Russia Continue Energy Project Discussions, Set Up Operating Groups for South Stream Realisation
- Russia - Azerbaijan: 19 October 2009: Azerbaijani President Steps Up Rhetoric in Dispute with Turkey over Gas Prices and Transit
- Bulgaria - Russia - Turkmenistan: 29 August 2009: Bulgarian Government Holds Talks with Turkmenistan, Russia; Reveals Plans to Break Up Energy Holding
- Russia - Bulgaria: 30 July 2009: New Bulgarian Government to Reassess Major Russian Energy Projects
- Bulgaria - Greece: 15 July 2009: Bulgaria Taps Into ITGI Pipeline
- CIS - Europe: 13 July 2009: Nabucco Gas Pipeline Project Crosses Key Threshold with Signing of Intergovernmental Agreement
- Russia - Azerbaijan: 30 June 2009: SOCAR and Gazprom Sign Small But Strategic Gas Supply Deal