IHS Global Insight Perspective | |
Significance | Following a deal between BEH, Edison SpA, and DEPA Bulgaria will be connected to the ITGI pipeline, allowing for the import of some 1 bcm/y of Azeri gas into the Balkan country starting from 2015. |
Implications | The deal allows Bulgaria to diversify its supply sources, a goal it has pursued for some time, but which became a painful necessity following the gas shock the country experienced in January. |
Outlook | The establishment of the Interconnector Greece-Bulgaria (IGB) will also complement the ongoing integration of gas grids between European Union (EU) member states, which is seen as a mechanism to improve Europe’s ability to deal with potential crises in the future. |
More Pipeline Deals
Only a few days after the intergovernmental agreement for the Nabucco natural gas pipeline project was finalised, another pipeline deal was concluded yesterday (July 14) with the announcement that Bulgaria will tap into the Italy-Greece-Turkey Interconnector (ITGI) pipeline. Following a meeting in the Greek capital Athens, the state-owned Bulgarian Energy Holding (BEH), Greek natural gas monopoly DEPA, and the Italian Edison SpA signed a memorandum of understanding (MoU) for the creation of a gas link between the ITGI and Bulgaria.
The new pipeline link, dubbed Interconnector Greece-Bulgaria (IGB), will be 160-km long and will run from the northern Greek city of Komotini to the city of Stara Zagora in the central part of southern Bulgaria. The IGB is expected to cost some 120 million euro (US$167 million), with 45 million to be provided by the EU. The pipeline will have capacity to transport between 3 and 5 bcm/y of gas, although the agreement envisions Bulgaria receiving only 1 bcm annually, which the Central European country’s government negotiated with Azerbaijan earlier this year. Engineering works are expected to begin next year and to be completed by the end of 2012/beginning of 2013 and according to Edison’s CEO Umberto Quadrino, the first gas flowing via the IGB pipeline could reach Bulgaria by 2015. As part of the deal, the participating companies already agreed to set up two joint ventures (JV), one for the construction and operation of the IGB and another for the commercial utilisation of the gas, in which BEH will have a 50% stake, and DEPA and Edison will each control 25%.
The IGB will tap into the gas transported via the ITGB pipeline, which was initially designed to bring 8 bcm/y of Azeri gas to Italy and 1.5 bcm/y each to Greece and Turkey. While the Turkey-Greece stretch with capacity of 7 bcm/y was inaugurated in 2007, the stretch between Greece and Italy is not scheduled for completion until 2012 and there is potential for further delays, which may be one of the reasons why the interconnector to Bulgaria is not expected to commence operations until 2015. Part of the delay is also associated with Turkey’s claims for a larger portion of the ITGI gas, which has caused fears that flow to Italy might be drastically reduced, thus making the pipeline commercially unviable. Nevertheless, progress on some of the other regional projects, such as Nabucco, is likely to ease these tensions as the prospect is that additional flow of gas to Turkey will help the country fulfil domestic demand without taking an overly large share of the ITGI’s flow.
Aiming for Diversification
The IGB opens up another route of supply for Bulgaria, which is currently entirely dependent on Russian natural gas supplies through Ukraine. Thus, the country was one of the hardest hit by the January row between Russia and Ukraine, when natural gas supplies were halted for 2 weeks. This has motivated Bulgarian leadership to actively seek means to diversify the country’s import portfolio and as the CEO of BEH Galina Tosheva commented, the IGB Bulgaria agreement creates "a real way for diversification of supplies". The pipeline provides tangible prospects for easing up the burden of dependence on foreign suppliers, not only because the stretch that connects Greece with the initial sources in Azerbaijan is already in place, but also because the agreement allows Bulgaria to use the Greece LNG facility near Athens, which will enable the country to tap into the expanding global LNG market.
Bulgaria's Demand – Overestimated?
IHS Global Insight data suggests that the current annual demand level in Bulgaria is about 3.5 bcm. Natural gas demand had been decreasing over the past decade because of high gas prices, but the trend has been reversed in recent years in line with GDP growth and fuelled by growth in the industrial and heat generation sectors. The liberalisation of the wholesale gas market and the increased investment in Bulgaria's gas network are additional factors that have contributed to this growth. However, IHS Global Insight has forecast Bulgaria's gas demand to rise at a fairly moribund 1.8%/y until 2020. The country has two long-term supply contracts, one with Gazprom and one with a Gazprom subsidiary, amounting to 3 bcm/y. Even with the forecast growth in demand, an additional 1 bcm/y from 2015 could be more than the country needs when domestic production is factored in. However, the Chiren storage facility is undergoing expansion and two additional storage facilities are on the drawing board.
Outlook and Implications
The IGB is an important addition to Bulgaria’s energy strategy, which sets the diversification of energy resources as one of its key goals. Participation in the ITGI is also a tangible complement to the vision of the new political leadership of the country, represented by the GERB party and its leader Boiko Borisov, who won a landslide victory at the parliamentary elections earlier this year. Borisov indirectly criticised the expansion of Russian influence over Bulgaria’s energy sector through some of the major energy infrastructure projects that the outgoing socialist government initiated, and this new pipeline project, along with Nabucco, is poised to see Bulgaria decrease its dependence on Russia.
The new interconnector also builds towards the development of a pan-European energy strategy, which foresees greater integration of the gas networks of the member states in order to improve their flexibility in dealing with major energy crises. The EU has been a promoter of the development of a cross-border interconnector, and the IGB will allow for connecting Greece to the rest of the European grid. Earlier this year Romania and Bulgaria announced plans to connect their links, while interconnector projects are also being planned between Hungary and Croatia, and Hungary and Slovakia.
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