The Southern Gas Corridor situation gets tenser as it approaches the date of its first gas delivery of Azeri gas to its destination – Italy at the end of the year. The stakes are rising, and the world’s attention is focusing on the region. Yesterday, Secretary of State Pompeo was in Greece to focus on energy projects and energy disputes in the Eastern Mediterranean.
U.S. diplomacy plays an increasingly active and vital role in the region’s energy geopolitics, as Turkey and Greece, instead of feuding, were supposed to be bound by a common interest in the Southern Gas Corridor after TANAP and TAP were linked.
Instead, Turkey decided to put its transit’s role on the back-burner in favor of playing regional producer and hub, opting for a rather selfish agenda.
A few days ago, the United States joined in an observer mode the Eastern Mediterranean Gas Forum, which brought together six countries – Israel, Cyprus, Greece, Jordan, Egypt, and Italy. Turkey was noticeably absent.
Simultaneously, the U.S. adopted a more active role in stating its red lines, and Secretary of State Pompeo warned that Washington would impose sanctions on companies involved in building or providing services to the onshore segments of TurkStream, including its Balkan Stream section in Bulgaria.
The visit of Francis Fannon, Assistant Secretary for the Bureau of Energy Resources / ENR / at the State Department, the top U.S. envoy on energy security, is likely to generate breaking news from Sofia. His meeting with the “decision-maker” PM Boyko Borisov will be difficult.
The first topic the meeting is expected to cover is possibly Turk Stream-2 and its virtual incarnations – Balkan Stream and the “expansion of the gas pipeline network,” which is threatened by the prospects of U.S. sanctions. The text of the joint document of the House of Representatives’ and the Senate’s foreign relations committees is almost ready. Once adopted, there is no going back, so this is probably the American government’s last attempt to reason with Sofia to account for EU and U.S. concerns. As we have repeatedly pointed out, the problems are in the construction process itself, which is a front for grand corruption schemes and, above all, in the planned operational mode, underwrites Russian gas monopoly in Bulgaria, Serbia, South-East Europe in general. Neither Brussels, nor Washington will accept this. It is not just whether American LNG or Azeri gas enjoy equal treatment with Gazprom in Bulgaria and Serbia; this is an issue of discrimination against Gazprom’s competitors.
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Lately, Borisov has been bending over backwards to secure Washington’s favor – buying more F-16 fighters, 3D radars, expelling Russian diplomats, inviting a Saudi deputy oil minister to “prove” his diversification credentials – a charm offensive to convince everyone that he is not a Russian agent of influence, but his deeds speak to the opposite.
One should not expect any direct recriminations or tough talk in public from the Americans. The event will likely showcase diplomatic courtesy to the host as Borisov will be left to inform the media on the meeting. Then after reading the press release, the USside will wonder if they actually attended the same meeting.
The second topic is the interconnector with Greece, which was delayed for both objective and subjective reasons. For a long time, the Bulgarian government succeeded in convincing the Americans that it was doing its best to foster the project. Both the ICGB and the shareholders were aware that Russia, through Bulgarian oligarchs, had launched an operation meant to delay IGB at any cost, thus delaying the entry of competing gas supply in Bulgaria. The State Agency for National Security chose to ignore the red flags. It has never been difficult for Washington to uncover Borisov’s double game.
The Minister of Energy and the Prime Minister misled everyone with unrealistic deadlines for IGB’s completion – initially the end of November this year, then the end of the year, the end of May, and at present is set for a more realistic date – the end of October, 2021.
Yet, Bulgaria’s top politician needs to explain the unrealistic promises he made both East – in Moscow and West – Brussels and Washington. The management of ICGB – a company with publicly listed companies as shareholders, has never been able to issue ‘political’ statements that could mislead the market, as this might provoke punitive action by regulators and investors.
That is why Bulgargaz’s managers are desperately seeking a scapegoat for their failures. The moment of truth is near as the company will need to sort things out and start buying Azeri gas by the end of this year. But Bulgargaz’s top brass has never been overjoyed with the prospect of purchasing non-Russian gas, which the Bulgarian government needs in order to “balance” off Western grievances over the Turk Stream -2.
Henceforth, Bulgargaz’s management seeks to blame the delay with IGB, which will not be ready by January 1, 2021. The TSO operator managers – Bulgartransgaz, reconfirmed that TAP could transport the contracted gas via the Siderakastro-Kulata interconnector. PM Borisov and the head of BTG have repeatedly used the argument to purposefully trade Azeri gas entry to Bulgaria for leniency from the EU and the United States for Balkan Stream.
Bulgargaz wasted years failing to expand its presence on the regional market and compensate for the low indigenous consumption rates and declining share in the Bulgarian market, which could accommodate the one billion cubic meters annually of Azeri gas in its balance sheets for 2021-2022. The problem will persist, at least until 2023, when the contract with Gazprom expires. According to the Russian Ministry for Foreign Affairs, however, Bulgaria is obliged to buy Russian gas until 2025.
Top U.S. energy diplomat Francis Fanon will undoubtedly raise the issue of Bulgargaz and the Bulgarian government being slow to renegotiate the price formula in the contract with the Azerbaijan Gas Supply Company (AGSC). Both Turkish and Greek companies introduced spot elements in their contracts with AGSC, making Azeri gas price competitive to Gazprom’s. It seems that Bulgargaz is deliberately dragging its feet, preferring to seek an excuse not to buy Azeri gas to avoid problems with purchases from Gazprom.
Consumption in Bulgaria remains below 3 billion cubic meters, while the ‘take or pay’ quantities for purchase from Gazprom are just under 2.5 billion cubic meters. Other traders are displacing Bulgargaz, including international energy majors, and they can hardly accept the fact that Bulgaria disregards European anti-trust regulation.
Borisov’s wildly populist moves in early September, which prevented timely indexation of the regulated prices to the average of the European gas hubs, led to additional losses for Bulgargaz. Not to mention the amassing debts of district heating companies and other social functions with which the Bulgarian government charges the company. There are alternatives for cheaper gas supplies from both the south and the north, especially since gas production in the Black Sea will begin next year.
For Bulgargaz, the dilemma is either Russian or Azeri gas, and this is a complicated geopolitical equation that Borisov seems unable or unwilling to resolve.
Not sure he will be able to plead his case on Balkan Stream at the meeting with Francis Fannon. Regardless of the PM’s last-ditch desperate offensive to appease the Americans, offering to buy another 8F-16 and promising the Earth and Moon to be able to complete Balkan Stream and remain in power. One way or another, in time, Bulgaria will need to buy more U.S. fighter planes; the only difference with Borisov’s current hasty offer to buy new F-16s is that the undisturbed TurkStream-linked corruption schemes will consolidate his autocratic grip and Russia’s capture of Bulgaria’s elite.
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