Rejecting a lifeline

The recent decision of Bulgarian President Rumen Radev’s caretaker cabinet to turn down the US company Cheniere’s offer of seven cargoes of LNG is wrong-headed and reckless on several levels. It’s a slap in the face for Washington and the EC, whose goodwill Sofia desperately needs to keep. It isn’t based on the availability of any certain alternative. And it really makes sense only on the assumption that the Turk Stream configuration of forces is being revived in a different form – an ominous geopolitical choice.

It’s a time when war is raging in Ukraine, geopolitical confrontation between Russia and the West is acute, and Moscow is weaponising natural gas. And at this time, every step concerning the purchase of Russian natural gas taken by Bulgaria’s caretaker government – appointed and dominated by Russian-leaning president Rumen Radev – marks a potential shift in the country’s geostrategic affiliation. Notably after Gazprom unilaterally cut of gas supplies in April.

This is a dramatic turn, scarcely believable on the face of it, as adds insult to injury. It could hardly have happened under a regular government and a functioning parliament, when the political process is more systematic and balanced. However, the unbelievable becomes all too credible in the abnormal circumstances of an interregnum following the toppling of a legitimate government, when the president has the dictatorial powers and heads the executive branch.

With its decision to forego purchases of liquefied natural gas (LNG) from the US company Cheniere and to emphasise preferences for piped gas delivered via Turkey, Bulgaria is refocusing its energy policy, giving up on diversification through LNG terminals in Greece, and putting all its energy-security eggs in one basket – that of Turkish president Recep Tayyip Erodgan and his Russian counterpart (and ally) Vladimir Putin.

The aim is to tie up Bulgaria, by means of short and medium-term contracts with Turkish intermediaries of Russian gas, in order to secure niche markets and market shares released by Gazprom in Bulgaria – and to block or control LNG supplies.

Piped gas: the cheaper option?

First, however, let’s dispose of one talking point that has been widely used in public debate. This is the notion that piped gas is cheaper than LNG. This is simply wrong and is nothing more than propaganda – and remarkably unconvincing propaganda at that.

For why on earth should it be cheaper? Piped gas travels vast distances, using costly infrastructure for which it pays transit fees. The figures speak for themselves. To take the most relevant example, transiting gas through a 3,500-km pipeline from the gas-fields of Yamal, in Northern Russia, to the Turkish-Bulgarian border costs around $70-80/TCM, which can hardly be acclaimed as cheap. It is at par with the liquefaction, freight, regasification and logistics costs of LNG brought by sea from America. At any rate the difference is marginal.

As to the total cost of gas resulting from this, the only relevant metric for comparing offers from different sources and natural gas routes is the price at a virtual entry point to the Bulgarian gas transmission system. And Henry Hub based US LNG would seem to have quite an edge there both in security, reliability and price terms.

Since February 2020, the price formula according to which Bulgaria’s state-owned gas trader Bulgargaz buys Russian gas is 70% tied to the EU TTF gas exchange and 30% to Platts Med benchmarked derivatives. (“TTF”, incidentally, stands for “Title Transfer Facility”). Now, European gas exchanges are volatile and expensive. as they mediate between global gas producers and EU customers, without having a EU-based gas production anchor. And wild price fluctuations in 2022, greatly assisted by Mr. Putin’s power play, have led to gas market destruction across the continent.

Direct sales of US LNG, by contrast, are benchmarked on prices at Henry Hub, the world’s most liquid exchange. Henry Hub prices are generally much lower than TTF-referenced prices. And usually the difference is more than enough to offset the added logistical costs of getting US gas to EU destinations. So these costs do not compromise ab initio US LNG’s competitiveness vis-a-vis any TTF-referenced gas – including Gazprom gas.

In other words, the main argument cited by the government for dismissing Cheniere’s offer – that of “prohibitive logistical cost” – needs to be taken with a grain of salt. Perhaps an entire salt-cellar. More so, given that a recent open tender has proved that Cheniere’s offer excelled pricewise.

Turk Stream 2.0

So what’s going on? The brief answer is: politics – and geopolitics. Following the fall of reformist and pro-Western prime minister Kiril Petkov in June, Mr Radev is busy restoring the status quo.

He’s doing so in close cooperation with the two political forces that were the main beneficiaries of that status quo, namely: GERB (Citizens for the European Development of Bulgaria), the party of long-serving prime minister Boiko Borisov; and the (mainly ethnic-Turkish) Movement for Rights and Freedoms (DPS), nowadays dominated by the (entirely sleazy) ethnic Bulgarian oligarch Delyan Peevsky, who has the distinction, fairly rare in Bulgaria, of being sanctioned under the US Magnitsky Act.

And the general aim seems to be a restoration of the Borisov-era coalition between Bulgaria, Turkey and Russia, which had previously tied Bulgaria to Russia by means of the transnational Turk Stream pipeline.

Restoration in a new form, that is. For it will be recalled that Bulgaria no longer benefits directly from Turk Stream, as it does not receive any Russian gas. Which presents something of a problem, since the rationale for a Turk Stream devoted exclusively to Russian gas is gone, leaving its proponents’ reputations shattered ahead of parliamentary elections in Bulgaria, now scheduled for October 2.

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Not to worry. The “coalition’s” device is simple: to resume the flow of Russian gas into Bulgaria by using Turkish gas traders as intermediaries. Meanwhile, the Radev-appointed caretaker government has managed to restrict the access to Bulgaria’s gas market via Greece of the LNG suppliers that are Gazprom’s effective competitors.

Under the new conditions, Mr Erdogan continues his double-act with Mr Putin, allowing only Azeri gas through Turkey, but dragging his feet on additional supplies and on any alternatives to Russian gas. And Baku seems to be playing along. Its advice to EU country leaders visiting Azerbaidjan in search of gas is: first secure transit through Turkey!

For its part, Gazprom exports enough gas to Turkey to form a surplus, allowing Turkish traders to broker Russian gas in the Balkans. Gazprom exports gas to Turkey under two contracts held by the state-owned gas trader Botas, for 16 billion cubic metres per year (bcm/yr) and 5.75 bcm/yr, respectively. But there’s another 10 bcm/yr covered by eight contracts held by seven private companies. And it’s these that are the likely sources of re-exports of Russian gas to Bulgaria.

In the spirit of Turk Stream and Mr Borisov’s, President Radev is playing ‘va banque’. Yet he might be overplaying his hand. Not only has the geopolitical landscape changed dramatically since 2019. Unlike Mr Borisov, Mr Radev has neither Angela Merkel in the Berlin’s Federal Chancellery nor Donald Trump in the White House to provide a tacit nod of support or engage in the “transactional” diplomacy that made the Turk Stream geopolitically possible.

Turkey: Recep’s regional gas hub?

In fact, the closest Mr Radev has been able to get to such support is a forthcoming visit to Sofia by Mike Pompeo, who had served as Mr Trump’s Secretary of State, planned for end-August – which is unlikely to provide much cover for a repeat performance of the sweet music that Mr Borisov managed with Messrs Erdogan and Putin over natural gas imports.

The Turkish president makes no secret of the fact that his commitments to Gazprom take precedence over all others. Specifically; Turkey has repeatedly blocked an intersystem agreement between national transmission system operators (TSOs) – Turkey’s national gas company Botas and Bulgaria’s Bulgartransgaz – which makes it challenging for Bulgargaz and other traders in the Balkans to use Turkish LNG import terminals.

To be sure, Erdogan has grandiose – and repeatedly declared – plans to build LNG import terminals with a total capacity of 70 bcm/yr, as well as a super-large underground gas storage facility to service them. But, until it starts producing gas from its Black Sea fields, Turkey will be ready to broker Russian gas and, for the time being, to discourage Balkan countries from importing LNG from the US and elsewhere.

Rumen’s plan B

But enough is enough! This whole “Turk Stream 2.0” scheme for the return of Russian gas to Bulgaria has gone too far already. It just doesn’t make sense. Consider the following:

• First, the caretaker government declared a “state of gas emergency” on its very first day in office. For no obvious reason, since the outgoing cabinet had lined up seven LNG cargoes from Cheniere, three by end-2022 and four in the first four months of 2023. That’s a lot of gas, almost 1 bcm or one third of Bulgaria’s annual gas consumption, in a binding offer from Cheniere. In other words, Bulgaria had “cards in the deck”. So why the rush?
• Second, Cheniere’s LNG offer had just passed the market test of a good bargain: three tenders by Bulgargaz had attested that it was the best possible choice. It is Henry Hub based, hence getting more and more competitive with the sky-rocketing prices at the EU gas exchanges.
• Third, political considerations pointed in the same direction. The deal had been made possible by the intervention of the US government (specifically through the mediation of no less a figure than Amos Hochstein, Special Presidential Coordinator for the Partnership for Global Infrastructure and Investment) and the European Commission. So ignoring the deal meant ignoring a goodwill gesture from critical allies at a critical time. Next time there is a cry for help, no one will notice.

All in all, arrogantly walking away from such a solution, with neither a proper explanation nor a sure alternative – and doing so at a time when prices are shooting through the roof and the gas crisis is at its peak – seems illogical. Not to say suicidal.

Unless there is a “Plan B”, the only plausible explanation is that there is a gamble, developing in parallel, involving Russian gas via Turkey – which of course would need more time to be unwrapped in detail and marketed politically.

Terminal nonsense

Meanwhile, it should be noticed that – quite apart from the “pipeline gas is cheaper” argument noted above – the excuses given for the refusal by the caretaker cabinet are unconvincing.

Mr Radev’s team cites the lack of a slot for unloading the LNG cargo at Revithoussa, the Greek regasification terminal near Athens. Well, that may be so, but the government has been in office since the beginning of August and, in the intervening three weeks, there has been no noticeable action to build on the Petkov cabinet’s legacy in securing slots and ensure gas shipments after October. Moreover, the Greek government has confirmed that Bulgaria enjoys priority treatment for emergency supplies.

There’s also the argument that apart from not being available, slots at Revithoussa are “expensive”. That’s all the more absurd because additional intake and storage capacities have been added at Revithoussa, while DESFA (Greece’s TSO which also operates the terminal) requires only half of the terminal’s intake capacity to be committed for Greek gas consumption. Moreover, the previous (Petkov) government had a proven track record of successfully securing the entry of several LNG cargoes earlier this year.

It has to be asked why Bulgargaz did not have the necessary slots already. And the answer is simple and discreditable: its former management, headed by Nikolay Pavlov and backed by Rumen Radev, had deliberately failed to do so (and book the corresponding annual regasification capacity) at DESFA tenders last year.

Instead, regional traders pinned their hopes of securing an entry point for LNG into the region on Turkey’s new FSRU (Floating Storage and Regasification Unit) in the Gulf of Saros, an Aegean inlet north of the Dardanelles. Which wasn’t a very clever place to pin them.

This project was conceived ten years ago as a gateway for LNG to the Balkans. And, though its realisation has been, well, a little slow, Turkish energy minister Fatih Dönmez confirmed three weeks ago that this terminal would be completed and connected to the Turkish gas transmission system and to the ITGI pipeline. ITGI is the Turkey-Greece-Italy Interconnector, which runs (so far) from Karacabey in north-western Turkey to Komotini in northern Greece, and has a connection to the Greek system.

So far so good. But there are two catches:

• First, as noted above, there is no interconnection agreement between Turkey and Bulgaria, meaning that gas can’t flow to the Balkans.
• Secondly, the IGB pipeline (the newly completed Gas Interconnector Greece-Bulgaria, which runs from Komotini to meet the Bulgarian transmission system a little south of Stara Zagora) is not yet connected to DESFA’s Greek transmission system to allow the intake of gas from ITGI.

Besides these, incidentally, there’s a “might-have-been” that should be noticed. Some years ago a project was launched for a Bulgaria-Turkey Interconnector, conceived as an intersystem gas pipeline. It was shelved shortly after – you guessed it! – the Turk Stream project gained the upper hand. Which leaves Bulgaria still dependent on two entry routes for natural gas: the Gazprom-controlled Trans-Balkan pipeline and Greece.

Where now?

So what conclusions are to be drawn? Well, the most obvious one is that, for now, due to the special relations between Mr Putin and Mr Erdogan, Turkey is not an option for Balkan countries – or Europe generally – to diversify gas supplies (as opposed to just redistributing Russian gas surpluses by importing them via Turkey). And that the Turkish Government has no intention, any time soon, of allowing competitors to Gazprom to use Turkish LNG terminals to unload gas. Turkey is grossly overrated as a potential “regional LNG hub”: anything claiming to act as such must allow unrestricted flows of gas in and out – otherwise it’s not much of a hub! And Mr Erdogan’s Turkey is overrated as a straightforward business partner. That’s not how the Strongman of Ankara operates: he will always – always – have overriding geostrategic considerations.

But there’s another conclusion, too. Those currently at the helm in Sofia are gambling dangerously and irrationally with Bulgaria’s future. Faced with a genuine and market-tested LNG offer, Mr Radev and his caretaker cabinet have opted to bet on uncertain future proposals without guarantees. That speaks of serious geopolitical bias and commitment. It’s Turk Stream all over again (albeit by another name); it’s casino geopolitics; and the government is playing roulette with the Bulgarian economy by blocking the entry of American natural gas into the region.

Russian roulette, in fact.

Ilian Vassilev