Chiren UGS – Love me tender?

The recent tender for the expansion of the Chiren UGS envisages investment of hundreds of millions of leva – and the creation of no immediate additional storage capacity. Gazprom is up to its tricks again. And Bulgartransgaz appears to be a willing accomplice.

Last week saw a tender that is part of a planned expansion of Bulgaria’s only underground gas storage facility (UGS), at Chiren in the country’s north-west. Now, for most Bulgarians, the project to expand the Chiren UGS is a technical matter. Indeed, its technical components are somewhat boring for the general public, who can hardly be expected to understand its real significance and the reasons why the expansion has been delayed for decades and thus never happened.

Gazprom and Russian gas are the first and last reason for the foot-dragging on a project that is strategically critical for the regional gas market. 

During Soviet times, once Chiren had been established in 1974 and purely local storage needs met, the question of further gas storage capacity in Bulgaria was ignored because of the huge UGSs in place in Soviet Ukraine, which covered Europe’s peak winter demand. And, in a sense, this logic continued to hold water in post-Soviet times – at least until Ukraine became a thorn in the side of Russian president Vladimir Putin and his loyal servants the management of Gazprom.

Russia’s total control of the regional gas market also plays a dominant role in gas storage, which is essential for balancing seasonal demand.

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When Mr Putin set out to create South Stream in 2012, his Bulgarian partners eagerly promoted the Chiren UGS, promising to expand it from its capacity of 550 million cubic metres (mcm) at the time to the 1 billion cubic metres (bcm) that had long been dreamed of. 

However, the Kremlin’s strategic plans were different. They ignored these Bulgarian overtures and instead set about assessing a proposed UGS in friendly Serbia. The Kremlin’s gameplan provided for key infrastructural nodes, like the UGS, to be positioned in countries allied to Moscow. Bulgaria, as a NATO and EU member, was not deemed trustworthy. 

Gazprom’s bypass or “pincer” strategy vis a vis Ukraine involved compensating for its effective abandonment of UGS capacity in Ukraine by building additional transmission capacity in the form of the second lines of the Nord Stream and Turk Stream pipelines, which could theoretically balance demand fluctuations. So, Gazprom met the overtures of Bulgartransgaz (BTG), the Bulgarian transmission system operator (TSO), with stony silence. The Kremlin had no plans either to sell additional Russian gas to Bulgaria or to store it there – which meant that the much-hyped idea of a “Balkan Gas Hub” had, in practice, only very limited potential.

Gazprom controls all the primary entry and exit points to the transmission and (via Bulgargas) the storage capacities of Bulgaria’s National Gas Transmission System. In addition, Gazprom is particularly strict about maintaining control of the Bulgarian section of the Trans-Balkan pipeline (TBP) – whose annual capacity is potentially some 17 bcm – thus blocking competitors from delivering Azeri gas or LNG to Ukraine. This is important, since, operating in reverse mode, TBP could nullify the effect of Turk Stream and provide Ukraine and Moldova with the gas alternatives they need.

But let’s get back to the Chiren UGS. The entry of LNG into the regional market (where current potential demand stands at over 12 bcm) depends on the availability of significant gas storage. There is, however, a substantial mismatch between the demand and LNG supply schedules at the terminals. Here, the role of the Chiren UGS comes into play, balancing the 18-day LNG cargo offloading period at the terminals.

As the bulk of Chiren’s capacity is booked by Bulgargaz to store mostly Russian gas, Gazprom’s competitors are denied access to the UGS, thus limiting LNG imports into the region. Meanwhile, Bulgargaz refuses to import LNG directly, preferring intermediaries – and thus hiking gas prices for its customers. 

Now, the ultimate intention is to expand the capacity of the Chiren UGS – or, more precisely, to double its annual capacity in terms of active gas. That will involve the drilling of ten new wells, in addition to the active 24 already in place. And it will be a fine thing. However, the expansion tender announced last week as a first stage, without the drilling work, turns out to be a typical do-nothing scheme worth hundreds of millions, in the finest traditions of the Bulgarian gas sector.

BTG will spend more than BGN 300 million (€150 million) on a new compressor station and technical superstructure. But, according to the tender, not a single lev is to be spent on drilling any of those ten additional wells. Which means that there will be no additional storage capacity. Drilling ten boreholes will, in purely engineering terms, require time – a minimum of two years, in fact.

In other words, BTG is playing games and postponing the drilling, and by doing so, it is sending a signal to all LNG importers and shippers in the region: limit transactions to the storage options in the transmission system line pack and satisfy immediate client demand. Or, in a nutshell: forget about the expanded version of Chiren UGS at least until 2025. If this line of action sounds akin to the foot-dragging on the interconnectors with Greece, Serbia and Turkey, you are right.

The bottom line is that the Bulgarian TSO will continue to block LNG imports to the region by deliberately delaying the real expansion of the Chiren UGS. Experts suspect this is part of the commitment undertaken by BTG and Bulgaria under the notorious “Roadmap” signed between Gazprom and the Bulgarian Ministry of Energy before the start of Turk Stream – i.e. that Bulgaria should discourage LNG transit and non-Russian gas proliferation to the North and the West. 

Rings true, doesn’t it?

Ilian Vassilev

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