Recent March 2020 data on natural gas imports to Turkey from Gazprom revealed a drastic decline from the usual 1.4 billion to 210 million cubic meters per month, which hints at severe problems in the load up of the three gas pipelines from Russia to Turkey – the Blue and TurkStream 1 and 2.
There have been consistent leaks by Turkish and Russian sources of disruption in contracts and loss in revenues, which underwrite the two pipelines’ business case and their geopolitical raison-d’etre.
Since the end of May, gas deliveries via the Blue Stream pipeline have ceased with Gazprom offering technical excuses for the interruption. There is no indication when supplies via this pipeline will resume.
The fate of the deliveries via TurkStream 1 and 2 is equally vague. Supplies were suspended between June 23rd and 29th, again on “technical support” grounds. The gas flow resumed since at a substantially lower base. On July 21, the Turkish state company Botas, importer of Russian gas, announced the suspension of gas flows after July 27 until August 10. The news covered the onshore segment of Turk Stream, which continues on to Bulgaria, but the offshore segment will be offline, too.
Data on natural gas imports to Turkey over the past four months suggest that the country is quietly replacing Russian gas as uncompetitive. In the meantime, Botas sharply increased purchases of liquefied natural gas from the United States, Nigeria, Algeria, Qatar, and the new source, Mozambique. As for pipeline gas, Turkey has switched almost entirely to gas from Azerbaijan and Iran.
Eleven years after the last gas supply cut by Gazprom – the situation has completely reversed – the buyers are cutting off Russian gas.
The economy and the fate of the onshore continuation of TurkStream -2 through Bulgaria and onwards, including the planned revenue projections are still up in the air and the funds spent so far risk falling into the category of “sunken costs.”
If natural gas in Turkey and Greece, due to alternatives to Russian gas supplies, cost 25% cheaper than in Bulgaria, Bulgarian consumers will abandon en masse Gazprom’s principal partner Bulgargaz.
This analysis covers only the commercial side of the issue. The geopolitical one is of even greater importance.
The European Union has warned the Bulgarian government that it is embarking on the Bulgarian section of TurkStream at its own risk. The Commission has since refused to commit itself and greenlight in advance the project’s operation under the current transit contractual terms.
Brussels has explicitly reiterated its prime goal – interconnectors are the top priority, not pipelines exclusively dedicated to transiting Russian gas.
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Washington rained on Borissov’s parade even worse.
Secretary of State Mike Pompeo warned that onshore projects which are a continuation of Turk Stream-2 are unacceptable to the United States, and companies and investors could be subject to sanctions as the period of the grandfather clause has expired.
Secretary Pompeo’s statements left no room for speculation: “Aiding and abetting Russia’s malign influence projects will not be tolerated. Get out now or risk the consequences”.
This is the first time the U.S. government has treated the Turk Stream project on par with its twin project – Nord Stream – 2.
The provisions in the 2021 National Defense Authorization Act are expected to spell out in sufficient detail the activities and the companies, providing services, that will be covered by the sanctions in the CAATSA. Including the onshore extensions of the Turk Stream-2.
The consequences for the Bulgarian section of TurkStream will be immediate. The banks that had expressed interest in syndicating EUR 400 million to Bulgartransgaz held back their offers, as insurers refuse to underwrite them. The uncertainty due to the harsher U.S. sanctions, given the new legislation that has advanced in the Senate, does not allow current Turk Stream -2 commercial and political risks to be mitigated.
PM Borissov’s last hope – Chancellor Merkel, has made it clear – Germany will not retaliate against the U.S. sanctions. The EC passed a vague and general statement – that does not approve of the U.S. sanctions – a statement falling dramatically short of the support Bulgaria’s government expected.
The supplier of the gas turbines for the two compressor stations in the Bulgarian segment of TurkStream – Solar Turbines- a California-based company will comply with U.S. sanctions.
Prime Minister Borissov and his team are desperately negotiating with Russian diplomats and Gazprom’s officials to circumvent U.S. sanctions. Different options are being discussed, including direct Gazprom funding, revisions of the transit contract terms and alternative suppliers.
Yuri Pillipson, the Head of the Fourth European Department – Southeast Europe at the Foreign Ministry in Moscow, in a statement, quoted by the RIA Novosti March 23, said that Russia insists on the implementation of energy projects and to this end casted a blind eye on the expulsion of Russian diplomats. There have always been open channels of intensive communication between the Kremlin and Dondukov 1, the PM’s office.
The only comment from the Bulgarian government so far came from Energy Minister Petkova, who preferred to ignore the problem, using a trivial diversion tactic – this does not concern us, Balkan Stream is not TurkStream.
The management of Bulgartransgaz has made no comment.
To date, the “sunken costs” in the Belene NPP project amount to over EUR 1.8 billion . The potential sunken costs so far for TurkStream’s Bulgarian section exceed EUR 800 million.
Given Turkey’s policy to discipline Gazprom and force it to compete with alternative suppliers by cutting imports, the Kremlin will further increase its pressure on the Bulgarian government to buy more of the gas destined to Turkey.
The political gravity around the Turk Stream might provide a logical explanation for Borissov’s refusal to resign and for a series of articles in the Russian media in his defense.
A resignation will mostly likely suspend works on the Turk Stream in Bulgaria for an indefinite period of time. President Putin has strong cards to play in reminding PM Borissov that he needs to see the job done before the end of his term in office.
The Bulgarian PM hedged his geopolitical bet on his meetings with President Trump. Instead of taking into account professional risk and market analyses, he chose to follow Kremlin’s guidance.
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