The Solidarity Ring project: Part 2
Of monopolists, missing links, masquerades, and movers
In the second and final part of this article setting the stage for this week’s Sofia meeting on the “String Project” (also known as the “Turkish Gas Hub” or TGH), we’ll go into more detail on how transmission and transit capacity allocation decisions in the near future could consolidate Gazprom dominance in Central and Eastern Europe (CEE) over the long term; explore the zero-sum relations between Greece and Turkey for such capacity; look at the Bulgarian figures involved in the decisions and strategies that could realise the String Project; and, finally, suggest what the West needs to do if it isn’t to come off worst.
Despite all the “Azeri gas” promotion that will take place at the impending String summit, it should be noted that the same tricks as were used to ease through Turk Stream are still on the chess board. Bulgartransgaz (BTG) intends to test the market and offer 60 mcm/d worth of (consolidated Strandja 1 and 2) entry capacity from July 1, 2023.
Which is pretty much what it did to legalise the dominance of Gazexport – the foreign sales arm of Gazprom – over the transmission capacity of the Balkan Stream pipeline (the Bulgarian stretch of the Turk Stream project). Formally, BTG followed the EU regulatory playbook. But it did so knowing full well that, early on, before the regional market became diversified, Gazexport would not face any competition when booking 80% – or even the legally permitted maximum of 90% – of the 54 mcm/d capacity of Balkan Stream.
Old dogs, old tricks
And the same will hold true if and when BTG announces a 60 mcm/d capacity allocation tender for capacity booking at Strandja-1 after July 1. Moreover, given that market diversification is so limited and genuine competition so lacking, Gazprom will be able to mobilise its affiliates – such as WIEE and MET – to guarantee that it has predominant use of the transit infrastructure for its entire length, from the source of the gas right through to its end- users in Bulgaria, Romania, Serbia, Hungary, and Slovakia.
The offer of 60 mcm of daily entry (and reverse) capacity at Strandja-1 adds up to more than 19 bcm annually. Only Gazprom can book on that scale, crowding out any potential competitor for an extended period ahead.
But that’s not all. Yet more questions arise:
Suppose such gas volumes go through the Malcoclar-Strandja-1 entry point, and now add in the 15.8 bcm/y contracted for Turk Stream. This would effectively preclude Gazprom’s competitors from accessing the Trans-Balkan Pipeline and cement its dominance in the regional market. Moreover, it would disallow non-Russian gas flows to Ukraine, which is conveniently bypassed by the String project.
The main ‘victim’ of this practical denial of transit capacity would be gas whose immediate origin was Greece. In practice, that would nowadays mean gas coming via the IGB interconnector after entering it in one of two ways.
Either it would come via the transmission system of DESFA, the Greek TSO, having entered Greece via an LNG regas terminal – whether the one that is already operating at Revithoussa near Athens or one of several floating storage and regasification units (FSRUs) planned to come on stream in Greece in the next few years (notably the one due for commissioning next year at Alexandroupolis).
Or it could mean gas coming via the TAP too.
So, how do Strandja-1 and the Russian-TGH mix gas entering through it from Turkey affect gas flows from Greece via the IGB?
Lozenetz-Provadia: the Missing Link
The answer is: quite a lot. For gas flows from Turkey and Greece are competing for the same transmission capacity – the capacity that delivers gas between the Lozenetz and Provadia Compressor Stations (CS Lozenetz and CS Provadia).
Look at the map. To be precise, look at the red line in its top right-hand quarter. This represents a 63-km missing pipeline section between CS Lozenetz and CS Provadia, which was supposed to have been built before the coming online of Turk Stream’s Bulgarian extension, Balkan Stream.
That, at present, is the Bottleneck – or Missing Link. True, BTG’s CEO will be making all sorts of promises, in his presentation on April 25th, that the link will be completed sometime in the future. This will bear little relevance to capacity allocation at Strandja-1, which will fix – in the immediate future, in a long-term contract – the dominance of Gazprom-via-TGH gas.
Now, Balkan Stream comprises two parts. There’s a new one – extending from CS Provadia to the Serbian border. And there’s an old one – which stretches from the Strandja-1 crossing point via CS Lozenetz to CS Provadia.
In order not to compromise the TSO’s ability to serve Gazprom competitors willing to ship gas from Turkey to Romania, Ukraine and Moldova or, more important, from Greece via the IGB, the BTG management promised to increase the transmission capacity between CS Lozenetz and CS Provadia, allowing it to give even-handed treatment to gas coming from Turkey and from Greece, over and above what Gazprom deems necessary.
But, instead of keeping this promise, BTG then dragged its feet and continued to play ball with Messrs Putin and Erdogan, extending exclusive Russian gas access only to Turk Stream via Strandja-2 and now Turkey’s grand geopolitical project, the TGH, via Strandja-1.
So BTG has made it into a zero-sum game: it’s either Gazprom or its competitors. And this still holds true.
For example, suppose the intended Strandja-1 capacity is fully allocated to gas coming from Turkey, primarily Russian gas. In that case, the Bulgarian TSO will have almost nothing left to offer non-Russian gas shippers and traders trading gas from Greece, as transmission capacity between CS Lozenetz and CS Provadia in the next two years. Which is pretty much the time that the Putin-Erdogan double-act needs to present TGH as a fait accompli – and a pivot in the CEE gas market.
So. instead of the reverse capacity of the Trans-Balkan Pipeline serving to diversify gas supplies to CEE – and most importantly to Ukraine and Moldova via Romania – it will fix the long-term dominance of Gazprom in the region.
BTG’s conflict of interest?
But it’s not just shocking that BTG is being so deliberate about crowding out gas flows from Greece. There’s also the fact that, in doing so, it would appear to be shooting itself in the foot – limiting transit and revenues.
For a start, the Bulgarian TSO is a shareholder in the project company for that Alexandroupolis FSRU. So it’s not, in commercial terms, very clever to restrict the access to capacity (the TBP bottleneck) for gas coming from what’s partially BTG’s own terminal. And, more generally, BTG has a financial interest in encouraging northbound gas transit via Bulgaria and therefore in the expansion of the IGB to its full potential of 5-7 bcm/y – especially as its parent company, the Bulgarian Energy Holding, has a 50% stake in IGB. So any step that compromises the economics of a project designed to enable such northward movement isn’t clever either. And yet that is exactly what BTG is doing.
To look at things in a slightly different way: BTG is selling the new northbound version of the Balkan Stream pipeline to the Bulgarian and international publics as naturally stemming from Bulgaria’s national interest and as creating healthy competition between Greece and Turkey by means of the TAP and the IGB.
Yet this is grossly misleading, for said competition is rather uneven.
Greece is an EU member. It complies with the EU’s regulatory and legal framework and with sanctions against Russia, whose gas is weaponised against Ukraine and the EU.
Turkey is not an EU member. It complies with very little that doesn’t suit it. And it is pursuing a very different agenda, assisting Vladimir Putin to circumvent sanctions and secure continuity in his gas sales and revenues. Thus Turkey is helping Mr Putin destroy Ukraine – and making good money in the process.
Bulgarian governments’ track record in walking a fine line between the West’s resolve to take punitive action against Russia, on the one hand, and Sofia’s historical legacy of subservience to the Tsar in the Kremlin, on the other, has produced a somewhat ambiguous and often captive policy. Bulgaria’s current initiative of hosting the April 25 String launch meeting has a seemingly noble agenda. It seeks to secure an uninterrupted and synchronised tariff regime between the various national grids. Without such a regime, shippers willing to move gas across several borders often lose interest – or incentive – due to a lack of grid integration and tariff alignment. If the Sofia get-together addresses this shortcoming, that will be a praiseworthy achievement.
But good intentions often lead to contentious results.
The message and the messengers
On the surface, one of the key movers behind current developments is the caretaker government’s minister of energy, Rossen Hristov. He is known for his passionate defence of the idea of paying for gas in Russian roubles and of the resumption of Gazprom gas supplies that this would enable.
However, he’s not really an independent player. Rather, his statements and moves are the simple reflection of the wills of two men:
- First, there’s President Rumen Radev, who appointed Mr Hristov and who has been using the unique omni-powered position created for him by domestic political paralysis to govern the country and pursue a barely concealed pro-Kremlin policy regarding gas, military aid to Ukraine and much else.
- And, second, there’s Bulgartransgaz CEO Vladimir Malinov. One of nature’s behind-the-scenes string-pullers and schemers, he played a critical part in marketing the Turk Stream pipeline to the EU and the US, before 2020, as compliant with Western interests – quite an achievement. And he’s having a grand time now, being tasked with selling the new scheme – of a Turkish Gas Hub carrying whitewashed Russian gas supplies to CEE and beyond – both to the EU and its members and to the US government.
In steering Turk Strean through the Byzantine world of Brussels, Mr Malinov enjoyed the total support of Gazprom’s EU legal advisers. And so he does now, so it can be presumed that the Malinov team will faithfully follow the Turk Stream playbook. The strategy and the action plans for the TGH-to-Europe project are, and will remain, impeccably gift-wrapped in politically correct jargon and EU-speak.
Words apart, however, the fact of the matter is that Turk Stream and its extension to Bulgaria – the Balkan Stream pipeline, advertised as the ultimate guarantor of Bulgaria’s energy security – did nothing to stop Gazprom from unilaterally cutting gas supplies to the country, thereby undermining the aforementioned energy security, while securing an uninterrupted transit gas flow and revenue stream to the Kremlin. So it was primarily in Russia’s national interest. Not Bulgaria’s.
For his part, energy minister Hristov might not have much independent importance, but he has had a respectable role as the project’s chief PR man, again borrowing from the Turk Stream playbook. His basic pitch has been that Bulgaria has a golden chance to be a big player, to avoid being bypassed by the Gazprom bonanza and to transmute its geography into gold and prestige. This tune will come into play again, when selling the String project, but against such a factual background it seems insidious and a deliberate manipulation – orchestrated by the same people.
The appeal to Bulgarian pride is usually combined with some transient scare, which serves to lower expectations and add a sense of urgency and inevitability to the policy being advocated. Most recently, in 2022, Mr Hristov faked a vulnerability, suggesting that if Bulgaria did not take up the 3 bcm available under the contract with Gazprom by year-end, things could end up in “arbitration and sanctions worth billions of leva”. This move was meant to set the stage for future exclusive deals with Gazprom and prepare the public for nationalistic justification of actions – which ended in serving Gazprom’s needs by circumventing EU sanctions and replenishing Mr Putin’s war chest.
Gasquerade
But PR directly benefitting Gazprom isn’t the first line of defence. That role is played by disguise. Specifically, by using Azeri gas and US LNG to disguise the fact that Russian gas is in play. Azeri gas and US LNG are the classics of transactional diplomacy that are used to get moves past both the EU and US administrations and a chronically sceptical Bulgarian public which (with reason) automatically suspects corruption any time Russian energy comes into contact with Bulgarian politicians.
The potential of Azeri gas as a smokescreen is admittedly limited. The volume of potential new Azeri gas supplies is way below the capacity BTG means to offer in the next two years at Strandja-1. Out of the latter total of 19 bcm/y, SOCAR can supply – in the next two years and out of Azeri gas fields – a maximum of 2.5-3 bcm. Anything above this figure would have to be imported, or else freed up by reducing domestic gas consumption in Azerbaijan itself.
As to LNG from European and US sources, if recent LNG import statistics are any guide, Turkey is the largest importer of Gazprom LNG in Europe. Guessing whether the Botas-Bulgargaz joint operation will favour US or Russian gas doesn’t take much more than an understanding of how Bulgargaz has been whitewashing Russian gas in Greece. Greek intermediaries have been used to bring in Russian gas, with occasional imports of genuine US or European gas for appearances’ sake and to create opportunities for “juggling” certificates of origin.
High-level political support is essential in selling Russian political risk projects to the EC and Washington. For example, on November 4, 2022, energy minister Hristov (together with his colleague the minister for economy and industry) visited the Revithoussa terminal to ‘inspect’ and inform the public of the first delivery of non-Russian gas – a cargo of Norwegian LNG carried on the tanker Arctic Princess. The intermediary for Bulgargaz on this occasion was Greece’s Mytileneos Group.
A fortnight later, a Gazprom LNG tanker docked at the same terminal and the data on gas entry into Bulgaria then confirmed that additional volumes, i.e. Russian gas, were entering Bulgaria. But when faced with the evidence, the Bulgarian energy minister insisted that, no, Bulgargaz had a certificate of origin that this was non-Russian gas. Obviously he was referring to the previous Norwegian cargo. To be cynical, it was a nice try: and possibly those with better things to do than pore over gas entry records may have been taken in….
The same pattern is discernable in Turkey, with Botas playing the intermediary, Bulgargaz proudly showing a Cheniere certificate of origin when a Russian LNG tanker has unloaded its gas shortly before the discharge of a Cheniere cargo – and Russian LNG continuing to dominate the unloading log at Tekirgas Eriglisi and the new Botas Saros FSRU. It really does seem to be working quite well, quite smoothly: for every MWh of non-Russian gas, Gazprom will be selling 4-5 times more of his own gas.
And Hungary gas been leading the way in demonstrating how Russian gas laundering in Turkey will happen. EU-based companies will buy “de-Russified” gas in Turkey and pay the transit fees in the String countries transmission system, very much as Hungary’s MOL pays for the transit of Russian Urals crude via Ukraine. No wonder Mr Putin and Mr Erdogan conceived the Turkish Gas Hub as an opportunity for Turkey to replace Mrs Merkel’s Nord Stream and to broker Russian gas flows to Europe – collecting billions of dollars’ worth of premiums in the process.
Bypassing EU sanctions – the Sofia meeting
In recent public statements, Turkish energy minister Fatih Donmez has referred to Turkey being able to develop a gas market of 100 bcm. That compares with domestic consumption of 60 bcm, which leaves 40 bcm for exports to the EU – enough to dominate the regional market. Now, of course, Turkey ignores sanctions and continues to be the largest importer of Russian gas for national security reasons. And importing Russian gas for Turkey’s domestic consumption is one thing – though perhaps morally reprehensible. But importing and re-exporting in a way that helps Mr Putin circumvent sanctions is a different matter. It should be treated as the subject of a “red line”.
The European Parliament recently considered a ban on Russian gas access to EU infrastructure, but this will hardly address the question of Russian gas that has been whitewashed and “de-Russified” in Turkey.
The EU and the US must squarely confront the risks represented by the TGH and by the enablers who work so assiduously for Russian energy interests. And they must do so sooner rather than later.
The new Nabucco West?
Now, here’s a prediction about this week’s “String” Project launch meeting for you. Obviously String will be presented as ushering in a new level of interconnectedness between the gas systems of the six countries attending the summit, which will be trumpeted as a boon for the EU and the region, and so on.
But I bet the PR will go further than that. I bet it will stretch to labelling the summit’s efforts with names commonly recognised in the West as pro-EU. Like “Nabucco West”, for instance.
Now, nothing could be further from the truth. You will recall that the original “Nabucco” project had been conceived back in 2002, and included its largest national segment in Turkey, which, following the project’s demise, was later replaced by the TANAP pipeline. And it’s true that the Strandja interconnection point (IP) would have played a crucial role in Nabucco West: the proposed pipeline was slated to run from that IP to Baumgarten in Austria.
But the gas involved was to be entirely Caspian in origin – from Azerbaijan and possibly Turkmenistan. No Russian gas came into the picture. And the scheme would have represented both route and source diversification.
Contrast the current “TGH-to-the-EU” plan – the “String” project. This aligns infrastructure that would provide integrated transmission services for predominantly Russian gas with its immediate origin in Turkey. And its ultimate goal is to impede access of non-Russian gas to the capacity of a critical section – CS Lozenetz to CS Provadia – of the Trans-Balkan Pipeline. Not to block it 100%, as would have been the case if the Turk Stream-Balkan Stream ploy had succeeded. But still to do so to an extent sufficient to secure, through advance capacity booking, Gazprom’s dominant position in the regional market and to frustrate diversification efforts for years to come.
Geopolitics dominate the thinking behind the TGH for a very good reason. Gazprom, unlike other Russian energy majors, is directly subordinate to Vladimir Putin. This personal motive – and personal leverage – explains Mr Putin’s involvement in implementing the deal. Moreover, the war in Ukraine adds another dimension to the issue. Should the US and EU allow this hybrid operation to enable Gazprom sales, billions of dollars will continue to fuel the Kremlin war machine which is devastating Ukraine.
In the case of Turk Stream, the role of Bulgaria’s top politicians – the then-prime minister Boyko Borissov and (then-and-current President) Rumen Radev – was indispensable, as well as that of Bulgartransgaz CEO and arch-schemer Vladimir Malinov. That’s true now too, for Turk Stream’s “successor” – the TGH.
And there’s a rather specific issue that could prove crucial. At present, BTG controls all entry and exit points of the Bulgarian national gas transmission network except one – and that’s the IGB pipeline. But moves are underway to change that. BTG’s grip is bound to tighten, allowing it to call all and not just most of the shots in the geopolitical game that’s in progress – a game that has Bulgaria’s gas transmission and transit systems as the vehicle and more gold in Putin’s war chest as the prize.
With luck and some deft manoeuvres, we may eventually get a genuinely pro-EU government in Bulgaria and the current actors’ freedom of action might be contained. But, if President Radev retains control over the executive branch via interim cabinets, the String Project will fly through. The EU bureaucracy remained mute during the Turk Stream, it might keep on being lenient now too. Until a regular government is in place, the only safeguard is to sustain IGB’s ability to ship the full amounts of gas to BTG’s system and expose the bottlenecks.
Bulgaria’s national interest is to facilitate the diversification of gas supply in the region and to play the role of an honest broker of transit services – not that of a card in the Putin-Erdogan hand. The country has very strong arguments as Mr Putin’s entire gas whitewashing capacity depends on his ability to send “TGH mix” gas to CEE via Bulgaria’s system. There will be no shortage of non-Russian gas supply in the coming two years to secure both capacity take-up and revenues for Bulgaria’s gas transmission and transit system, even if Russian gas is sanctioned either in full or in part.
One way to limit the “gas-laundering” potential of the TGH and Gazprom’s access to EU infrastructure is to limit the gas volumes exiting from Turkey to the quantities of non-Russian gas available – which are pretty well known. Even if Turkey becomes totally dependent on Russian gas for internal consumption, there should be a limit on gas exports which would curb the potential for Kremlin abuse of the TGH. Another way of dealing with the issue might be for the EU to make gas exports from the TGH condition on Turkey’s compliance with sanctions against Russia. There’s no shortage of things that might feasibly be done. The real question is whether the EU – and the West in general – has the determination and courage to do them.
Such is the background against which the meeting on April 25 should be judged. Certainly, Azeri and US gas will loom very large in selling the TGH agenda. But the stakes are much higher.
