Black Sea Natural Gas Sector in the Spotlight
A series of developments are gathering pace in the southwest Black Sea, not far from the dramatic political events in Ukraine and Crimea.
A convergence of gas-related interests between Bulgaria, Turkey and Russia seems to be emerging as well as the likelihood of a new natural gas corridor and hub en route to EU markets.
Turkey's Ambassador in Bulgaria, Suleyman Gokce, recently noted in a speech to a high-level audience of the Bulgarian government that the two countries after signing the memorandum of cooperation for the transfer of Azeri gas to Europe with a spur to Bulgaria, have managed to establish a further diversification of routes, thereby increasing EU energy security. Brussels has already mentioned the new interconnector Turkey-Bulgaria as a Project of Common Interest (PCI).
Concurrently, Turkish BOTAS is said to have already prepared the construction of the interconnector and will team up with Bulgartransgaz. According to various local outlets, Turkey would like to be part of the construction of a significant natural gas storage facility in excess of 1 bcm in a central Bulgaria region.
In the meantime, Austrian OMV has assured stakeholders and the public alike that its research at an offshore block in the Bulgarian Black Sea may contain probable reserves of around 100 bcm. If this estimation is proven correct, gas production may start as soon as 2017. Should this occur, gas quantities would be used to fill the Bulgarian transmission system and can be reverse flowed into the Turkish system. Nevertheless, local Bulgarian media has already noted that until recently, probable reserves were figured up to 500 bcm, causing anxiety of the real prospects for indigenous gas production.
Turkey itself is gearing up for the expansion of its cooperation with Gazprom, primarily by increasing the yearly capacity of the Blue Stream gas pipeline that traverses the Black Sea and currently pumps around 14 bcm per annum into the Turkish domestic pipeline system. The maximum capacity of this route is 16 bcm and the negotiations that have already started between the two sides relay an increase that will set Blue Stream to at least 20 bcm, up to 24 bcm per annum. The main cause of this upgrade is the geopolitical risk of Ukraine as a transit country for the pipeline transported gas going to Turkey via that country. In 2013 Gazprom supplied Turkey with 26.7 bcm in total, out of which around 55% were delivered via the underwater pipeline and its scheduled expansion aims to minimize transfer through Ukraine. In parallel Turkey is bargaining for an at least 10% discount on future Russian gas deliveries.
Natural gas consumption in Turkey is calculated to be 47 bcm for 2014 compared to 38 bcm for 2011 and mid and long-term assessments call for a 3% expansion (on average) of the local market for the coming generation. In that respect and with the infrastructure in place of scheduled to be constructed, its only Russia and Iran that can fulfill Turkish long-term consumption patterns, whilst filling up its transmission systems with enough gas quantities to be transited in the rest of Southeastern Europe and onwards to the EU, whilst creating the necessary gas hub in the Balkans. On the other hand, a likely introduction of Israeli gas into Turkey may be an important parameter to be assessed.
The South Stream project is hotly pursued by Bulgaria nonetheless, despite the rift, including Serbia's with the European Commission. The foreign minister of the country, Kristian Vigenin, stated that “South Stream is a very important project for Bulgaria ...the whole of the Parliament is in favor...the rest of the EU member states should not be held hostage because of the Ukrainian crisis…we will do whatever possible to conclude the pipeline."
The main argument by Bulgarian policy makers to their EU counterparts is that energy security is a broad term that also includes energy transit security, and by this they mean that a smaller number of transit countries guarantee a more stable gas flow and that case especially refers to the present state of affairs in Ukraine.
The energy security aspect in terms of the country holding an exclusivity on reserves, according to the Bulgarian mindset, cannot be dealt with, unless new, accessible and significant quantities are to be found, such as indigenous resources (shale gas) that will then be a viable source compared to the Gazprom dominance.
Thus they conclude that South Stream should be built while interconnectors and vigorous exploration investments may become parts of the overall energy supply architecture. These arguments are in fact shared by most of the former East European bloc from the Danube - southwards due to the overall backward shape of their industrial sectors that cannot afford expensive bypasses or elaborate gas pipeline plans that do not include Russia. As such, the issue is not political in essence but economical, a view that has yet failed to be understood by northern and western European policy makers in Brussels that have their own indigenous resources or are more advanced in industrial and technological terms.
The debate will surely go on and the recent state of affairs in the Black Sea will occupy energy stakeholders for the foreseeable future.