[GGP] BRUA, the underdog pipeline of the Central and Eastern Europe?
A new energy security architecture is taking visible shape in Central and Eastern Europe (CEE). A number of competing projects are currently being considered – to calculate each and every chance for success is to consider the matrix of resources and geopolitics in Europe.
Russia continues to be the region’s main energy supplier, especially when it comes to natural gas. However, a multipolar network of small energy hubs is about to emerge. Some of the players in the region, mostly EU Member States, are benefiting from newly discovered energy resources, while others are reinforcing their infrastructure or refining their market mechanisms to offer sophisticated and reliable services to consumers. The CEE markets are still not fully interconnected, however, and it is the dynamics of the interconnection process that give the new architecture its form. This leaves some actors (nation states) in better positions than others.
What appears to be the most underestimated project is the Romanian segment of the BRUA (Bulgaria, Romania, Hungary and Austria) pipeline. Despite little fanfare, the 470 km pipeline promises big changes. It will allow natural gas extracted from the Romanian Black Sea sector to flow to neighboring countries, that are now highly or exclusively dependent on traditional imports from Russia. It is reported that Transgaz, Romania’s Transport and System Operator (TSO) will lay at least 70 km of pipe by the end of 2018. Meanwhile, work on compressor stations is well advanced.
Black Sea resources pumped into the country’s neighborhood would have the potential to displace some of Gazprom’s market share, loosening that company’s longstanding grip on the region. That hold is cemented by longterm supply contracts and legacy arrangements that lock in transport capacity. Take for example Moldova: The country buys around 1 billion cubic meters (bcm) annually from Gazprom, excluding quantities delivered to the separatist region of Transnistria. Transgaz committed this year to build 120 km of pipeline linking the Romanian border to Moldova’s capital city of Chișinău and to feed an estimated 1.5 bcm to its Eastern neighbor, before 2020.
From Romania’s south, the Giurgiu-Ruse inter-connector inaugurated in 2016 will transport 1.5 bcm per annum to Bulgaria once the work on additional compression stations is completed. This would cover almost half of Bulgaria’s needs, considering the country’s annual gas consumption was estimated at 3.2 bcm in 2016 and 3.3 bcm in 2017. To Romania’s West, construction works to ensure reverse flow capability from Romania to Hungary are underway. Once the upgrade is completed, 4.5 bcm will reach the Baumgarten hub, and the surrounding markets of Central Europe and Western Balkans. Romania could provide an alternative source of natural gas for Ukraine, if and when Russia decides to stop deliveries to its former ally.
The Black Sea reserves will consolidate Romania’s role in the region as an important energy supplier. But it will also support the ambitions of two smaller players. The Balkan hub in Varna, promoted by Bulgaria with the support of European Commission, will rely at least in part on volumes shipped from the Black Sea area. Hungary has long prepared its infrastructure to handle incoming quantities from Romania, with significant storage capacities and a natural gas trading platform that offers sophisticated products backed by a functioning clearing house set up by the National Bank.
BRUA is on the European Commission’s list of Projects of Common Interest. In September 2018, BRUA was presented as a priority project during the Three Seas Initiative Conference in Bucharest. The Initiative enjoys U.S. support, as it aims to establish a resilient energy, transport, and communication infrastructure linking the Black Sea to the Baltic and the Adriatic Sea. During the conference, U.S. Energy Secretary Rick Perry confirmed American support for the Romanian gas corridor as a centerpiece of new energy infrastructure.
While BRUA stands out as more than just a pipeline: it support an nascent web of energy hubs. To be resilient, the regional energy infrastructure needs other elements, as well. A whole range of smaller undertakings were mentioned at the conference in Bucharest. One such project is the struggling LNG terminal in Krk, Croatia, which is supposed to bring U.S. gas supplies to the Western Balkans. Also receiving a mention was the ICGB inter-connector between Greece and Bulgaria, linking the CEE to liquefied natural gas supplies from Greece and to Azeri gas flowing through the TAP-TANAP pipeline. There are also elements that relate to the proper functioning of markets and to the role nation-states have in addressing and balancing regional supply and demand.
In the policymaking arena as well as in the business circles Russia’s declared intention to diminish gas transit via Ukraine once Gazprom contracts expire in 2019 is good reason for growing concern in the CEE. In response, Moscow is pushing forward with the construction of Turkish Stream to secure a route to the growing Turkish market. A second line of the Turkish Stream pipeline, into Europe, would help Gazprom keep its markets in Bulgaria, Serbia and Hungary. Each of these countries declared support and welcomed the Russian project. But it is still unclear whether it is feasible.
In the CEE, geopolitics are colliding with markets. While Russia wants to maintain and possibly grow its influence in the region, new contenders come along as new energy sources are found. This is mainly a race for markets, even though energy is closely linked to geopolitics, influencing the socio-economics and ultimately the security of the region. The real winner will be the one project that will link infrastructure to a new, reliable source of natural gas located as close to the region as possible. Betting on projects that are built up on resources available outside the region means planning for uncertainty. No strategist will prefer uncertainty to calculated risk. Much less will then prefer it to, well, certainty.
Victor Grigorescu
Victor Grigorescu was Romania‘s Minister of Energy in 2016. He also served at the Permanent Representation of Romania at the EU (2007-2011) as an expert on the EU’s trade policy.
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