GAS CRISIS CENTRE

Amid the unprecedented energy crisis, Europe continues to look for new suppliers of natural gas that would stop its dependence on the Russian supplies.

Meanwhile, Russia warned of a 40-percent cut in supplies to Europe via Nord Stream from June 16. But it then decided to stop exports altogether because of the pipeline repairs. Europe, and specifically Germany, view these moves as purely political fearing that the shutdown can extend to indefinite periods.

According to the EU leadership, a dozen of European states are effectively cut off from Russian gas supplies. While many of them will have to look for new solutions, Bulgaria has been more fortunate than others. With the launch of the Interconnector Greece-Bulgaria (IGB), the country should no longer fear a harsh winter and receive four times as much Azerbaijani gas annually.

Bulgarian jackpot

It’s been slightly more than three years since the ground-breaking ceremony of the IGB, which was followed by the opening ceremony of the pipeline on July 8 in Komotini, Greece. The ceremony was attended by Greek Prime Minister Kyriakos Mitsotakis, Bulgarian Prime Minister Kirill Petkov, Azerbaijani Energy Minister Parviz Shahbazov and other officials.

With the commissioning of IGB, Azerbaijan will be able to supply Bulgaria the full volume of natural gas, i.e., 1 billion cubic meters (bcm) instead of the previously supplied 250-300 million cubic meters (mcm) annually.

To appreciate the significance of the pipeline for Bulgaria, it is suffice to say that Bulgaria lost its right to buy Russian gas at the end of April this year because it refused to pay in roubles and so far has been covering 80% of its daily demand from Greek supplies.

However, IGB is a game changer, as the supply will be a major element of Bulgaria's energy security and part of the national plan to diversify the sources of natural gas.

In his keynote address at the opening ceremony, Mr. Shahbazov noted that 160mcm of Azerbaijani gas has been delivered to Bulgaria in the first half of 2022, while by the end of the year this figure will reach 600mcm.

At the same time, he said that since July 1 the Azerbaijani gas is supplied to Bulgaria daily and in full, which means a daily increase of 1.7mcm.

"Azerbaijan is a stable and strategic source of diversified gas supplies for European countries, including Bulgaria and Greece, and a reliable partner. In more than a year, 13.5bcm of gas have been delivered to Europe from Azerbaijan, with Greece and Bulgaria accounting for 1.4bcm and 440mcm of this volume, respectively", the minister added.

Mr. Shahbazov described the opening of the IGB pipeline as a strategically important event in terms of diversifying energy supplies to Bulgaria and south-eastern Europe, as well as consumer access to "affordable and clean energy".

The 180-km IGB pipeline connects the national gas network Bulgartransgaz with the Greek grid and is designed for 3bcm annually. It is planned to increase this indicator to 5.5bcm.

For Bulgaria, the launch of IGB is also key to the realisation of the Balkan Gas Hub concept. In addition, IGB is part of the Vertical Gas Corridor (VGC), which will connect the networks of Bulgaria, Greece, Romania and Hungary. There are considerations to extend it to Ukraine, Moldova and Serbia.

Romanian Prime Minister Nicolae Ciuca said that once the interconnector is operational, his country will be able to supply natural gas to Moldova and Ukraine (!).

"This is a very important pipeline for everything that the gas transportation network to Europe means. In essence, it will connect the network going through Anatolia and the Adriatic and will also connect to the BRUA pipeline, thereby supplying gas to Bulgaria and Romania. Certainly, we can ensure gas supplies to our eastern partners—Ukraine, Moldova and other countries, according to the distribution scheme of this gas network," Mr. Ciuca said.

Gas shortage

Meanwhile, Europe is seriously preparing for a potential total cut-off of Russian gas supplies. In her recent statements at the European Parliament in Strasbourg, President of European Commission Ursula von der Leyen revealed that their preparing an emergency plan for Europe, which will be finalised by mid-July.

She said that the reason behind this plan was Russians’ using energy as a weapon. According to her, 12 countries of the EU have already been completely or partially left without gas from Russia.

EU member states have national emergency programmes in place, but EU leaders believe that European cooperation and joint action by all 27 countries of the union is needed to resolve the issue.

"We must make sure that in the event of a complete cut-off, gas must continue to flow to where we need it most. We have to make sure we can rely on European solidarity. And we must protect the single market as well as the industrial supply chain," said the EC president.

At the same time, Europe continues to replenish its natural gas storage capacity for the coming winter season, albeit doing it with difficulties. In June, the rate of storage filling slowed down for the same reason of reduced supplies from Russia.

"Russia seems to want to show Europe that the latter will not succeed in filling its storage facilities. I have the feeling that it is trying to undermine Europe's goal of bringing gas storage levels up to 90% by November 1 and thereby politically weaken Europe," German Economy Minister Robert Habeck reacted to the drop in Russian gas flow through Nord Stream 1.

Russia explained its actions by the Canadian sanctions, which prevent the main technological equipment for the pipeline—gas turbines made by Siemens—from return to Russia from the Montreal plant. Minister Habeck said that the Siemens units in question "are not subject to sanctions.” Nevertheless, the gas supply is suspended, pushing prices up and putting EU efforts to properly prepare for the winter period in jeopardy.

Bad scenario

On July 7, gas prices in Europe jumped to their highest since March—$1900 per thousand cubic metres. Electricity prices have risen to record levels as many power plants run on natural gas.

Fatih Birol, head of the International Energy Agency (IEA), does not rule out the possibility that Russia could completely cut off gas supplies to Europe. "The closer we get to winter, the clearer are Russia's intentions. I think the purpose of the cuts is to prevent Europe from filling storage facilities and to increase Russia's influence during the winter months," Mr. Birol said, underlining that countries should delay the closure of nuclear facilities and "do everything possible" to fill underground gas storage facilities before winter.

The latest IEA report on gas markets for 2022-2025 (Gas Market Report, Q3 - 2022-2025) says that everybody will lose in the ongoing gas war. The only question is who will lose more. The IEA experts believe that a reduction in Russian gas supplies to Europe is inevitable, but it will hurt not only the European countries but also Russia itself. Moscow will need about ten years to fully redirect the gas flow to Asia. In addition, the reduction in European supplies will inevitably lead to the reduction of gas production in Russia.

Russian pipeline gas exports to the EU are expected to fall by more than 55% by 2025 relative to 2021 levels. The cumulative loss of Russian gas production in 2022-2025 could be more than 480bcm amid the existing sanctions and the EU's decision to phase out Russian fuel. In case of accelerated abandonment by European countries, Russian production losses over the period could reach approximately 550bcm.

The IEA notes that Russian pipeline gas imports to the EU will fall by 45% in 2022, less than 80bcm, if the current supply structure is maintained. At the same time, Russia's share of total imports will be only 25% - the lowest level in more than 20 years.

Active search

The EU mainly sees the solution to the gas crisis through the implementation of the previously adopted RePowerEU plan focused on the further development of renewable energy sources. However, this is going to take place in the distant future.

In the short term, however, as European Commissioner for Energy Kadri Simson pointed out, Europe's insurance against energy shortages is to stockpile it. "That is why we have introduced regulation to ensure that (underground) gas storage facilities are filled to 90% by November 1 each year. Storage filling is progressing well despite high prices. Storage levels across the EU are already above 50% capacity, which is about six percentage points higher than last year," Simson said.

She also recalled that the EU aimed to replace 50bcm of Russian gas with LNG and 10bcm with pipeline gas from other sources. LNG imports reached record levels: in May, a record 12.8bcm of liquefied natural gas arrived in Europe once again.

Regarding the flow from other regions, Ms. Simson noted that cooperation with Norway and the US on this topic has been deepened. The EU has also reached agreements on increasing gas supplies with Israel and Egypt, while the talks with Azerbaijan are close to finish. "I will visit Azerbaijan in July. At the same time, we have intensive contacts with Canada, Qatar, Algeria and others," Simson added.

Head of the Office of the European Commissioner for Energy, Stefano Grassi, said that on July 18 the EU was preparing to sign a "very important memorandum in the energy sector" with Azerbaijan, which will be one of the steps planned by Brussels to overcome the gas crisis. According to press reports, the memorandum is expected to be signed during Simson's visit to Baku. She added that the forthcoming agreement with Azerbaijan aimed at doubling gas supplies to south-eastern Europe through the TAP pipeline.

A helping hand

Dependence on Russian gas has become a headache for Europe, which, like any other dependence, is not easy to get rid of. However, Turkey has unexpectedly announced its readiness to arrange the export of Turkmen gas to Europe through its territory. Turkish authorities claim the negotiation process with Turkmenistan is at the final stage. The Southern Gas Corridor system is seen as a possible option for the export.

This topic was also discussed during the talks between the foreign ministers of Turkey, Azerbaijan and Turkmenistan, which took place in Ankara in June. At the final press conference, Turkish Foreign Minister Mevlut Cavusoglu noted that Turkey was making efforts to ensure that European countries would suffer less because of the problems associated with gas supplies due to the Russian-Ukrainian war. Azerbaijan, according to him, has also taken great responsibility in the matter.

Turkish Vice President Fuat Oktay said that three options were being explored with Turkmenistan to deliver natural gas: across the Caspian Sea using the TANAP pipeline, the swap agreement or by sea (ships) to the pipeline. According to Oktay, Turkmen President Serdar Berdymuhamedov is personally providing strong support for a quick result.

Ankara's interest in the issue is logical, given the political and economic dividends that such a project could bring to Turkey. In addition to the obvious revenues from the transit of Turkmen gas, there will be a new source of gas that can also be used for the own needs of Turkey. Most importantly, the country will become the largest gas hub in the Mediterranean region. Ashgabat will also be able to diversify its gas export routes.

It is difficult to say which option will be chosen, but it is no coincidence that swap deliveries of Turkmen gas are mentioned among the schemes. Perhaps it is about transporting gas from Turkmenistan via Iran to Azerbaijan. Apparently, this operation, which began in January 2022, has proven so successful that the parties agreed in June to triple deliveries from the previously negotiated 1.5bcm annually. Meanwhile, the Iranian president Ebrahim Raisi during his meeting with Mr. Berdymuhamedov at the Caspian Six Summit said that Tehran was ready to increase the transit of Turkmen gas to Azerbaijan in accordance with a recent request of Baku. That is, Azerbaijan was the initiator of increased gas supplies. And this can only mean that even if part of the Turkmen gas will be sent to Northern Iran, and another part to Nakhchivan, it is highly likely that the rest of the gas received by Azerbaijan through a swap agreement can be exported via the Southern Gas Corridor to Europe. Under the current circumstances with high gas prices such supplies are well worth the cost. After all, these volumes are likely sold on a spot basis.