THE SOLIDARITY RING

Bulgaria has been living without Russian gas for a year now, after Russia cut off its exports to this country in April last year because Sofia refused to pay in roubles. Now Bulgaria is trying, with some degree of success, to secure alternative supplies of gas at affordable prices. Thanks to the launch of the IGB (Greece-Bulgaria Interconnector) last autumn, the country could increase its imports of Azerbaijani gas from 300 million to 1 billion cubic metres (bcm) annually. The rest of demand (about 3bcm) is covered by imports of liquefied gas from Greece. All these measures allowed Sofia to successfully withstand the last winter.

The next step to improve energy security in Europe and Bulgaria in particular was the signing of a memorandum on the implementation of the Solidarity Ring initiative (STRING) in Sofia in April by the ministers of five participating countries (Bulgaria, Romania, Hungary, Slovakia and Azerbaijan). Therefore, to commemorate this historic event, the Azerbaijani President Ilham Aliyev visited Bulgaria in April.

A new road to Europe

The Solidarity Ring initiative was proposed by Bulgarian President Rumen Radev back in October 2022 and supported by the European Commission. It aims at increasing the security of natural gas supplies to the European Union, particularly to Central and South East Europe. In more detail, STRING is supposed to supply additional volumes of natural gas to the EU from the Caspian Sea (up to 5bcm per year) through the Southern Gas Corridor and using the existing transport infrastructure of Bulgaria, Romania, Hungary and Slovakia. Project participants are confident that the initiative can be realised in the shortest possible time and with minimal cost for minor upgrades to the existing network.

Memorandum of Understanding to promote cooperation between gas transmission system operators Bulgartransgaz (Bulgaria), Transgaz (Romania), FGSZ (Hungary), Eustream (Slovakia) and the State Oil Company of Azerbaijan (SOCAR) was signed in Sofia on April 25, 2023 in the presence of presidents of Azerbaijan and Bulgaria, Ilham Aliyev and Rumen Radev.

Assessing the memorandum, President Aliyev said the initiative would strengthen Europe's energy security and enable Azerbaijan to export more gas to many more European countries.

"Today Azerbaijani gas is exported to Georgia, Türkiye, Greece, Bulgaria, Italy. Starting from this year, to Romania as well. By the end of this year, provided we have all the necessary connecting pipelines, we are planning to start supplying gas to Hungary and Slovakia," Mr. Aliyev said.

He also mentioned Albania, which continues talks on the construction of a local gas distribution system. President Aliyev said he was confident that the number of European countries buying Azerbaijani gas would grow.

"We will expand the geography of our gas supply from six to at least 10 countries. I say 'at least' because I think this is not the end. We are planning to expand, as our presence in the European gas market will be even bigger," Mr. Aliyev said.

He added that natural gas is not the only energy product Azerbaijan supplies to Europe; Europe will also be the main destination for green energy.

"Leading international renewable energy companies have signed contracts and memoranda of understanding with us to produce more than 25GW of renewable energy in Azerbaijan. The construction of the first wind and solar power plants has already started... So we continue our active energy diplomacy and implementation of mega-projects. Everything started with oil, now comes gas, which will be followed by green hydrogen. All of these projects will connect us with strong transportation links, creating a completely new situation. In other words, we are in fact redrawing the energy map of Eurasia," Mr. Aliyev said.

President Radev recalled that the STRING initiative was proposed by Sofia because of the energy crisis. Its implementation will allow the supply of Azerbaijani gas to Bulgaria, Romania, Hungary and Slovakia. "The memorandum signed between the representatives of these five countries is an expression of the common desire to ensure the delivery of energy resources to our economies and to Europe without building new expensive infrastructure," he explained.

The Bulgarian leader believes that the Solidarity Ring can be used "right now" with good communication between Central and Eastern European countries and ensure the fastest, most reliable and cheapest possible supply of natural gas, thanks to the "excellent cooperation between Bulgaria and Azerbaijan and the support of the European Commission".

European Commissioner for Energy Kadri Simson said in her video address to the ceremony participants that the gas imported from Azerbaijan last winter had played an important role in energy supply and "the European Commission appreciates these efforts". She is confident that the signed memorandum will define the framework for alternative routes in terms of additional supplies to the region.

A huge step forward

The first step towards the Solidarity Ring initiative has been taken - the political will has been expressed, now it is time to implement the technical and commercial sides of the initiative. It is necessary that the network operators invest €1b to it. Also, it is necessary to conclude additional agreements to purchase additional volumes of the Azerbaijani gas to increase the production to the target set by the Azerbaijani leadership for this year. All these works acnnot be done overnight. But the confidence of the ceremony participants leaves no doubt that the project will be completed in the short term.

Azerbaijani Energy Minister Parviz Shahbazov called the signing of the memorandum "a huge step towards implementing a new initiative" that will open new markets for the local gas, and Azerbaijan will reaffirm itself as a reliable partner of the EU.

Acting Bulgarian Energy Minister R. Khristov described the signed document as "a serious step towards improving energy security", adding that joint work is also underway to explore opportunities for other countries in the region to join the initiative.

Hungarian Foreign and Trade Minister Péter Szijjártó called Azerbaijani gas the best solution to diversify supplies in Central Europe. "We have to admit that without the Solidarity Ring, European funding, we, the countries that are really in the heart of Europe, will be deprived of any possibility of getting large volumes of gas from Azerbaijan," Szijjártó said.

The Hungarian foreign minister pointed to Türkiye's exceptional role in the EU transit, expressing hope that Ankara would be part of the signed initiative "so that we can count on gas volumes from Azerbaijan".

Noting that STRING will contribute to the overall development of the entire region, Romanian Energy Minister Virgil-Daniel Popescu said that Bucharest actively supports the project.

"I hope that we can establish long-term cooperation with Azerbaijan also on the gas market. Slovakia is ready for that. We have pipelines, corridors, we have ties with Poland, with all our neighbours, the Czech Republic and other countries. So we can be a very promising partner for Azerbaijan in terms of distribution of gas to other parts of Europe. We have gas storage facilities, and SOCAR can be an important partner for us," added Karel Hirman, Slovak Minister of Economy.

Amid the energy crisis that started last year, various ideas have been voiced in the EU about joint energy purchases, the need to share the accumulated reserves with neighbouring states, the price ceiling on fuel prices, and various options for saving fuel, as well as many others. Incidentally, some of these initiatives have been implemented. After the launch of the Southern Gas Corridor and the agreement to lay an electric cable under the Black Sea to transmit green Azerbaijani energy to Europe, the Solidarity Ring was the third major project that would unite European countries in a desire to diversify supply sources. The first and most important step in this direction was the signing of a Memorandum of Understanding on a Strategic Energy Partnership with the European Commission between Azerbaijan and the EU last summer. This document in fact triggered discussions on new options to reduce dependence on Russian gas. Although the Sofia document does not specify a role for Türkiye or Georgia, they will be involved in the export process by default, because Azerbaijani gas will go to STRING suppliers via the same Southern Gas Corridor.

SOCAR's Bulgarian ambitions

An equally significant event during Ilham Aliyev's visit to Bulgaria was the official opening of the Sofia office of the State Oil Company of Azerbaijan.

SOCAR currently has offices in Georgia, Türkiye, Russia, UAE, Ukraine, Romania and Switzerland. SOCAR also has a network of petrol stations in the latter three countries, as well as in Austria.

The signing of the new initiative requires the expansion of SOCAR's presence in Europe. The opening of an office in Sofia is therefore a logical decision that will make an important contribution to the company's future activities in the European market.

Parallel to the opening ceremony, the Energy and Water Regulatory Commission (KEVR) held a meeting at which it decided to issue SOCAR Trading Gas and Power with a licence to trade natural gas in the Bulgarian market within two weeks.

According to KEVR, the parameters of SOCAR's proposed business plan are for the period 2023-2027 and will allow the company to freely trade gas in the Bulgarian market. According to Bulgarian media, the company plans to manage physical and virtual flows as well as return flows along two strategic corridors (Germany-Eastern Europe, Italy-Bulgaria).

We have yet to know exactly what volumes SOCAR will sell in the Bulgarian market. However, the emergence of a new strong player in the local market is good news for end-users, as competition with the current providers of these services is likely to provide them with lower prices.

Judging by the activities that the State Oil Company has deployed abroad, it is not hard to guess that gas trading is just the first step on the Bulgarian market - new projects and investments will definitely follow.