MISSION BALKANS

Russian gas is still a cause of disputes between European countries. It is well known that its exports to the EU have been curtailed for various reasons. The main goal of European countries is to diversify energy supplies to the continent via a network of pipelines, increasing liquefied natural gas (LNG) exports and implementing measures to reduce gas consumption in general.

A new gas conflict in Europe is taking place in the Balkans due to the decision of the Bulgarian parliament to introduce a fee for the transit of Russian gas through its territory via the Turkish Stream pipeline. In the worst case scenario, this can make Gazprom stop the supplies through the Turkish Stream and lead to fuel shortages in the region. Even if not the most realistic scenario, it is still possible. And since gas flows mainly to Hungary and Serbia, it is understandable how much they dislike such an innovation.

Hungary, Serbia, and Northern Macedonia called the Bulgarian parliament's decision unacceptable and illegal, threatening their energy security, and warned Sofia that they could cancel it.

It is likely that the Bulgarian decision eventually pushed Serbia to sign a gas sales and purchase agreement with Azerbaijan as soon as possible. Belgrade is confident that this agreement will not only expand energy ties with Baku, but will also strengthen the country's energy security by reducing its dependence on Russian supplies.

When a friend became...

On October 13, the Bulgarian parliament introduced a 20 Leva fee (about €10) per each megawatt-hour (about $111 per 1,000 cubic metres) of gas transited through its territory. Importers and gas transport organisations are responsible for paying the fee. A similar fee is introduced for LNG. The new fee is about one fifth or 20% of the current baseline price at the TTF gas hub in the Netherlands (€50/MWh).

Meanwhile, the Bulgarian government sees no problems for Hungary and Serbia, since it is Russia's Gazprom, not them, that pays for transit. The media estimated that this would bring Sofia additional revenues of almost 2.4b Leva per year (about $1.29b). Gazprom has not confirmed its readiness to pay the new fee, although Hungary has already received assurances from the Russian government that the innovation will not prevent the continuation of transport through Bulgaria.

"Thanks to this levy, we are bringing competition back to the market. We do not expect a price increase in Serbia and Hungary, but a decrease in Gazprom's profits, which means a decrease in the funds that go to the Russian state budget for the war. We also create a real competition with other sources of gas - liquefied versus pipeline gas, which comes from Russia," explained Bulgarian Prime Minister Nikolay Denkov.

However, this comment found understanding neither among the main beneficiaries of this gas nor the Bulgarian president, who asked the Constitutional Court to give an opinion on the introduction of additional transit fees. According to Radev, the adopted law violates a number of provisions of the constitution, the principles of property rights guarantees and free economic initiative. According to the president, such a step does not comply with the legality of taxes and fees, as the legal status of the fee is unclear - whether it is a tax, a levy or a fee.

"Bulgaria demonstrates itself to be an unreliable partner of Hungary, which is our ally and partner. It is very likely that Hungary will turn to the EU court against us. The country, with which we signed an agreement only two months ago during my visit there, thanks to friendship and good work. This turns Bulgaria into an important factor in the supply of liquefied gas to Europe," President Radev said.

Belgrade, which heavily depends on Russian gas, has expressed concern over the introduction of a transit tariff that would increase the cost of gas by $80-100 per thousand cubic metres. Serbian President Aleksandar Vucic called Bulgaria's decision strange and a big problem for his country.

Serbia and Hungary also prepared a joint statement indicating that Bulgaria's decision was a hostile move and a threat to the security of the two countries' energy supply.

Hungary also asked the European Commission to initiate an infringement procedure against Bulgaria, which introduced a transit tax without consulting Budapest. Hungarian authorities are threatening to sue the European Court of Justice if Brussels does not take action by the end of this year.

"Bulgaria's tax seriously threatens the energy security of Hungary and the entire region," said Hungarian Minister for EU Affairs Janos Boka.

"Unfortunately, Bulgaria has taken decisions that jeopardise the security of gas supplies to Northern Macedonia, Serbia and Hungary. The introduction of the tax is a hostile step that Bulgaria did not warn about in advance. It is unacceptable when one member country of the European Union threatens gas supplies to another country in the community. This contradicts the rules and principles of European solidarity," Hungarian Minister of Foreign Affairs, Péter Szijjártó, stated.

In connection with Bulgaria's decision, the European Commission said that the measure was taken at the national level and had nothing to do with the EU sanctions against Russia. At the same time, Brussels promised to analyse Hungary's request and assess Bulgaria's actions. However, the tone of the EU officials' comments suggests that serious objections from Brussels are unlikely to follow, let alone measures.

"This move may have an extremely unfavourable impact on both Serbia and Hungary, as well as on some other countries in the region and the European Union, which will also be affected," noted Serbian Minister of Mines and Energy Dubravka Djedovic-Handanovic.

ASAP

Perhaps it was the current situation that prompted Belgrade to intensify its efforts to diversify gas transport sources and reduce its dependence on Russia. Djedovic-Handanovic said that Serbia was holding talks to take some measures to protect national energy security. It is easy to guess these measures. It is not by chance that the signing of strategically important documents on cooperation in the gas sector between Azerbaijan and Serbia took place with the direct participation of Jedovic-Handanovic during her recent visit to Baku. Belgrade seeks to diversify the sources of supply to ensure energy security, and the decision of the Bulgarian authorities only accelerated this process. So the signing of the contract for the purchase of Azerbaijani gas serves this purpose.

The contract signed between SOCAR and Serbian company Srbijagas on November 15 provides for Serbia receiving up to 400 million cubic metres (mcm) of Azerbaijani gas annually in 2024-2026. This volume will then increase to 1bcm.

In addition, Baku and Belgrade agreed to explore opportunities for LNG supplies to Serbia, co-operation in the field of gas storage, participation in gas trading operations of SOCAR, as well as in the construction of gas-powered plants.

Thus, Serbia, which consumes more than 3 billion cubic metres (bcm) of gas annually, will become the eighth country to buy gas from Azerbaijan. It will be supplied via the Bulgaria-Serbia Interconnector (IBS).

"By supplying Azerbaijani gas to Serbia via the IBS, which is expected to be operational in the near future, we will achieve our strategic goal of diversifying our sources of supply, including strengthening our role as a transit country in delivering gas to Central Europe," Jedovic-Handanovic said.

The total length of the IBS interconnector will be 170 kilometres, of which 109 kilometres will go through Serbia. It will be possible to transport up to 1.8bcm of gas annually in both directions. According to the estimates of the European Investment Bank, the cost of the project is €85.5m, of which €49.6m are EU subsidies. The launch of the pipeline will reduce Serbia's dependence on Russian gas. IBS will function in conjunction with the LNG terminal in Alexandroupolis (Greece), will have access to the Southern Gas Corridor and will provide an alternative gas supply from Azerbaijan.

As soon as the construction of the pipeline is over, Serbian authorities will consider the possibility of introducing new interconnectors with neighbouring countries, primarily with Northern Macedonia, which will turn the country into a regional transit hub.

Solidarity Ring

Other European countries also want to diversify their supply sources. In April, Azerbaijan, Bulgaria, Hungary, Slovakia and Romania signed the Solidarity Ring agreement to use domestic European gas interconnectors to increase gas flows from the Caspian through the Southern Gas Corridor. In August 2023, Hungarian Prime Minister Viktor Orban and Azerbaijani President Ilham Aliyev agreed that Hungary would buy 100mcm of natural gas from Azerbaijan by the end of the year. Later this volume will be increased to 1bcm. Currently, Azerbaijani gas in Europe is supplied to Italy, Greece, Bulgaria and Romania. Slovakia and Albania are next in line.

By the way, new promising directions become even more important after the Greece-Bulgaria Interconnector (IGB) was commissioned in October 2022. Bulgaria started to receive Azerbaijani gas through the IGB in the volumes stipulated in the relevant contract (1bcm annually). The IGB dramatically reduces Bulgaria's dependence on Russian gas and will supply Serbia, Northern Macedonia, Romania and later Moldova and Ukraine thanks to its initial annual capacity of 3bcm and a design capacity of 5bcm. That is why operators in Bulgaria, Romania, Hungary and Slovakia offered to transport increased volumes of Azerbaijani gas through their networks to Central Europe.

Azerbaijani gas has already been supplied to the Romanian market via the IGB since 2023. Later, it will also go to Serbia as soon as the interconnector with Bulgaria is ready.

In addition, the supplies of Azerbaijani gas through Romania and to Moldova may start. Romanian Energy Minister Sebastian Burduja recently announced Bucharest's readiness to supply Moldova or other countries in the region with gas from Azerbaijan during the cold season.

"If we have special requests from Moldova or other states in the region, we are ready to activate the option with Azerbaijan secured by Romania last spring, through which we have access to 1bcm of gas. If even this volume is not enough, we can import liquefied natural gas via the Greece-Bulgaria-Romania or Türkiye-Bulgaria-Romania route," Burduja said.

Other promising projects to expand Azerbaijan's energy ties with the Balkan countries include the Ionian-Adriatic Pipeline (IAP). Through the IAP, Azerbaijani gas from Albania will go from Albania to Croatia via Montenegro and Bosnia, from where it can be delivered to Central Europe. The realisation of this project will provide gas to three more Balkan countries. This will mean that Azerbaijan has successfully accomplished its mission to expand into the Balkan gas market.