Balkan Energy: A Year in Review

The year 2013 was particularly important for energy security in the Balkans, as it brought the news that Caspian natural gas is closer than ever to reaching a region that has been heavily dependent on Russian sources. At the same time, the Russian-led South Stream natural gas pipeline faced a serious legal setback for violating European Union laws.

After more than a decade of devising various pipeline routes to carry natural gas from the Caspian Sea to Europe, the Sothern Gas Corridor is finally set to materialize. In June 2013, Azerbaijan and the Shah Deniz Consortium selected the Trans-Adriatic Pipeline (TAP) to transport Azerbaijani gas to Europe starting in 2019. In December, the TAP shareholders passed a resolution to start construction following the final investment decision on extracting gas from the Shah Deniz II gas field in Azerbaijan (Azernews.com, December 17, 2013).

EU Energy Commissioner Gunther Oettinger called the decision to open the Southern Gas Corridor “a real breakthrough” and predicted that through its further enlargement, the corridor will have the potential to meet up to 20 percent of the EU’s gas needs in the long term (Europa.eu, December 17, 2013).

This groundbreaking development for Europe was only possible because Azerbaijan and its State Oil Company took the initiative and bankrolled most of the cost to build the completely new 1,250-mile Trans-Anatolian Pipeline (TANAP) from the Georgian border through Turkey to the border with Greece. TANAP, together with the South Caucasus Pipeline through Georgia, which is now being expanded, form two thirds of the length of the originally conceived Nabucco pipeline that would have carried Caspian gas across the South Caucasus, via Turkey and onward to Central Europe.

The selection of TAP as part of the Southern Gas Corridor instead of the later re-designed Nabucco-West route provoked a mixed reaction in Central-East Europe (CEE). It effectively terminated Nabucco, which was supposed to transport natural gas from the Caspian region to Austria via Turkey, Bulgaria, Romania and Hungary. Politicians and experts have argued that Italy’s oversupplied and already diversified gas market does not need Caspian gas as much as CEE, whose main supplier will remain Gazprom for years to come (see EDM, May 30, 2013).

The cancellation of Nabucco will negatively affect countries such as Romania, Hungary and Slovakia, but some of the Balkan states may have a chance to be fully or partially supplied with Caspian gas. Bulgaria is set to receive half of its gas supplies—1.5 billion cubic meters (bcm) per annum—from TAP trough an interconnector with Greece. The Interconnector Greece-Bulgaria (ICGB) and TAP have already signed an agreement to link the two projects and bring gas from Azerbaijan to Bulgaria (Euractiv.com, Standartnews.com, January 7). In addition, TAP has signed a preliminary agreement with the Ionian Adriatic Pipeline (IAP), which will connect with TAP in Albania and deliver gas to northern Albania, Montenegro, Bosnia-Herzegovina and Croatia (Trend News Agency, November 6, 2013).

Energy prices remained a priority item on the Balkan agenda in 2013. An increase in electricity prices caused a political crisis and brought down the Bulgarian government in February 2013 (see EDM, February 22, 2013). Romania reported a 10-percent increase in energy prices, prompting the government to revise its long-term energy strategy. Countries in the region have managed to negotiate better prices for Russian gas in 2013, as Gazprom is feeling threatened by the Southern Gas Corridor. In February, the Russian newspaper Izvestia published Gazprom’s prices in Europe. The article was illustrated with a map demonstrating that the further a country is located from diversified gas markets, the more it pays for Russian gas. Bulgaria, Macedonia, Bosnia-Herzegovina, Poland and the Czech Republic have been paying about 40 percent more than the United Kingdom, where the gas market is highly diversified. Average Gazprom prices in Europe have been reduced to $380 from $400 in 2012, but the Balkan countries continue to pay well over $450 per 1,000 cubic meters of Russian gas (Izvestia.ru, February 1, 2013; Deutsche Welle, December 30, 2013).

The year 2013 also witnessed Gazprom’s eagerness to conclude investment agreements on the construction of the South Stream Pipeline that will transport natural gas from Russia under the Black Sea to Bulgaria, Serbia, Hungary and Slovenia, with two branches to Croatia and Republika Srpska in Bosnia-Herzegovina. However, the European Commission pronounced all agreements signed by Russia with six European countries in violation of EU laws (see EDM, December 9, 2013). The Russian authorities blamed this negative ruling on Lithuania, which held the presidency of the Council of the EU in 2013, and on Energy Commissioner Oettinger. They suggested that the situation would change when Greece takes over the EU presidency in January 2014 because Athens also has an agreement with Russia on South Stream, and when Commissioner Oettinger is replaced (https://expert.ru/2013/12/13/spasitelnoe-predsedatelstvo-gretsii).

EU member states participating in South Stream requested that the European Commission help them renegotiate their agreements with Russia. As a result, Oettinger will be travelling to Moscow in January in an effort to resolve the problem (Turkish Weekly, December 27, 2013; Standartnews.bg, January 9). Gazprom’s unwillingness to comply with fundamental EU anti-monopoly energy laws puts the realization of the South Stream project under question. Experts predict delays of at least two years before construction starts (EurActiv, December 4, 2013). But there is a larger question of whether Moscow still wants to proceed with this expensive project, long considered a political maneuver by President Vladimir Putin.

The Kremlin pursued three political goals with South Stream: to retain Ukraine within its zone of influence; to prevent the construction of Nabucco and protect Gazprom markets in CEE; and to undermine the European Union’s energy laws by creating problems between EU member states and Brussels in order to obtain concessions for Nord Stream, its priority pipeline in Europe.

Russia has achieved some of its objectives: Moscow prevailed in Ukraine with a lucrative bailout to prevent it from expanding relations with the EU, and thus, it may no longer need to build South Stream; Azerbaijan essentially made a compromise with Moscow in selecting TAP over Nabucco, which leaves many of the CEE markets to Gazprom; and some EU members are now in conflict with Brussels over the legal problems surrounding South Stream. This leads to the conclusion that if Russia is not able to obtain legal concessions from the EU, it may intentionally deepen its confrontation with the European Commission to have a reason to abandon South Stream.