Despite the participation of most Balkan states in the two major rival projects of the EU's Southern Gas Corridor Strategy (Nabucco and the Turkey-Greece-Italy Pipeline), their natural gas security interests are best served by the construction of three cheaper, smaller-scale and more readily deliverable interconnectors, writes Dr. Theodoros Tsakiris, an energy expert at the Hellenic Centre for European Studies (EKEM) and a member of the US-Greece Task Force on Transforming the Balkans.
This commentary was sent exclusively to EURACTIV by the Hellenic Centre for European Studies (EKEM).
''The slow pace that has characterised the development of the Nabucco, TAP [Trans-Adriatic Pipeline] and ITGI [Turkey-Greece-Italy Pipeline] projects has induced the countries of Southeast Europe to look for smaller, more affordable and much more readily available diversification alternatives that combine the construction of interconnector pipelines with LNG [liquefied natural gas] terminals into one virtual pipeline system. This system, which is based on the construction of four 3-5 bcm/y capacity pipelines, would link Hungary with Greece by providing all intermediary markets with the option of Arab LNG and/or Caspian pipeline gas imports via the ITGI and future as well as present LNG terminals in Greece.
From a regional perspective, these 3-5 bcm interconnectors – which are planned as a means of diversifying gas imports away from Russia – will be more beneficial to the Balkan states involved than their participation in either Nabucco or ITGI. From their participation in Nabucco, Hungary, Bulgaria and Romania are expected to secure 2.5 bcm/y at an individual cost of €1.28 billion. Greece also expects to secure another 2.5 bcm/y from the ITGI project, at a total investment cost of €1.1-1.2 billion.
On the other hand, all three states could achieve their fundamental gas security interests by constructing a network of interconnectors with a minimum reverse-flow capacity of 3 bcm/y at a total cost of €320 million – of which €85 million will be paid by the EEPR [European Energy Programme for Recovery] (net cost of €235 million). For the Eastern Balkans, the Greece-Bulgaria Gas Interconnector (IGB) constitutes the first and most crucial link of this virtual chain of gas pipelines. In April 2009, Bulgaria's Energy Minister Petar Dimitrov and his Greek counterpart Costis Hatzidakis signed a Memorandum of Understanding on the construction of a new interconnector from Greece to Bulgaria (IGB) that is expected to cost around €170 million and has been included in the EEPR.
IGB, which would run for around 20-25 km in Greece and would connect the north-eastern city of Komotini to Bulgaria's central city of Stara Zagora, has been earmarked €45 million by the EEPR and could be completed within 18 months from the initiation of its construction. The pipeline will have an initial throughput capacity of 3 bcm/y, later to be extended to 5 bcm. From Bulgaria, this virtual chain could subsequently extend to Romania and Hungary through the construction of two much cheaper, equal capacity pipelines which would establish a 3-5 bcm 'virtual pipeline' connecting Northern Greece to Hungary.
The first one, the Interconnector Bulgaria-Romania (IBR), will be less than 15km long, crossing the river Danube from Russe in Bulgaria to Giurgiu in Romania to link the two national gas grids at an estimated cost of €30 million. It is expected to be completed by late 2010 and has been earmarked a €10 million grant under the EEPR scheme. The pipeline will have an initial throughput capacity of up to 2 bcm/y, but could be subsequently upgraded in line with expansions in IGB’s capacity.
The second one is the Interconnector Romania-Hungary (IRH). The IRH project is the most advanced of the three proposed interconnectors, and will run 109km from Arad in Romania to Szeged in Hungary. The pipeline is estimated to cost around €120 million and has been allocated a €30 million grant under the EEPR. The final throughput capacity will be 4.5 bcm/y and could be completed within 2010.
All three interconnectors will be built with reverse-flow capacity so as to enable the effective and timely delivery of gas in case of supply disruptions. Despite the change of governments in both Bulgaria (July 2009) and Greece (October 2009), the priority attributed to the IGB project has remained at the top of the energy policies for both countries.
As a consequence, on 4 March 2010, Italy's Edison, Bulgaria's Energy Holding Co (BEH) and Greece's Public Gas Corporation (Dimosia Epichirisi Paroxis Aeriou – DEPA), signed in Thessaloniki the final agreement on establishing an Asset Company that would build, own and operate the IGB project. The Asset Company will be controlled by BEH (50%) and the DEPA-Edison JVC IGI/Poseidon S.A., which is also promoting the ITGI project.
A commercial company will later be established to exploit the 3-5 bcm/y capacity pipeline, where BEH and DEPA would own a 35% share with Edison controlling the remaining 30%. Construction on the interconnector is expected to begin within 2010, in order for the pipeline to become operational by 2012. The pipeline's capacity is set to expand in combination with the overall increase in the throughput of the Turkey-Greece gas interconnector that has been in operation since November 2007.
Bulgaria, which is emerging as the focal point for these small-scale interconnectors, has recently championed the extension of this virtual pipeline so as to include energy community member states. Apart from North-to-South interconnectors, the Serbian and Bulgarian governments have decided to construct another important link that would also unify the region's gas markets on an East-to-West axis, thereby facilitating the establishment of a region-wide early warning and crisis management mechanism whenever the Russian-Ukrainian relationship breaks down again.
On 5 March 2010, the CEOs of the two respective Transmission System Operators (TSOs), Bulgartransgaz and Srbijagas, signed in the presence of Bulgaria's Energy Minister Traiko Traikov and his Serbian counterpart Petar Skundric a Memorandum of Understanding calling for the construction of a 2 bcm/y capacity pipeline that is estimated to cost around €100-120 million. Bulgaria has said that it will use around €60 million from its allocation in the European Regional Development Fund to finance the deal.
Philip Lowe, director-general of the European Commission's Energy Directorate, proposed to the Serbian government to use part of its pre-accession funds to support the project. Lowe noted that 'I also want to send a message to investors that the EC will […] give active support to any proposal for gas-fired electricity generation in the energy community […] countries'.
Skundric said that a major part of the agreement included the access of BEH to Serbia's gas storage facility that will be constructed with the help of Gazpom in Banatski Dvor, near Vojvodina. Construction on the pipeline is expected to start within 2011 so as to commission the line by 2013, a few months after the completion of the IGB.
Skundric also underlined that the Bulgarian link was part of a greater energy strategy that aspires 'to create access to gas coming from new sources such as the Greek LNG and in future through the Southern Gas Corridor from the Caspian region' while 'paving the way for becoming a regional gas hub' (Platts, 05/03/2010). These pipeline projects may not strategically affect the composition of the import portfolio in Central Europe’s major gas consumers – such as Hungary, Austria, Italy and Germany – but for the small-to-medium scale markets of the region, a diversification capacity of 2-2.5 bcm/y would constitute a major, if not critical improvement of their energy security.
Of course, the question all these interconnectors would have to answer is where would they get their gas from? For the Balkan Interconnectors, it is imperative to seek gas sources other than those which could serve the three major pipeline projects, since the same geopolitical, geological and financial restrictions currently curtailing the access of the Nabucco, TAP and ITGI projects to Caspian (Azerbaijan, Turkmenistan) and Middle East gas (Iraq, Egypt) remain relevant for their materialisation. The only immediately available import source that could fit this profile is the Arab Gulf, more specifically Qatari LNG exports.''