Bulgaria and Romania: Pursuing Energy Security in a Changing Environment
The bad news for Romania and Bulgaria is now official — the long-planned Nabucco natural gas pipeline is history. Its latest modification, the shorter Nabucco-West pipeline that was supposed to transport Caspian natural gas to Europe from Turkey through Bulgaria, Romania and Hungary, and terminate in Austria, was unable to secure gas supplies from Azerbaijan. The winner is the Trans-Adriatic Pipeline (TAP), which will transport natural gas from the Shah Deniz II gas field to Italy via Greece and Albania, leaving Central Europe out of the Caspian gas supply routes. Central Europe will continue relying on Russian natural gas exports with slimmer chances of achieving energy independence in the near future.
Nabucco, a project backed by the United States to help European allies diversify supply sources and reduce dependency on Russia, has undergone several modifications. The latest alternative was the combination of the Nabucco-West Gas Pipeline and the Trans-Anatolian Gas Pipeline (TANAP), currently built by Azerbaijan’s State Oil Company SOCAR and Turkey’s Botas from the Georgian-Turkish border to the Turkish-EU border. But the Shah Deniz gas consortium announced on June 26th that it would use TAP to transfer Azerbaijani gas to Europe, instead of Nabucco-West. The decision seems logical for Azerbaijan given that SOCAR is acquiring 66 percent of Greece’s gas pipelines operator DESFA.
After years of staunch support for Nabucco, the European Commission eventually took an equal distance from Nabucco-West and its rival TAP — any of the two alternative routes would bring Caspian gas to Europe. However, Azerbaijani gas flowing through TAP to Italy will likely go to Western Europe, thus bypassing Central Europe, which is most dependent on Russian gas deliveries.
Nabucco-West was one of the pillars of the Romanian and Bulgarian energy strategies. Romanian Prime Minister Victor Ponta made this clear on May 22th during a meeting of the European Council: “For Bucharest, Nabucco remains the most important project in the energy sector…Europe needs an alternative to create competition and reduce the influence of the Russian Federation.” For Bulgaria, Nabucco was a chance to get out of the tight grip of Russian energy companies, which have long exercised economic and political influence in the country. While Romania depends on Russian natural gas for 20-25 percent of its needs, Bulgaria is almost fully dependent on Russian gas supplies. In absolute numbers, the markets are of comparable size for Gazprom, which annually imports 2.9 bcm (billion cubic meters) of gas to Bulgaria and 2.17 bcm to Romania.
The TAP selection will likely provide a boost to the Russian-led South Stream natural gas project. One of the reasons for Russia to pursue South Stream was precisely to prevent Nabucco, in order to keep Central Europe within its energy grasp. In 2012, Gazprom deliberately intensified negotiations with Bulgaria, Serbia, Hungary and Slovenia to conclude investment agreements and formally initiate the South Stream pipeline by the end of the year, ahead of the pending critical decisions on Nabucco.
Unlike Bulgaria, Romania has a good mix of its own energy sources that would probably allow the country to achieve full energy independence in a few years. Romania is the largest producer of oil and gas in Central Europe, holding five percent of Europe’s proven oil reserves and 1.2 percent of the proven gas reserves, even before the Black Sea natural gas discovery last year. In February 2012, Austrian OMV Petrom and American Exxon Mobil discovered a deposit of natural gas in the Romanian Black Sea shelf that is estimated to contain between 42 and 84 bcm. In addition, the country’s energy strategy envisions installing two more reactors at the Chernavoda nuclear power plant, thus doubling its share in the national electricity output. This will allow Romania to become a substantial regional electricity exporter by 2020.
Bucharest also expects significant shale gas discoveries as U.S. energy company Chevron has recently started exploration in Barlad region and along the southern seaside. Political turmoil and public protests in Barlad in the spring of 2012 led to a temporary moratorium on shale gas exploration until studies were completed on the environmental impact of hydraulic fracturing. Victor Ponta, who had just assumed office as interim Prime Minister in May 2012, admitted that the legitimate interests of the environment and business development were absorbed into the political campaign for the December 2012 elections. The moratorium was eventually revoked in 2013 and Chevron proceeded with exploration, although sporadic public protests still erupt.
The situation with shale gas prospects is very different in Bulgaria. In January 2012, following public protests in several cities, the Bulgarian parliament imposed an indefinite moratorium on shale gas exploration and extraction.Bulgarian analysts claimed that the protests were organized and financed by Russian interest groups to prevent Bulgaria’s potential energy independence and protect Russian energy projects in the country, such as the South Stream natural gas pipeline and the planned Russian-built Belene Nuclear Power Plant (NPP). Intelligence confirming the connections between environmental protestors and Moscow is yet to become publicly available, but it is clear that Bulgaria is a key country for Russia’s energy position in Europe. A potential shale gas revolution in Central and Eastern Europe would reduce gas prices, take away a significant portion of Gazprom’s European market and weaken Russia’s influence in Europe.
Ironically, the government of Boyko Borisov which initiated the moratorium on hydraulic fracturing used for extracting cheap shale gas, collapsed in February this year because of rising energy prices. It is becoming increasingly evident that in the absence of sufficient indigenous energy resources — except for a small amount of conventional gas deposits in northern Bulgaria— Sofia has no choice but to look for shale gas. Yet, this is not the logic of the new Socialist-led — and palpably Moscow-friendly — government. Prime Minister Plamen Oresharski was quick to announce that shale gas was not among his cabinet’s priorities, while Energy Minister Dragomir Stoynev reaffirmed Bulgaria’s support for South Stream. Giving his own interpretation of EU’s energy diversification strategy, Stoynev declared at a conference in Sofia on June 25th: “…the strategic South Stream has a great significance, not only for Bulgaria, but for the region. The project will create a direct link between a main supplier, Russia, and the main consumer, the EU.”
Following Oresharski’s appointment on May 23th, the Russian media suggested that the new Bulgarian government is likely to restart Bulgarian-Russian energy projects abandoned by the previous administration — in particular the Belene NPP and the Burgas-Alexandroupolis oil pipeline. In fact, the new Bulgarian prime minister talked positively about reopening the Belene NPP project in his very first TV appearance.
The Russian state company Rosatom is particularly insistent on completing the nuclear facility, and has initiated a lawsuit against Sofia asking for one billion Euros ($1.33 billion) in damages for the abandoned project. But Rosatom has more at stake than one more nuclear power plant under its belt — it needs to have a few completed projects on EU territory. Its subsidiary Atomstroyexport has built reactors in Russia, India, China and Iran, but it does not have a significant presence in the EU. Rosatom calculates that projects like Belene NPP would give Russia entry into the European nuclear facilities construction field.
The current government in Sofia — a coalition of the Socialist party and the ethnic Turkish party, supported by the ultra-nationalist Ataka — may not have the time to realize any of its program goals, including reopening the Belene NPP or further blocking shale gas development. A wave of protests swept the country two weeks into its mandate, after the parliament appointed media tycoon Delyan Peevski as the new Chairman of the State Security Agency. Peevski has been investigated for corruption and is widely perceived to have shady business connections, including with the largest Russian international investment bank that opened an office in Sofia last year. The protests that started on June 14thdid not stop after Peevski’s appointment was revoked a few days later; in fact, they may continue until the government resigns and new elections are scheduled.
In such an unstable atmosphere, it is very difficult to predict what direction the energy policies of the next government will take. Recent history has shown, however, that Bulgaria’s center-right governments tend to work for the country’s energy security and try to reduce dependence on Russian oil and gas supplies. Socialist governments, on the other hand, are more likely to cater to Moscow, because of their prior political connections and common opaque business interests.
Romania’s leftist parties are not as connected with Russia, because of historical and political reasons — Soviet domination over Romania was not as comprehensive as in the rest of the Soviet bloc. This may explain the fact that, both leftist and center-right governments in Bucharest tend to pursue the country’s national interests in their energy policy rather than catering to Moscow’s ambitions. In that respect, the Social Liberal Union government in Bucharest has little in common with the Socialist-led coalition in Sofia.
With Nabucco effectively off the table, Romania will likely focus on developing its own energy resources to achieve energy security through diversification. The emphasis will be on natural gas production from the Black Sea and potential shale gas deposits, nuclear energy and renewable energy sources. Romania’s rapidly developing renewable energy sector is already producing over 30 percent of its energy, ahead of the EU target of 24 percent by 2020. Bulgaria will likely benefit from TAP for gas supplies through interconnectors with Turkey and Greece, although Sofia will not be in a strong position to negotiate the necessary quantities. The EU on its part will have to deal with the legal and political implications of the South Stream gas pipeline, as Gazprom is reluctant to comply with the Union’s energy regulations and will use every means to retain its monopoly in many Central and Eastern European countries.
Margarita Assenova
This article first appeared in the July edition of Central Europe Digest, a monthly periodical published by the Center for European Policy Analysis (CEPA)