Bulgaria signs gas deals with Azerbaijan

By bne IntelliNews September 22, 2014

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Bulgaria and Azerbaijan have signed two agreements on joint gas projects, that could mean Bulgaria will receive gas from offshore Azerbaijani fields by 2017. The deals were signed at a groundbreaking ceremony for the Southern Corridor gas project near Baku, which will provide Bulgaria and other Eastern European countries with an alternative to Russian gas supplies. 

Bulgaria’s economy and energy ministry said on September 20 that a letter of intent had been signed with Azerbaijan   to explore the possibility of earlier gas deliveries to Bulgaria. Bulgargaz and the State Oil Company of the Azerbaijan Republic (SOCAR) will start negotiations on a feasibility study on the supply of natural gas to Bulgaria from 2017 via the Greece-Bulgaria (IGB) interconnector. The two state gas companies also signed a memorandum of understanding to look into the expansion of Bulgaria’s gas storage facility near Chiren.

The agreements were signed during Bulgarian President Rosen Plevneliev’s two-day visit to Baku for the groundbreaking ceremony for the Trans Anatolian Gas Pipeline (TANAP), which included bilateral talks with Azerbaijani President Ilham Aliyev. 

Bulgaria is already expecting to receive gas from Azerbaijan’s giant offshore Shah Deniz field via Turkey and Greece, thereby ending the Russian monopoly on gas supplies to the Bulgarian market. In addition to increasing Bulgaria’s energy security, the new competition is also expected to result in lower prices on the domestic market. 

Obtaining supplies from Shah Deniz is a key component of the European Commission’s Southern Gas Corridor project, launched to diversify gas supplies away from Russia by directly tapping new sources in the Caspian and Middle East. 

A final investment decision on the second phase development of Azerbaijan's Shah Deniz field was signed on December 17 2013. The agreement paved the way for investment of around $28bn to expand the field and build pipelines to carry its output to European markets, bringing total investment into the field and transport infrastructure to $45bn.

Shah Deniz II will add around 16bn cubic metres (bcm) of gas per year to the 9bcm  currently being produced by the first phase. Turkey will receive 6bcm, and European customers the remaining 10bcm, with the largest share going to Italy. The BP-led Shah Deniz consortium has already signed contracts with companies from Bulgaria, Greece and Italy. BP said in 2013 that it expects to export the first gas from the field to Georgia and Turkey in 2018, with the first shipments to arrive in Europe around a year later. Bulgaria is initially expected to receive 1bcm of gas from the field. 

To carry gas to Europe, the existing South Caucasus Pipeline (SCP) through Azerbaijan and Georgia is being expanded and two new pipelines - TANAP across Turkey and the Trans Adriatic Pipeline (TAP) across Greece, Albania and into Italy - are being built. 

Gas interconnectors from Bulgaria to Greece and Turkey are also planned. Bulgaria and Turkey agreed in January to set up a joint company to build a pipeline linking their networks, while an investment decision on the Bulgaria-Greece interconnector is due to be made by the end of this year, which would allow construction to finish by 2016. 

Bulgaria has been exploring alternatives to Russian gas exports via Ukraine since January 2009, when supplies to eastern Europe were cut off. Plevneliev told the event in Baku that Bulgaria was the country worst affected by the 2009 crisis. 

“The Southern Gas Corridor will be end of the dependence of many years. This project will also be important from the standpoint of competitiveness and offer a fair price,” Plevneliev said, according to Azerbaijan’s APA news agency. 

“This pipeline will supply Bulgaria with gas. Romania, Serbia and other countries also will import gas. We’ll launch a connecting pipeline with Greece by 2016. We try to launch the pipeline merging Turkey and Greece in the short term.”

Top officials from other Caucasian and Southeast European countries including Georgian Prime Minister Irakli Garibasvili, Greek Prime Minister Antonis Samaras, Montenegrin Prime Minister Milo Dukanovic, and Turkish Minister of Energy and Natural Resources Taner Yildiz were present at the groundbreaking ceremony. 

Currently Bulgaria is almost entirely dependent on natural gas imports from Russia, and until EU sanctions were imposed earlier this years had been firmly behind the South Stream gas pipeline project. Sofia had hoped that South Stream, which will deliver gas from Russia, bypassing Ukraine, would end worries over supply disruptions. 

Sofia reluctantly complied with an EU decision to halt work on South Stream. However, under the former government of Prime Minister Plamen Oresharski, progress on the project quietly continued. Immediately before the government resigned in July, the Bulgarian press reported that state owned Bulgaria Energy Holding was preparing to make a decision on a €620m loan from Gazprom to finance the pipeline's construction. This was nipped in the bud by President Rosen Plevneliev, who said on July 22 that all activities related to South Stream should be suspended pending an agreement with the EU. 

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