Bulgaria tries to resurrect South Stream gas project

Bulgaria tries to resurrect South Stream gas project
By Siana Mishkova December 4, 2015

Bulgarian and European Commission officials have been in talks for several months over the possible resurrection of the South Stream natural gas pipeline project, designed to transport Russian gas to Europe bypassing Ukraine, Bulgarian deputy prime minister Tomislav Donchev revealed at a parliament session on December 3.

The statement was made a few hours after Russia suspended negotiations over the Turkish Stream pipeline project, amid an escalating conflict between the two countries following the downing of a Russian plane by Turkey last week. Turkish Stream was launched by Russia’s president Vladimir Putin in December 2014, replacing the South Stream project, which Putin cancelled amid rising tensions between Moscow and the EU.

Donchev underscored that the talks with the EC were not provoked by the new conflict between Russia and Turkey, as they have been in progress for several months.

South Stream’s cancellation was a heavy blow to Bulgaria, which currently imports almost all its natural gas from Russia through Ukraine.

Although Moscow’s official reason for the scrapping of the South Stream project was Bulgaria’s failure to provide its consent to the construction, the real hurdles are believed to have been related to legal and political conflict which prevailed over the economic rationale for the project.

The key legal issue was related to EU energy market regulation that requires third party access (TPA) to gas infrastructure on EU territory, meaning that Russian state-owned natural gas export monopoly Gazprom should provide access to its pipelines for other companies on a competitive basis. However, Gazprom wanted to book and utilise the full capacity of the onshore extension of the South Stream pipeline, which would have reached Bulgaria under the Black Sea, then continued to Serbia, Hungary and Austria.

Bulgaria did not stop work on South Stream after Putin scrapped it, claiming it had orders that had not been cancelled officially. Now, Sofia is still in talks with the EC regarding a modified version of the pipeline to avoid the TPA conflict. The adjustment proposed by the Bulgarian authorities envisages Gazprom’s pipeline ending at an offshore terminal in the Black Sea near the city of Varna, which will not be considered to be on EU territory.

However, neither the EC nor Bulgaria has asked Russia what it thinks of the potential South Stream modification. According to Donchev, talks can start only after the EC comes out with a definitive stance on the project.

Should the adapted pipeline project goes ahead, Bulgaria would have to choose between two options to transport the gas from the offshore terminal, Donchev said. One is to build its own transit pipeline, extending existing infrastructure, while the other is to join forces with a European gas operator.

Under the initial South Stream proposal, the 63 billion cubic metre capacity pipeline was estimated to cost $29.3bn, well above Turkish Stream’s price tag of $11.4bn.