Economic Update

Energy Hub

Bulgaria | 13 Oct 2008

Bulgaria's role as a key European energy centre has been put under the spotlight this month after the visit of a senior US official.

On October 7, Boyden Gray, the US' special envoy for EU affairs and Eurasian energy made a much-anticipated trip to Sofia to meet Bulgarian Prime Minister Sergei Stanishev. At the meeting, first mooted by US Secretary of State Condoleezza Rice in July, Gray set out the US's stance on Bulgaria's role in European energy policy.

Gray stated "US support for Bulgaria's turning into a regional and European transit, distribution and logistics centre for gas and oil," highlighting the growing recognition of the Balkan country's strategic importance at a time of growing concerns about energy security.

According to a government statement, during the summit, Gray "underlined the need for Europe to be active and unified when drawing up its energy policy".

The context of the visit, apparently referred to only obliquely, involves concerns that European energy policy is being pulled in two directions - towards greater involvement with Russia, and, on the other hand, diversification. The White House is believed to be worried about Bulgaria's recent energy cooperation with Moscow, as it is, in the US view, undermining efforts to decrease Europe's dependence on Russian oil and gas. Tension between Russia and Washington has increased of late over a variety of geopolitical issues, particularly now in Georgia.

Over the past year, Bulgaria has confirmed its involvement in two proposed Russian-led energy projects. One, the Burgas-Alexandroupolis pipeline, will carry Russian oil from the Bulgarian Black Sea port of Burgas to the Greek Aegean city of Alexandroupolis and the Mediterranean.

The second, potentially more important, is the so-called "South Stream", a proposed pipeline transporting Russian gas through Bulgaria and Serbia to Central Europe and possibly the Aegean.

The latter project is likely to be the US's major concern, as reports in the international press have suggested that it could be a rival or even replacement for the planned Nabucco pipeline, which would carry gas from the Caucasus and potentially Central Asia through Bulgaria to Central Europe.

Nabucco, currently slated for completion in 2017, has been beset by problems of late, with cost estimates now going as high as $12.3bn, from the $7.2bn originally forecast, and still a question over future gas supplies. South Stream does have gas - though possibly not enough - but has not been without its hitches as well - recent Russian press reports suggest that the scheduled completion date has been pushed back two years to 2015.

Concerns are likely to have been heightened by the announcement in early October that the new entity Bulgarian Energy Holding (BEH), a state company with responsibility for all types of energy, is looking to increase gas imports from Russia's Gazprom, and partner in gas and oil exploration projects with the Russian firm.

For its part, the Bulgarian government has strenuously denied that South Stream and Nabucco are mutually exclusive, and has stepped up its efforts to make its views known to coincide with Gray's visit, which has been portrayed on the official Bulgarian side as part of a general increase in interest in Bulgaria as an energy centre. Meanwhile, the authorities have reaffirmed their commitment to Nabucco, as part of a broader policy of maintaining strong relations with both EU partners and Moscow, to which Bulgaria has traditionally been close.

According to a Bulgarian government statement, Stanishev acknowledged "the need for increasing diversification of sources and energy routes and noted that South Stream cannot be an alternative to Nabucco".

Meanwhile, Bulgarian President Georgi Parvanov has noted that arguments over South Stream are not aiding the cause of diversification. "Instead of debating whether South Stream is an alternative to Nabucco, we are making definite steps towards establishing Nabucco as a massive European project in its own right, which will be responsible for major energy supply in the short future", he said in a statement.

With South Stream seemingly somewhat closer to realisation than Nabucco, the Bulgarian government's decision to get involved with the Russian plan seems logical. It may well be that the two projects are not incompatible.

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