Bulgaria, Serbia work toward creating gas pipeline interconnect

A proposed gas pipeline moving some 1.8 million cubic meters of natural gas per year from Bulgaria to Serbia linking the Bulgarian capital, Sofia with the Serbian city of Nis could have a beneficial impact on local economies and help the two nations to be less reliant on Russian oil.

As the leaders of the two countries signed a memorandum of understanding on the project in January, outgoing Bulgarian Energy Minister Temenuzhka Petkova cited secure deliveries and competitive prices as good results from a new pipeline.

“The engagement of different companies will be big,” Petkova said, according to a Jan. 20 Balkan Insight article.

Petkova’s successor has also weighed in on the idea: a Feb. 22 Reuters article quotes new Bulgarian energy minister Nikolay Pavlov projecting a timeline for the pipeline.

"At the moment the preparation of tender documents for the building of the IGB is under way, so that the construction can start at the beginning of 2018," Pavlov said in a press statement.

Funds for the project will come from Bulgaria's Innovation and Competitiveness Program, and some of the Serbian money will come from the European Commission. Analysts suggest Serbia might receive up to $63 million for the project.

Vishal Kumar Manoria, assistant manager of investment research and analytics at research firm Aranca, spoke to Balkan Business Wire about the project. Manoria has researched various sectors and markets in the Middle East and Europe for leading asset management and private equity firms.

“Bulgaria and Serbia's attempt to diversify their natural gas import sources from Russia is not a new concept,” Manoria said. “Both countries intended to diversify supplies after they were cut in 2009 over disputes between Ukraine and Russia. Russia is the sole exporter of gas to Bulgaria and supplies more than 80% of the Serbia’s annual gas consumption.”

Manoria said the Bulgaria/Serbia interconnect proposal is an effort to “re-activate” a deal that floundered in 2012.

“Lack of financing from Serbia’s side and collapse of South Stream project led to stagnation,” Manoria said.

Manoria said the new pipeline should be operational by 2020. However, by that time, he said, the demand for natural gas in both countries will outstrip the supply coming through the pipeline.

“Though the planned annual capacity of Bulgaria/Serbia interconnection would hardly be sufficient to meet the demand, potential to extend the capacity … will reduce the heavy reliance on a single supplier, especially from 2019, when Russia will stop gas deliveries through Ukraine,” Manoria said. “Moreover, this interconnection will also provide Serbia a possibility to receive certain quantities of the gas flowing through other priority projects commissioned by the EU.”

Despite these diversification efforts, Manoria still expects the Russian connection to stay strong for a while.

“Russia is expected to remain the dominant supplier in the medium term,” Manoria said. “However, we believe increasing supply from new routes will inevitably put pressure on prices and will strengthen negotiating power of both the countries with Russia.”