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Bulgarian gas storage would improve energy security and diversification

Bulgaria’s strategic location makes it a great hub for passing along natural gas to the rest of Europe. In case of trouble and limited supply it would also be the first to pay a heavy price.

October 16, 2018 - Eugen Iladi - Articles and Commentary

Borissov - Juncker press conference January 12, 2018 Boyko Borissov, Prime Minister of the Republic of Bulgaria Photo: Nikolay Doychinov (cc) flickr.com

Energy security is a major issue in Europe. Consumers and suppliers have been wrestling with how to deal with rising prices, ever-changing regulations and trade rules, and political conflict. At its heart, the controversy revolves around whether consumer countries will allow themselves to continue to be over-dependent on natural gas imports from Russia, a crucial energy supplier for many in the region.

When Russia cut supplies of gas to Europe in the winter of 2009 in the wake of the Ukraine conflict, Bulgaria and other Eastern European countries felt the pinch. The disruption was a wakeup call. Bulgaria, which is a member of the European Union, still depends on Russian oil and natural gas. But a new and workable gas-storage proposal being discussed by the Bulgarian government and the UK-based company Petroceltic has the potential to shift the power dynamic in Bulgaria’s favour. The country will almost certainly continue to import large quantities of gas from Russia, but the ability to store more of it will provide a big boost to Bulgaria’s energy security.

Russia is also thinking strategically about energy in Europe, building new transit routes to circumvent Ukraine. Pipelines such as Nord Stream, North Stream 2, TurkStream and the Baku–Tbilisi–Ceyhan line are either operational or being built to supply gas directly to European customers. Along with recently confirmed significant Black Sea gas deposits in Romanian offshore fields, these new transit routes and sources would open commercially viable options to import and store natural gas in Bulgaria, among other places.

Petroceltic, which is owned by funds managed by the investment firm Worldview Capital Management, holds licenses for four gas fields in the Bulgarian section of the Black Sea known as the Galata Exploration Block. Situated 22 km (13.7 miles) offshore near the city of Varna, Galata is a prime gas storage option with a capacity of 2.2 billion cubic meters (bcm), which is equivalent to about 70 per cent of the annual gas demand in Bulgaria. Storing natural gas in former, depleted gas fields is among the most cost effective and technically sound ways to stockpile large energy reserves and protect against unexpected supply, demand and cost fluctuations.

Galata’s geology and location are ideal for storing gas from Azerbaijan’s Shah Deniz field and from Turkey and Greece as well. The cost of using this site for gas storage is estimated at 30 million Euros (35 million US dollars) for 1 bcm. This is a fifth the cost of expanding the Chiren storage facility, the only other existing operation of its kind in Bulgaria. Located in northwestern Bulgaria, Chiren is about 400 km (250 miles) away from the Black Sea. It has been in use since 1974 and over time its storage capacity has been in decline.

Galata would also make Bulgaria less dependent on Russia as it is close to transport routes and accessible to liquefied natural gas (LNG) cargo ships via terminals in Greece and Turkey.

Petroceltic is seeking approval from Bulgarian governmental regulatory agencies for the Galata storage facility. If approved, the development will benefit regional energy markets and open the way for others like it. The project has broad support in Eastern Europe and in the European Union.

Worldview, founded by Bulgaria-born investor Angelo Moskov, fought and won a prolonged battle to take over Dublin-based Petroceltic, which is gradually becoming an important player in energy. Petroceltic, which was undercapitalised before the 2016 Worldview takeover, has a 38 per cent stake in the promising Algerian Ain Tsila gas field, in addition to its Bulgarian operations.

With a $500 million war chest, the firm is seeking to pursue additional energy-related projects. In the meantime, the Galata project holds the promise of reducing Bulgaria’s dependence on Russia for energy, and could set an example for other countries in Eastern Europe wishing to do the same. The U.S. and the European Union could provide a boost to the process if they would more robustly endorse the idea, and encourage the Bulgarian government to cut through the red tape and fast track projects that contribute to the region’s energy security.

Eugen Iladi is a freelance reporter covering topics related to politics, business, conflict and corruption with a focus on emerging markets.

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