Southeastern Europe

Ukraine war piles pressure on Southeastern Europe to find new gas

Gas supplies from the southern corridor can help Europe avoid dependence on Russia, but they are no silver bullet.

BY NEKTARIA STAMOULI

Balkan countries have bitter experiences of the pain of a Russian gas cut; it's not something they want to repeat.

Countries such as Bosnia, Bulgaria, Serbia and Croatia felt the pinch when the Kremlin turned off the tap amid a contractual dispute in 2009. Across the Balkans, factories shut down, urban heating networks scrambled for alternative fuels and some people went back to felling trees for firewood.

Thirteen years later, President Vladimir Putin's invasion of Ukraine has raised the prospect that the Kremlin's energy weapon could be deployed again; that will test whether Southeastern Europe can rapidly plug itself into alternative suppliers such as Azerbaijan, expand its local production and boost deliveries of liquefied natural gas (LNG).

The region has made some progress in showing Russian gas export monopoly Gazprom that alternatives exist.

Greece has reduced its dependence on Russian gas to about 40 percent from 82 percent in 2009. After years of delays — blamed by Western diplomats on Russian meddling — Bulgaria will finally open a crucial gas interconnector across the Greek border at the beginning of July that should allow more non-Russian gas into the region.

“As we all try to achieve diversification of sources to move away from Russian oil and gas, the Eastern Mediterranean becomes even more important,” said Greek Prime Minister Kyriakos Mitsotakis during a recent meeting with Israeli Foreign Minister Yair Lapid in Athens. “All interconnection projects in the Eastern Mediterranean, whether through pipelines or LNG or electricity interconnections, should be very much under our microscope.”

But none of that means it's easy for the Balkans to kiss goodbye to Gazprom.

A major project to bring more LNG into Greece will not be fully ready until late next year and schemes to develop Eastern Mediterranean undersea gas deposits have been heavily delayed by geopolitical tensions and lack of economic viability.

While Azerbaijan wants to cast itself as a potential savior to Europe, it is still a few years away from being able to seriously ramp up exports along the Trans-Adriatic Pipeline (TAP), running through Greece and Albania and under the Adriatic to Italy. The pipeline can carry 10 billion cubic meters (bcm) of gas a year, and it's already running close to capacity.

Countries in the region are deeply wary of the EU hitting Putin with gas sanctions. While about 40 percent of Europe's overall gas demand comes from Russia, countries such as Bulgaria, Serbia, North Macedonia and Bosnia are almost totally dependent on Russian imports. Hungarian Prime Minister Viktor Orbán is saying a flat "no" to EU gas sanctions, Bulgaria is seeking an exemption from any such action and Greece's Mitsotakis cautioned that an energy embargo must not be "more painful" for Europeans than for Russia.

Strength in diversity

There is a scramble to boost local production and gas connections to lessen dependence on Russia.

The TAP pipeline is supposed to double capacity to 20 bcm over the next five years or so. A floating LNG terminal at Alexandroupolis in northern Greece, with capacity of 5.5 bcm, is supposed to come online by the end of next year. Gas reserves in the Eastern Mediterannean could potentially provide Europe with about 10 bcm, if the states in the region manage to agree on a way to ship the gas to Europe.

But even taken together that won't fully replace the 150 bcm coming from Russia.

“East Med, together with the other gas from southern corridors, is just a drop in the bucket for Europe," said Gabriel Mitchell, director of undergraduate studies for the University of Notre Dame at Tantur in Jerusalem.

While that is true, these are nevertheless significant volumes for the region. Greece consumes 5 bcm of gas a year; Bulgaria 3 bcm. Those relatively modest volumes required to secure energy security in the Balkans lie in stark contrast to Italy, which has annual consumption of 70 bcm and imported 21 bcm from Russia in 2020. Rome also buys from Azerbaijan and is scouring Africa for alternatives to Russia.

The trick with diversification is not to switch from one strategically delicate supplier to another. Longer term plans for new supplies have involved discussion of Iran, Iraq and Central Asia. As Mitchell put it: "A lot of the countries that provide natural gas come with their own baggage."

Experts agree, however, that diversity works. Lithuania is a classic example of a country that managed to negotiate down sky-high Russian gas prices simply by having the alternative of an LNG terminal. Lithuania has now halted all Russian gas imports without destabilizing its network.

“You can still be dependent on Russian gas, but you will no longer be vulnerable to it. It's the one that has more alternatives that has leverage in gas trade deals.” Elai Rettig, assistant professor in the Department of Political Studies at Israel's Bar-IIan University.

Pipelines peter out

Shortly before Russia's invasion of Ukraine, the U.S. pulled support for the EastMed gas pipeline, a €6 billion project that was meant to ship gas from deposits off Israel and Egypt via Cyprus and Greece to European markets. 

The war, however, has brought it back to the public discourse. The idea of a much cheaper alternative that would run via Turkey was also revived after the Israeli President Isaac Herzog met his Turkish counterpart Recep Tayyip Erdoğan in Ankara last month. Erdoğan said he was "very, very hopeful" for energy cooperation with Israel, and he will discuss the issue with Israeli Prime Minister Naftali Bennett after Ramadan, which ends May 1.

U.S. Under Secretary of State Victoria Nuland, however, said both pipeline scenarios would take too long. During a trip to the region, she called for faster solutions with increased LNG shipments.

Indeed, no company has been willing to invest billions in permanent infrastructure, in a region with so many conflicts and no assurances of long-term usage as the EU plans a zero emissions future by 2050.

“Any pipeline in this region would take nearly five years to be built and it would require around 20 years of continued usage to become viable business-wise. But this would already take us to 2050,” said Harry Tzimitras, director of the Peace Research Institute Oslo Cyprus Centre.

Keeping it green

Several options are currently under discussion, including sending gas to Egypt and then shipping it in liquefied form to Europe, or building new LNG —probably floating — facilities in Israel or Cyprus. Their construction will be quicker than the pipelines, but would still require a couple of years.

In the Balkans, the Greece-Bulgaria interconnector pipeline is now in the final stretch and Azeri gas is supposed to start flowing in September. Another pipeline is under construction outside the northern Greek city of the Thessaloniki and will transport gas from Trans-Adriatic Pipeline to North Macedonia, with the prospect of reaching Kosovo or Serbia.

“This winter is going to be a big problem, but in three years from now we will have more options,” said Rettig. 

The short-term energy crunch is prompting countries from Greece to Poland and the Czech Republic to extend the life of their coal-fired power plants.

There's also a hunt for more resources. Greece announced this week that it will speed up gas exploration projects to get a better sense of the deposits by the end of 2023. A Franco-Italian Eni-Total consortium also announced it would resume drilling off Cyprus.

But that rush for gas comes as the EU aims to shift away from fossil fuels to renewables.

“It is a fine balance that the member states need to face now: How to strike the balance between the need to act quickly, diversify and gain quick independence from Russia, at the same time not abandoning the climate targets,” said Tzimitras.

A number of electricity interconnectors are planned in the Eastern Mediterranean that have strong U.S. backing, such as the planned EuroAfrica interconnector from Egypt to Crete and the Greek mainland, and the proposed EuroAsia interconnector to link the Israeli, Cypriot and European electricity grids. These would not only connect energy markets, but also help prepare the region for the clean energy transition.

Athens and Sofia are discussing building a nuclear power station in Bulgaria to also supply energy to Greece. 

“Energy crises like this tend to invigorate innovations, similar to the Arab oil embargo in the 1970s,” said Rettig. “If you try to find a positive side to this, it's that; it means more investment in renewables, better nuclear technology, but we will also see more fossil fuel production, and more fracking. The one who creates the cheapest options will win the battle.”