Since the beginning of 2012, Bulgaria has made two decisions that will increase its dependence on natural gas imports. The most recent is the March 28 decision to abandon the Belene nuclear plant project, reportedly because Bulgaria was unable to find a Western partner to help offset the estimated 6 billion-euro ($8 billion) construction costs. Also, the Bulgarian parliament in January banned the use of the natural gas technique known as hydraulic fracturing in the country, effectively putting Bulgaria's significant (albeit unproven) shale natural gas deposits off-limits.
Bulgaria is currently one of the most active energy import battlegrounds between Russia and the West, and this competition is exemplified by two competing proposed natural gas pipeline projects that transit the country: Nabucco and South Stream. The South Stream project is headed by Russian state natural gas firm Gazprom and would pipe Russian natural gas through the Black Sea to Bulgaria and then to southern Europe and Austria. The Nabucco pipeline, which would allow natural gas from the Caspian and the Middle East to flow through Turkey and Bulgaria before reaching Austria, is favored by the West as a way to lessen Europe's dependence on Russian natural gas. However, financial, technical and political issues threaten to end the Nabucco project, and Bulgaria is instead finalizing negotiations with Gazprom over South Stream.
Nabucco is not the only avenue for Bulgarian natural gas diversification, though. A March 20 agreement signed by Bulgarian Prime Minister Boyko Borisov and his Turkish counterpart, Recep Tayyip Erdogan, would see construction of an 80-kilometer (50-mile) pipeline with a capacity of 3 bcm per year, through which about 1 bcm of Azerbaijani natural gas would transit. The pipeline's short distance and the lack of political or ethnic tensions in the region make this project likely to be successful. However, Azerbaijan has a limited production capability and would probably not export more than 1 bcm to Bulgaria until 2017, when its Shah Deniz II field comes online.
Bulgaria is also considering separate agreements with Romania and Greece for a natural gas grid interconnection. There are no estimates for what the import volumes would be from both countries, but they would most likely be resales of Russian natural gas. Additionally, Greece and Bulgaria signed a memorandum of understanding regarding the construction of an import terminal for liquefied natural gas in Greece that would service the Bulgarian market. But given the high cost of such a facility and the current state of the Greek economy, this option seems highly unlikely.
All these deals would be more cost effective than either the scrapped nuclear plant or any hydraulic fracturing projects in the country.
Russia, which has been making deals with many of the European countries to discount the price of natural gas in exchange for further assets or leverage inside the countries, can be expected to increase its pressure on Bulgaria to avert this diversification. Indeed, Bulgaria's ban on hydraulic fracturing came as a result of intense efforts by the Russian-friendly Bulgarian Socialist Party to foster and strengthen a social movement against the environmental and security risks of the technique. Russia likely also will use its current monopoly on natural gas supplies to entrench its position in the Bulgarian energy sector. However, we expect Bulgaria to eventually achieve a more diversified natural gas import profile, which will continue to put pressure on Russia to offer further concessions in the pricing of the natural gas it exports to Bulgaria.