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Russia's Gazprom loses gas monopoly

Andrey Gurkov
January 8, 2021

As the new year starts, three events will have a long-term impact on Gazprom's business in Southeast Europe, affecting the whole EU market. Who will gain, who will lose out?

A construction worker giving instructions to a crane operator to unload a pipe for the TAP gas pipeline
The TAP pipeline is the last section of the Southern Gas Corridor, Europe's major project for diversification of gas suppliesImage: TAP AG

The gas market in southeast Europe was marked by three events at the beginning of the new year, all of them with far-reaching consequences. On January 1, Serbian President Aleksander Vucic celebrated his nation's gas supplies from Russia through a different route, notably via Bulgaria and the Balkan Stream pipeline, part of the Turkish Stream pipeline.

Only hours prior to the announcement, Bulgaria started getting Azeri gas via the Trans Adriatic Pipeline (TAP), prompting Bulgarian Prime Minister Bojko Borissow to say during a visit to a compressor station near the Greek border: "As of now, complete diversification rules." He basically announced the end of Russia's Gazprom monopoly on the Bulgarian market.

A picture showing the headquarters of the Russian gas giant Gazprom in Moscow.
The completion of several gas pipelines in southeast Europe means stronger competition for Russia's GazpromImage: picture-alliance/dpa/EPA/Maltsev

The third event was the inauguration of a new, floating liquefied gas (LNG) terminal near the Croatian island of Krk. A tanker supplied US LNG, which was modified and pumped into the EU-linked Croatian distribution network. For Croatia, which had so far been supplied by Gazprom almost exclusively, it also meant a big leap toward diversification. The nation can now also export gas to Hungary, Ukraine and other countries.

The fallout for Gazprom

According to Gazprom, the biggest recipients of Russian gas in the Balkans in 2019 were Croatia (2.82 billion cubic meters), Greece (2.41 billion cubic meters) and Bulgaria (2.39 billion cubic meters), followed by Serbia (2.13 billion cubic meters.)

The new Croatian LNG terminal has a capacity of 2.6 billion cubic meters annually. In theory, Croatia could end its cooperation with Gazprom altogether overnight, but that's unlikely to happen. What is likely, though, is that Gazprom supplies will shrink considerably.

A picture showing the gas terminal on Krk from sea
Construction for the Liquefied Natural Gas (LNG) terminal on Krk was finished in 2018Image: DW/D. Romac

The Russian energy giant will thus be exposed to serious competition in Croatia, which will put pressure on gas prices not only in Croatia itself, given that a considerable part of the Krk terminal gas will most likely be exported. It's believed that Hungary will get the bulk of gas from there, with Ukraine being floated as a potential customer, too.

Only an intermediate stage

For Gazprom, Hungary is a crucial market. In 2019, it sold 11.26 billion cubic meters of gas there. Via the second strand of the Turkish Stream pipeline, Russia intends to supply 15.75 billion cubic meters of gas to Europe annually, with the main recipients to be Hungary and Austria, where the crucial Baumgarten gas distribution hub is located.

Bulgaria and Serbia are markets too small for a project of that size, as are those of North Macedonia or Bosnia-Herzegovina. The completion of a Balkan Stream pipeline stretch from the Turkish border across Bulgaria and the hooking-up of Serbia are just intermediate measures to eventually extend the pipeline to Hungary. But that won't materialize before 2022.

Until then, Gazprom will be supplying Hungary via a transit route across Ukraine. But competion from Croatia will be omnipresent now. According to Croatia Week, the LNG terminal near Krk is already fully booked for the next three years, with sizeable orders reaching into 2035. It will make the terminal a long-term and sought-after competitor, even though regasified LNG is usually more expensive than pipeline gas.

A map showing the four most important gas pipelines in the Black Sea region, including Turk Stream, Balkan Stream, TAP and TANAP.

Southern Gas Corridor now fully operational

While the terminal near Krk means a loss of its monopoly role for Gazprom in Croatia and more competition in Hungary, the start of the Southern Gas Corridor sees Gazprom losing its monopoly in Bulgaria too, and heralds more competition on the Greek and Italian markets. But there, pressure does not come from LNG from Qatar, Algeria or the US, but rather from cheaper pipeline gas from Azerbaijan.

The Southern Gas Corridor is a system of two pipelines — TANAP and TAP. The Trans-Anatolian Natural Gas Pipeline (TANAP) started operating in 2018 and pumps gas into Greece from Azerbaijan across Georgia and Turkey. In Greece, it's hooked up to the Trans Adriatic Pipeline (TAP) which pumps gas to Albania and Italy.

TAP has a capacity of 10 billion cubic meters annually, with 8 billion cubic meters going to Italy, the main recipient of Azeri gas in the EU. For Gazprom, Italy is the second-most important market after Germany. In 2019, the company supplied 22.1 billion cubic meters to Italy. In theory, demand for Russian gas in Italy could drop by a about a third with TAP fully operating.

In the Balkans, Gazprom's losses could be even higher. As early as 2021, TAP is supposed to pump 1 billion cubic meters of gas to Greece and Bulgaria each. Russian supplies could shrink by between 40% and 45% in both markets or even by 50% in the event of a warm winter and a protracted coronavirus lockdown.

Good for Serbia's finances

Against the backdrop of essential changes on the Southeast European gas market, hooking up Serbia to the Balkan Stream pipeline seems but a minor change of route for Russian gas supplies to a relatively small market. There was a time when Serbia got its gas from a route across Ukraine and Hungary. Only a year after the official inauguration of Turkish Stream, Russian gas will flow across the bottom of the Black Sea, on to Turkey and Bulgaria to eventually reach Serbia.

A picture showing Azeri President Illham Alliyev and Turkish President Recep Tayyip Erdogan in a conversation
The Southern Gas Corridor was the brainchild of Azeri President Illham Alliyev (left) and Turkish President Recep Tayyip ErdoganImage: picture-alliance/AA/A. Dumanli

Serbia stands to profit from the altered route and lower transit fees. According to the Russian news agency Interfax, the price for 1,000 cubic meters of Russian gas will drop from $240 to $155. This will no doubt increase the competitiveness of Russian gas. At the same time, Gazprom has still to completely end its gas transit through Ukraine as demanded by the Kremlin.

This article was adapted from German