The U.S. and EU regard the Balkans as an underdeveloped territory

There is not even name left of South Stream, a project once supposed to make Serbia a significant hub for Russian gas supplies to the European Union. Last week, Serbian Prime Minister Ana Brnabic said that the South Stream company had been renamed into Serbian Stream and would engage in building an interconnector between the Serbian and Bulgarian gas networks. The pipeline is supposed to be 150 km long (100 km in Serbia and 50 km in Bulgaria) and to ensure Serbia’s energy security in future. According to Brnabic, the gas for the pipeline will come from the Southern Gas Corridor and an LNG terminal to be built in Greece. The funds will be provided by the EU. Serbian Stream will also be the contractor of the second string of Turkish Stream, a pipeline to be built through Turkey for pumping gas to Southern Europe, including Serbia. Two Serbian experts have answered EADaily’s questions concerning these projects.

Former Serbian Ambassador to Belarus (2004-2011), essay writer, the author of the “Russian Gas in Europe: From Détente to South Stream” (2011) Srecko Djukic notes that Serbia regards gas differently than the West and Russia do. “For Serbian public officers, including the Prime Minister, the concept of ‘gas pipeline’ is not as important as it actually is. They think that a gas pipeline is something you can build overnight. This attitude is reflected in Brnabic’s statements about the interconnector with Bulgaria and South Stream,” Djukic told EADaily.

He said that the project to build an interconnector with Bulgaria is not new. “We first discussed it in the 1980s and even drafted a plan of action. We resumed the talks in the 1990s and I was personally involved in them as a diplomat working in Sofia,” Djukic said.

“The prime minister mentioned the Serbian Stream project. Few people in Serbia understand what this means. To build a gas pipeline is not the same as to build a playground or a school. This is a serious project, requiring plenty of money as well as investors and suppliers. The South Stream project has failed, and a few days ago, our authorities announced that the South Stream company had been renamed into Gastrans. As far as I understand, that company is supposed to build gas pipelines, particularly, the interconnector between Serbia and Bulgaria,” Djukic said.

“But Brnabic did not specify who will be the supplier of Serbian Stream. Theoretically, it is supposed to be connected to a pipeline coming from one of the neighboring states, most likely Bulgaria. It is hard to say if our authorities have negotiated this possibility with the Bulgarians. The sides mentioned it a couple of months ago, after the last meeting of Serbian President Aleksandar Vucic with Bulgarian Prime Minister Boyko Borisov. But considering their previous statements on gas and gas pipelines, I am skeptical about this particular project. The Bulgarian authorities have wrecked all significant energy projects that could have turned their country into a big oil and gas hub in Europe,” Djukic said.

He believes that if realized, South Stream would have benefited all of Bulgaria’s neighbors but instead the status of an energy hub has gone to Turkey. “Now Turkey can pump gas to Bulgaria, Greece or any other country. As far as the Serbian gas pipeline is concerned, I support Bulgaria’s agreements with the only state that can pump gas through Turkey. I mean Russia. I don’t know if we are negotiating with the Russians on this matter. One more important thing we should do here is to come to terms with the European Commission, which has so far curbed all energy projects in the Balkans,” Djukic said.

“We know the United States’ position. Two months ago, one of high-ranking U.S. public officers said that Washington objected to Turkish Stream and its extension to Bulgaria, the Balkans and Europe. I have kept track of the gas relations between the Russians and the West since the Soviet times and it was not news to me. I could hardly expect any other attitude from the Americans. They have always opposed Russian gas and nothing has changed. They will continue pushing their own geopolitical interests and will continue patronizing Europe and the Balkans,” Djukic said.

“But Europe and, particularly, Germany, have never obeyed to America’s calls to give up on Russian fuel. None of the German chancellors, including Angela Merkel, have yielded to the Americans’ pressure as they perfectly knew that their industry and agriculture needed gas and Russian gas was the only alternative. I would like to remind you that when Nord Stream 2 was first mentioned in Germany (due to Schroeder and Putin), that country was electing new chancellor and Merkel objected to that project. But once she was elected chancellor, she changed her attitude as she was aware that Germany’s industry needed gas,” Djukic said.

According to the expert, recently, the German Government approved the Nord Stream 2 project. “The selfsame U.S. official once objected to Nord Stream 2. Earlier, the Americans torpedoed Nord Stream 1. That’s the way it is in the global gas sector. They in the Balkans believe that all these problems can be solved by one meeting and one step. They are wrong as this is a very sensitive problem for the Balkans, the EU, the U.S. and Russia. They are not showing a consistent policy on this issue,” Djukic said.

According to the expert, it is not clear what a gas pipeline Serbian Stream will be connected to. “This must be Turkish Stream and Bulgarian Stream as there are no other sources available. From Serbia, the pipeline is supposed to run to Hungary, Croatia, Bosnia and Herzegovina, FYR Macedonia and Albania. It would be a very big investment to build it for Serbia’s needs only. But the whole scheme would need a lot of time. We would need to form a package of investments, to involve all the abovementioned states in it and to find a supplier and a specific investor,” Djukic said.

Answering the question whose interests are decisive as far as Balkan gas is concerned – if, on the one hand, there is operative Nord Stream and, on the other hand, there is failed South Stream, Djukic said that the United States and the European Union regard the Balkans as their backyard. “The Balkans consume much less gas than Western Europe and therefore cannot be an equal partner to it. In Europe, each house and company have gas. In the Balkans, gas supply rate is just 20%. The EU and the United States regard that region as an underdeveloped territory and do not let it catch up with Europe. Can the Balkans be an equal partner to Europe with such a low gas consumption rate?” Djukic said.

He believes that this problem is the key obstacle to industrial growth in Serbia and the Balkans. “In winter Serbian cities choke with smoke as the major fuels in our country are still wood and coal. Investors are not satisfied with our gas infrastructure. And this all is a big obstacle to our economic growth. The EU knows that a chain is no stronger than its weakest link and the weakest link is the Balkans. The Americans are forcing the Europeans to be tough on Russia, but they cannot do it at the expense of the German economy. Serbia lets them do it – we consume just 2 billion cubic meters a year and we have fallen victims to global gas politics,” Djukic said.

He doubts that Europe will be able to find a substitute for Russian gas in long-term future. “I mean the most developed European states. As regards the rest of Europe, it will not be able to do without Russian gas either. The Americans promised us their LNG, but we see that the Russians are already selling LNG to America. This is absurd,” Djukic said.

But this time he is optimistic and hopes that the European Commission will let Turkish Stream run through the Balkans. “The Europeans see that the Western Balkans are stagnating and gas is one of the major problems. The Americans are always there to oppose Russian gas, but the European Commission has not yet had its say on this matter,” Djukic said, noting that Russia has started to build the second string of Turkish Stream even though some six months ago, it said that it would not do it without the European Commission’s permission.

“Some two weeks ago, Gazprom CEO Alexey Miller said that the two strings of Turkish Stream will be ready on Dec 20, 2019. This may imply that the European Commission has admitted that Russian gas is the only alternative for the Balkans in the foreseeable future. I think that the European Commission will let Russian gas into the Balkans provided that the Russians comply with the requirements of the Third Energy Package. If this happens, the European will have to dip into its purse as the Balkans do not have money for the project. There are signs that Brussels is planning a new agenda with a view to get closer with the Western Balkans. The Europeans can no longer ignore our gas problems,” Djukic said.

“This time, we must not miss the chance especially as there is another project – the Southern Gas Corridor – a pipeline that is supposed to run from Azerbaijan through Georgia, Turkey, Greece, Italy,” Djukic said.

“But that pipeline can pump just 20 billion cubic meters: half of it will stay in Turkey, while the rest will have to be distributed among the Balkans and Italy. This is not enough for the Balkans. They even say that Russian gas will also be involved in this project as Azerbaijan does not have enough gas,” Djukic said.

According to him, one more potential gas source for Europe is the Persian Gulf and the Middle East but geopolitical conditions there are too complicated. “Both the United States and Europe have problems with Iran, while gas business needs reliability and stability. And this is exactly what Russia offers. Besides, you cannot pump gas from a war-ridden region, can you? The third source is North Africa, but that region does not have enough gas for replacing Russia,” Djukic said.

Concerning American LNG, the expert notes that the Americans will have to supply 200 billion cubic meters to be able to replace Russia gas in Europe. “Just imagine how many tankers they will need to be able to do it and how many terminals they will have to build in Europe. And now imagine how much more expensive that gas will be. Croatia has already rejected their offer to build a terminal on its Krk Island. This does not mean that there will be no demand for American LNG but it will not be able to replace pipeline gas. This is impossible both economically and geopolitically,” Djukic said.

Head of the Energy Department at the Belgrade-based Center for Geostrategic Studies Milos Zdravkovic shares Djukic’s skepticism concerning the project announced by the Serbian prime minister.

“The 150-km-long gas pipeline between Serbia and Bulgaria is still an imaginary project. The construction has not been started yet. And its supplier is an imaginary EU pipeline bypassing Russia. Brussels seeks to build it and it has money for it but the question is if there is gas for this project and if it can be realized technically,” the expert said.

“Physically, they can build such a pipeline and its supplier will be Shah Deniz 2 field in Azerbaijan. But that field does not have as much gas as Europe needs and there are a number of geopolitical obstacles to this project. For the moment, there is no way for Azerbaijani and Central Asian gas to bypass Russia. Things would be different, if the war in Syria ended to the advantage of the Americans and their allies. In such a case, it would be possible to connect Turkey, Syria and the Middle East,” Zdravkovic said.

“The myths about LNG were forged by the administration of Barack Obama but now it has turned out that Russia is also a big player on this market and instead of LNG exports from the United States to Europe, we recently saw first LNG tankers arriving to the United States,” the Serbian expert said.

He noted that South Stream was supposed to be 1,480 km long and to pump 60 billion cubic meters a year. “It was supposed to be more powerful than Nord Stream and the pipelines running via Ukraine and Belarus. But Bulgaria put an end to that project after the meeting of Senator John McCain with Bulgarian Prime Minister Boyko Borisov,” Zdravkovic said.

“The Bulgarians rejected not only South Stream but also the NPP in Belene. We know that they will have to pay Rosatom compensation of $800 million as a result. South Stream was frozen and replaced with Turkish Stream. Bulgaria is the loser in this game: instead of becoming a gas hub and winning big, it has given everything to Turkey. Had the Bulgarians not rejected the project, they would have sold gas to the Turks and now the boot is on the other foot,” Zdravkovic told EADaily.

When asked if the fact that the Serbia-Bulgaria interconnector project will be financed by Europe means that Russia has given up on Serbia as a transit country for its gas, Zdravkovic said that gas is not only politics but also business.

“In the late 1990s, the Russians understood that gas is business that could help it to realize their policy. They began diversifying their gas export routes. They first built Blue Stream to Turkey, then Nord Stream under Gerhard Schroeder. Now they are building a gas pipeline to China as today the Chinese consume more gas than the Americans do. The Russians are seeking to produce more and more gas and to export it to very different markets. I doubt that they have given up on any of their routes. To them, gas is more business than politics,” Zdravkovic said.

Concerning Turkish Stream’s chances to reach the Balkans, the expert said that the main thing for Gazprom and Russia was to supply gas to Turkish consumers. “Russia needs new consumers. Of course, they have a chance to build a pipeline that would supply gas to the Balkans and some other countries. No matter who rules in Kyiv, Russia will not let itself fall dependent on any politician in Ukraine. It has all capacities for avoiding this and to minimize the Ukrainian transit,” Zdravkovic said.

He is confident that Russia will continue pumping gas through Ukraine. “Should Turkey or any other state try to blackmail Russia, it will be able to pump its gas through Ukraine. The biggest losers here are Ukraine and Bulgaria,” Zdravkovich said.

“I have never seen anybody harming his country the way Bulgarian Prime Minister Boyko Borisov did when rejecting the South Stream and Belene NPP projects. Geography is implacable. Gas from Central Asia cannot bypass Russia in its way to Europe. All those projects were planned in the 1990s when Russia was weak both economically and politically. But those times will not come back,” Zdravkovic told EADaily.

He does not regard the Serbia-Bulgaria interconnector as a promising project. “The EU’s goal is to build a pipeline that will bypass Russia and connect Turkey, Bulgaria, Azerbaijan and Albania. This project is aimed against Russia and is supposed to throw dust into people’s eyes just like the story about the LNG that was supposed to arrive to Europe from the United States in 2016. CNN and BBC talked a lot about that LNG but only one tanker reached Europe in the end as American LNG is much more expensive than Russian pipeline gas,” the Serbian expert said.

“The Southern Gas Corridor is also something unreal as there is no real alternative to Russian gas in Europe. All the other alternatives are based on gas from Turkmenistan or Kazakhstan but that gas needs pipelines and ships for being pumped through the Caspian Sea. As regards the gas from Azerbaijan and Iran, with Iran, Europe has no real contacts, while Azerbaijan does not enough fuel to meet Europe’s needs. I think that this story will be forgotten just like the stories about U.S. LNG and U.S. gas supplies to the Baltics and Poland,” Zdravkovic said.

Considering Serbia’s prospects on the European gas market, the Serbian expert pointed out an incident that has nothing to do with Serbian Stream: “When in 2008 Serbia sold Naftna Industrija Srbije (Petroleum Industry of Serbia) to Gazprom, it also sold certain concessions to oil and gas extraction in the Serbian territory. We also sold the Banatski Dvor underground gas storage facility. I am surprised to know that our authorities have no wish to enlarge the capacities of that facility. Gas prices depend on oil prices, but you can buy gas in summer when it is cheap and sell it in winter when it is expensive. I can’t say how much it costs to store 1,000 cubic meters of gas but I am sure that this is good business. It is a good bargain if you have a chance to buy gas at a low price and to sell it at a higher cost. Experts would certainly advise Serbia to do this as this is a good way for us to earn money,” the expert said.

According to him, the agreement signed during Serbian President Aleksandar Vucic’s visit to Moscow in Dec 2017 and allowing Serbia to re-export Russian gas is aimed at developing the Banatski Dvor underground gas storage facility and to boost gas trade. “Had Bulgaria agreed to become a transit country for Russian gas, it would have earned 300 million EUR a year. Serbia’s geographical situation is not as good as that of Bulgaria but now it has a chance. Time will show if we will be able to use it,” Zdravkovic said.