Gazprom’s decision to re-route natural gas supplies to Bosnia and Herzegovina, or more precisely, to one of its two entities, the Federation of BiH (FBiH), is a confirmation, if anyone ever needed one, that the Russian gas giant’s diversification strategy will indeed be implemented. The company doesn’t intend to give up plans to use TurkStream to supply gas to Bulgaria, Greece, Hungary, North Macedonia, Serbia, Turkey, and the rest of Europe, which means that transit via Ukraine, will be further reduced. Deliveries to Bulgaria, Greece, North Macedonia, Serbia, and Turkey have already been diverted, and it is now FBiH’s turn.
It’s unlikely that the annual flow of 250 million cubic meters to FBiH could substantially change anything regarding TurkStream’s stride towards Europe, given that the pipeline’s capacity is more than 15 billion cubic meters. However, it is another step in the implementation of the Russian strategy to push Ukraine out of the gas transit equation.
Of course, diverting deliveries to BiH from April 1 is also a message from Russia that FBiH has no alternative for gas supplies – it can only import Russian gas – from April 1 it’s via Turkey, Bulgaria, and Serbia, and before that date it was via Ukraine, Hungary, and Serbia. In the case of FBiH, gas supplies are no longer just a source of energy, but a weapon of political pressure.
Although FBiH is now exposed to Russian influence, the redirection of gas deliveries could eventually prove to be a good thing. Firstly, because deliveries through TurkStream are 25% cheaper, according to BiH gas importer Energoinvest. Secondly, a clear reminder of Russian control over FBiH’s supplies could encourage it to speed up an interconnection project with Croatia and create an alternative to Russian gas. However, it is also possible that the cheaper gas from Gazprom is a way to deter the country from securing alternative gas supplies.
Is Energoinvest Russia’s Trojan horse in FBiH?
It is not uncommon in the Balkans for many things to take place according to the proverb “a mountain gave birth to a mouse.” The re-routing of deliveries from Gazprom as of April 1 has prompted an exchange of serious accusations and criminal complaints between Energoinvest, the only authorised and registered gas importer in FBiH, and BH Gas, the country’s transmission system operator (TSO).
Representatives of BH Gas have alleged that Energoinvest has illegally agreed to change the direction of supply, and that the FBiH transport system is now controlled by neighbouring Serbia’s TSO, Transportgas Srbija, and Gas Promet Pale, a company owned by the Republic of Srpska, the other political entity of BiH.
BiH consists of two entities – the Republic of Srpska, with Serbs as the majority population, and the Federation of BiH, which is predominantly inhabited by Bosniaks and Croats. The Republic of Srpska enjoys strong support from Russia, and the FBiH has a foothold in the United States and the EU. The support has its roots in the civil war in BiH, which saw the Western countries side with Bosniaks. In this context, the fact that the Republic of Srpska and Serbia have taken over the control of gas deliveries to FBiH is tantamount to treason by Energoinvest.
Responding to accusations by BH Gas, Energoinvest CEO Bisera Hadzialjevic said that the decision to divert deliveries was made by Gazprom, and that it was presented to the company as “take it or leave it.” She added that the supply through TurkStream will be 25% cheaper, while FBiH consumers will not be affected.
It could be said that the reaction of BH Gas was a bit of a show for the public in FBiH. This is the easiest way to explain why BH Gas criticised Energoinvest and dragged the Republic of Srpska and Serbia into all that.
However, it should be kept in mind that FBiH’s gas supply depends on Serbia, since Gazprom’s gas enters FBiH via Serbia – before and after April 1. Strong words and accusations from BH Gas can also be explained as dissatisfaction with the fact that the sole supply route comes from the country which FBiH was more or less in war with.
In the end, the Government of the FBiH has confirmed that Energoinvest is the only authorised gas importer, with the authority to negotiate gas imports, and that the company didn’t have an option to refuse Gazprom’s offer to receive gas from Turkish Stream.
It is important to note that Energoinvest is a state-owned company, under the government’s control, so its decisions are made with the knowledge of government representatives. In this context, if Energoinvest had made a decision to accept Gazprom’s ultimatum without the consent of the FBiH government, it would have been changed very quickly.
TurkStream is maintaining Russian gas dominance in the region
The inevitability that BiH is facing speaks of Russia’s determination for the TurkStream project to succeed. Before Gazprom could decide to divert deliveries to FBiH, it was necessary to build a pipeline traversing Bulgaria and Serbia. When the two countries completed construction on their territories, at the end of last year, the conditions were created for Serbia to be supplied via TurkStream.
This also applies to FBiH, but most importantly, to Hungary, as well as Austria, the European gas hub. So far, the launch of TurkStream in January 2020 redirected transit volumes for Bulgaria, Greece, and North Macedonia, away from Ukraine. Serbia and FBiH started receiving deliveries via TurkStream this year, and Hungary and Austria are the next targets.
The start of deliveries via TurkStream to Serbia and FBiH and the conditions to begin supplying to Hungary and Austria coincided with the kick-off of the Trans Adriatic pipeline (TAP) – at the end of last year and early this year. TAP is a part of the Southern Gas Corridor, an initiative launched by the European Commission to diversify supply routes by securing gas from the Caspian and Middle Eastern regions. Countries in the Southeast Europe region – Bulgaria and Greece – have already started receiving gas via TAP.
However, the figures demonstrate Gazprom’s supremacy is still strong, and it is maintained by TurkStream.
For example, this year Greece will buy about 2.6 billion cubic metres of gas from Gazprom through TurkStream, and about one billion cubic metres through TAP, according to data from S&P Global Platts Analytics. Apart from TAP as an alternative, Bulgaria and Greece also have another option – liquefied natural gas (LNG), whose deliveries are available via Greek terminal Revithoussa. Last year Greece took advantage of the low prices and imported large quantities of LNG, but its luck has changed this year.
Greece’s LNG imports dropped to 0.36 billion cubic meters in Q1, from 0.97 billion in the same period of 2020. Last year LNG was cheaper even from the Russian pipeline gas, but this year the prices have gone up, and cargoes are going to Asia. The situation was similar in Turkey. Russian gas is dominating in the region.
In the first quarter of 2021, deliveries of Russian gas to Germany were up by 33.3%, to Poland 18.5%, to Serbia 71.3%, to Finland 67.3%, to Romania 90.4%, to Bulgaria 52.4%, to Greece 23.4%, and to Turkey 106.6%, Daily Sabah has reported.
The importance of gas in the Balkans in the coming years could be even greater given the energy transition. Most of these countries, including Bulgaria, FBiH, Greece, North Macedonia, and Serbia, meet their needs for electricity and heat from coal-fired power plants, which will be slowly shut down, with gas-fired power plants to be used as an alternative – temporary or long-term. Converting heating from fossil fuels to gas is also a solution to reduce air pollution, another big problem in the region. It is estimated that new gas-fired power plants alone could increase Greece’s gas consumption from five to seven billion cubic meters a year.
Of course, states in the region, including Bulgaria, Croatia, FBiH, Greece, North Macedonia, and Serbia, are not in the same position when it comes to gas supply. Greece and Bulgaria have TurkStream, TAP and LNG supplies at their disposal, Croatia is connected to EU markets and has the LNG option, while FBiH, North Macedonia and Serbia do not have alternatives to Russian gas at the moment.
BiH has the opportunity to get rid of Gazprom’s pressure
Although it is well known that Gazprom, like any other monopolist, is doing everything to stop or slow down alternative routes for the markets it supplies. However, in the case of FBiH things are changing. It seems that Gazprom can no longer prevent alternative routes, and developments in Serbia, surprisingly, can play a significant role as well.
After a few decades of delays, this summer Serbia should start building a new gas interconnector with Bulgaria, intended to secure an alternative to Gazprom and enable deliveries from TAP as well as from LNG terminals in Greece. It will be a 109-kilometer pipeline, which will cost an estimated EUR 85 million build. The pipeline should be completed in two years, providing both Serbia and FBiH with an alternative to Russian gas.
FBiH itself is also working on an alternative. An extreme scenario where Gazprom would cut off supplies to FBiH would primarily jeopardize the supply of heat because more than half of the gas is consumed by households and heating plants, primarily in the FBiH capital Sarajevo, while the rest is consumed by industry. For FBiH, the interruption of gas supplies would, in short, mean freezing homes, a kind of humanitarian catastrophe, but still, given the small number of consumers, it should not threaten the country’s energy stability.
There are, however, obstacles along the way. Russian influence is apparent in the decision of the Republic of Srpska to prevent the project of linking the FBiH gas pipeline system with neighboring Croatia’s through the northern interconnection. This interconnection would open a new alternative for gas supply via pipelines Croatia-Slovenia-Austria, and Croatia-Hungary, as well as via recently opened LNG terminal on the Croatian island of Krk, which has so far received four deliveries – three from the US and one from Nigeria. Another option is to connect to the proposed Ionian-Adriatic pipeline via Croatia, a route which is planned as an extension of TAP that would run from Albania through Montenegro and Croatia.
The failure of the northern interconnection plans prompted the start of work on the southern interconnection project, a solution similar to the northern interconnection because it also enables deliveries via Croatia, but which should be easier to implement, since it doesn’t have to pass through the territory of the Republic of Srpska, like the northern interconnection. This pipeline, valued at EUR 180 million, would be 180 kilometers long. The FBiH government’s partner in this investment is USAID, with its Energy Sector Assistance Project in Bosnia and Herzegovina.
Apart from Russian influence, a major obstacle for this pipeline is financing. Gas consumption in FBiH is low, as is the interest of new consumers, so securing money is a huge problem. Both FBiH and Serbia are countries with weak economies, where an investment of EUR 80 million or EUR 100 million, with a long time period needed to pay off, is difficult to implement and assistance from the EU or the US is crucial to push the project to completion.
It seems that some time ago, Russia has realized that cutting off gas supplies to one country, in order to achieve some political goals, is not a good move in the long run. Why? Because it makes it an unreliable supplier, and thus undermines its position. It is the fastest way to force consumers to find another supplier, even those consumers who are fond Russia. This is why it is very important to prove that TurkStream can reliably supply consumers, and that those deliveries can be even cheaper.
However, the reduction of prices has another, much more important goal, and that is to deter the creation of conditions for alternative supplies or to ensure that Gazprom is kept as a supplier even when those conditions are met because it sells cheaper gas. This motive is the most important in a situation where LNG and deliveries from the Caspian region are available.
Russia wants to secure its dominance in gas deliveries worldwide, which leaves numerous other possibilities for expanding its influence, even if cutting off deliveries is not an option.