A Saudi Company May Build Gazprom Route Through East Europe

(Bloomberg) -- Bulgaria picked a Saudi company to build a 474-kilometer (295-mile) natural gas pipeline, part of a grid upgrade designed to help transfer Russian gas from Turkey to central Europe.

Bulgaria, which imports all of its gas from Russia, plans to connect its grid to a potential second leg of the TurkStream link between Russia and Turkey and transfer gas to Serbia. It seeks to lock in new routes and remain a transit country amid concerns that the Kremlin may cancel shipments through Ukraine once TurkStream becomes operational. It also wants to avoid the supply disruptions seen in past years during spats between Russia and Ukraine.

Bulgartransgaz, the state-owned gas grid operator, picked a consortium of Arkad Engineering & Construction Co. Ltd. and an Italy-based unit Arkad ABB SpA, it said in a statement Wednesday. The group offered to build the pipeline for as much as 1.3 billion euros ($1.5 billion), depending on the construction timeline. Gazprom Export and Switzerland’s MET Group have booked capacity through the new route for 20 years, according to Bulgartransgaz CEO Vladimir Malinov.

“The Saudis want to expand and to get easier access to bigger tenders in the region in the future,” said Elchin Mammadov, a Bloomberg Intelligence analyst. “While for other companies the margin would be more important, they’re only looking for market share.”

Al Khobar-based Arkad is Saudi Arabia’s largest energy services company, according to its website, where it said it has embarked on an "aggressive global expansion strategy" in Europe, Asia, the Americas and Africa. Bulgartransgaz is considering a deferred payment scheme for the project, Energy Minister Temenuzhka Petkova said Wednesday in Sofia.

The builder will receive 250 million lev ($144 million) in advance and will then get payments from transit fees, estimated at an annual average of 340 million lev over the next 20 years. The upgrade, estimated at a total of 2.8 billion lev without VAT, also includes two compressor stations and an 11-kilometer link to the Turkish border.

About 10 percent of the total 17.9 billion-cubic-meter annual capacity will be available for short-term booking to meet the European Union’s competition rules, Petkova said last month. Bulgaria seeks to avoid a repeat of an earlier project called South Stream, which ran into European regulatory hurdles.

The new route “will most likely be used to supply a few local gas markets in southeast Europe,” Mammadov said. “If and when Gazprom decides to reduce transit through Ukraine, it will likely divert those volumes to Nord Stream 2 rather than the southern route.”

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