Even after the breakup of the Soviet Union in the early 1990s, Eastern Europe still remained under the sphere of influence of Russia, although these newly independent countries were no longer officially controlled by Moscow. The West tried to peel off Russian-oriented countries in Eastern Europe, enlarging NATO by admitting former Soviet-bloc countries. But as the 1990s gave way to the 2000s, oil prices rose and so did the influence and power of Russia. Vladimir Putin's Russia in the 21st century attempted to regain lost ground in Eastern Europe, and the former Soviet satellites have never been able to really break free of Russian control.
One of the central problems is energy. Eastern Europe is wholly dependent on Russia for natural gas and oil supplies. Ukraine has suffered more than most, but many other former Soviet satellites are also at the mercy of Russia because of their energy dependence.
The EU antitrust case against Gazprom illuminates this dependence. The EU Commission alleges that Gazprom charged different prices to different countries, depending on their willingness to do Moscow's bidding. The EU antitrust case could start to break the stranglehold that Russia has over its neighbors if Gazprom is forced into a settlement with European regulators.
However, what will truly start to cut into Russian influence is new sources of supply in Eastern Europe itself. With several prospects in the Black Sea gaining attention, such a development could soon…
Even after the breakup of the Soviet Union in the early 1990s, Eastern Europe still remained under the sphere of influence of Russia, although these newly independent countries were no longer officially controlled by Moscow. The West tried to peel off Russian-oriented countries in Eastern Europe, enlarging NATO by admitting former Soviet-bloc countries. But as the 1990s gave way to the 2000s, oil prices rose and so did the influence and power of Russia. Vladimir Putin's Russia in the 21st century attempted to regain lost ground in Eastern Europe, and the former Soviet satellites have never been able to really break free of Russian control.
One of the central problems is energy. Eastern Europe is wholly dependent on Russia for natural gas and oil supplies. Ukraine has suffered more than most, but many other former Soviet satellites are also at the mercy of Russia because of their energy dependence.
The EU antitrust case against Gazprom illuminates this dependence. The EU Commission alleges that Gazprom charged different prices to different countries, depending on their willingness to do Moscow's bidding. The EU antitrust case could start to break the stranglehold that Russia has over its neighbors if Gazprom is forced into a settlement with European regulators.
However, what will truly start to cut into Russian influence is new sources of supply in Eastern Europe itself. With several prospects in the Black Sea gaining attention, such a development could soon get underway.
Black Sea
Eastern Europe is not blessed with large reserves of oil and gas. But there is a growing sense of possibility offshore in the Black Sea. Romania has been one such nation that has been able to significantly reduce its natural gas imports by developing its domestic resources. In 2014, Romania's gas imports from Russia dropped by 61 percent, an enormous achievement.
Now Bulgaria is trying to do the same. Bulgaria spends around $7 billion on energy from abroad, but has barely tapped its own gas reserves. It depends on Russia for 90 percent of its natural gas. The country has been trying to find alternative sources of gas, including from Greece or Azerbaijan, but recently has pushed much more earnestly to begin developing a domestic oil and gas industry.
To that end, Bulgaria just completed an auction for several offshore blocks and could see some investment as a result.
In one sense, the bids were disappointing. ExxonMobil (NYSE: XOM), Statoil (NYSE: STO), and Anadarko (NYSE: APC) all suggested that they were considering offering bids on the Silistar and Teres blocks. The Silistar and Teres, blocks that stretch 7,000 and 4,000 square kilometers, respectively, are located close to the Neptune Block in Romanian waters.
And it is Neptune that is part of the reason for Bulgaria's newfound enthusiasm. Austria's OMV (VIE: OMV) and ExxonMobil drilled the Domino-1 well in the Neptune block back in 2012, making a potentially enormous discovery. The companies said it could hold up to 3 trillion cubic feet of natural gas, and it may amount to OMV's largest ever natural gas discovery. That has raised expectations for Bulgaria's offshore potential.
But despite the excitement, the latest auction was somewhat of a disappointment. Royal Dutch Shell (NYSE: RDS.A) was the only bidder on the Silistar block.
Shell won a bid to conduct offshore exploration in the Black Sea, a five-year permit allowing it to explore the Silistar basin. Shell has promised to invest $21 million on seismic surveys, the initial step to see if there is enough oil and gas in place to warrant a large-scale investment. Shell and the Bulgarian government could ink a deal as soon as this month to make it official.
But ExxonMobil, Statoil, and Anadarko declined to bid. And the Teres block received no bids at all. This was the second time that the Teres received no bids, so interest there is too low for any viable chance at development in the foreseeable future.
Still, Shell is moving forward on the Silistar.
There is a second block that could hold the key to Bulgaria's energy independence. Total (NYSE: TOT), Repsol (BME: REP), and OMV all have plans to drill for oil and gas in another promising location: the Han Asparuh, Bulgaria's largest offshore block. In 2012, the consortium won the rights to Han Asparuh (also spelled Khan Asparuh), a field that is only 25 kilometers from the successful Neptune find. Its close proximity to the huge Romanian gas discovery suggests that it too could be a large source of gas production in the future.
Total is the operator with a 40 percent stake, and Repsol and OMV each have a 30 percent stake. The companies conducted 2D and 3D seismic surveys over the past few years, but decided to delay drilling late last year because of the drop in oil prices. Despite the delay, they plan on drilling instead in the first half of 2016.
Geopolitics
The Trans-Anatolian Pipeline, which if constructed will bring natural gas from the Caspian Sea to Europe, could be a pivotal factor to investment in the Black Sea. The pipeline project is of high political importance for EU officials, who see it as a way of slashing dependence on Russian gas.
In this sense, the pipeline, which is further along than Bulgaria's offshore sector because it has ready-to-go gas supplies from the Caspian Sea, should be seen as a competitor project to Black Sea natural gas. The Trans-Anatolian Pipeline could be completed by the end of this decade, if political and economic hurdles can be overcome. If that occurs, there are plans to divert some gas flows to Bulgaria on its way to Western Europe. As such, Black Sea gas may not be needed nearly as much.
On the other hand, the political roadblocks are significant. If the iconic project is delayed or suspended for some reason, demand for Bulgarian gas will rise.
Moreover, other political forces are pushing Bulgaria forward. Russia's intervention into Ukraine is a stark reminder that the country needs alternatives. Furthermore, the EU's successful derailment of the South Stream Pipeline also highlights Bulgaria's predicament. Although the project would not do anything to break Russian control - the pipeline would have sent Russian gas to Bulgarian shores via the Black Sea - and thus, would have at least increased available supplies. But that project is dead.
Conclusion
In short, Bulgaria needs energy, and to the extent that outside pipeline projects are blocked, that raises the value and opportunity of domestic production, where companies like Shell, Total, OMV, and Repsol will benefit. Romania has proved that reducing Russian dependence is possible. Bulgaria now wants to follow in its footsteps.