Bulgaria: Torn in Two Ways [NGW Magazine]
Since spring, Bulgaria has tentatively embarked on a relatively small-scale diversification of its gas supply sources. On May 31, the first ever delivery of US LNG reached the Greek terminal of Revithoussa. State importer and supplier Bulgargaz bought a total of 140,000 m³ from Kolmar NL, which has agreed to provide LNG in two different-sized cargoes: one from Cheniere and one from BP.
According to media reports, Bulgargaz is also expected to buy 14,000 m³ of LNG from the Bulgarian company Dexia. In addition, a private Bulgarian company Energico is also expecting to pick up its first LNG cargo from Revithoussa in late August.
Gas is sent from the Greek terminal to Bulgaria through the Kulata-Sidirokastro gas connector. The interconnector is part of the 19.4bn m³/yr TransBalkan gas pipeline which was built to carry Russian gas from Ukraine through Romania and Bulgaria towards Greece and Turkey. But in 2016 flow in opposite direction (from Greece to Bulgaria) was enabled, with 1.8bn m³/yr of capacity. Although US LNG prices have not been made public, according to Bulgargaz's estimates it is about a tenth less than current price of gas imports from Russia.
Kolmar NL has also proposed the Bulgarian side an option of a five-year supply contract for up to 0.5bn m³/yr to be sold through the emerging Bulgarian natural gas exchange. The exchange – a key element of Sofia's strategic project to create a gas hub in Bulgaria – is expected to start operating on October 1 this year.
Both Kolmar and Dexia had also participated in Bulgargaz’ first-ever tender for gas: 144,000 m³. It was however won by Greek Depa and gas started to flow from the start of May. Supplies were mostly made on a swap basis – in fact Bulgarians continued to receive mainly Russian gas flowing through the TransBalkan pipeline to Greece – but at the end of May, the first physical LNG deliveries from Greece to Bulgaria began. On May 28, a seventh of Bulgarian daily demand was covered by LNG.
Gas bought through tenders, together with the new LNG deals, account for about a tenth of Bulgarian gas demand. In 2018, Bulgaria consumed 3.2bn m³ of gas, which came almost entirely from Russia under a long-term contract with Gazprom.
LNG supplies and short-term contracts signed in recent months show that alternative sources of gas became available to Bulgaria, thanks to Greek infrastructure. Most of the new gas supplies are stored in the only Bulgarian facility at Chiren; but some has also been distributed to final consumers. According to Bulgargaz, lower LNG prices allow for the small reduction of final gas prices for Bulgarian buyers in the third quarter of this year. Without this new supply, these prices were expected to increase.
Parallel to the changes in the structure and direction of gas imports seen in recent weeks, Bulgaria has sped up its work on new infrastructure to enable more imports of gas from other sources. On May 22, building work on a gas interconnector between Bulgaria and Greece (IGB) got underway to much fanfare, with the two countries’ prime ministers present as well as the deputy prime minister of Azerbaijan.
IGB is to enable Azeri gas supplies to reach Bulgaria by connecting it with the Southern Gas Corridor (Tanap and TAP gas pipelines running from Azerbaijan through Turkey and Greece to Italy and to be launched in 2020). IGB is to have 3bn m³/yr capacity, which may be expanded to 5bn m³, to be co-financed from European Union funds. It will run between the Greek city of Komotini and Bulgarian Stara Zagora and it is to be launched not sooner than in early 2021. It is also going to further increase Greece’s role in Bulgarian diversification of supply sources and gas market development. From 2021 Bulgaria will be able to receive both LNG and Azeri gas via Greece. It has signed long-term contract with Azeri Socar for 1bn m³/yr, which together with Russian gas supplies could not only improve security of supply but also gas trade.
SECURITY OF BULGARIAN SUPPLY IN THE WINTER OF 2019/20
LNG imports notwithstanding, Bulgaria depends more heavily on Russian gas supplies via Ukraine than any other in EU, and it is the most vulnerable to the possible disruption or even interruption to supplies after New Year’s Eve, when the ten-year gas transit contract between Russia and Ukraine expires. One of the main reasons for this situation is the slow and insufficient infrastructure development. The implementation of the IGB had been planned since the 2009 Russia-Ukraine gas supply crisis, but it was postponed many times and even now it is still about 18 months away from start-up. And the Bulgaria-Romania inter-connector only carries gas in one direction, towards Romania.
Until new pieces of infrastructure are built and operational and while there is limited opportunity to transport non-Russian gas into Bulgaria from Greece, the main gas supply route to Bulgaria remains the TransBalkan gas pipeline. According to European pipeline operators’ estimates, Bulgaria may need up to 18mn m³/day in the winter. With almost no gas output of its own and the maximum daily withdrawal rate from Chiren as low as 3.4mn m³/day, most of that demand is to be covered by imports. The maximum capacity (and so supply) with the only existing interconnector with Greece is 5mn m³/d. Additionally, until now, Bulgaria has not signed any contracts for alternatives to Russia gas, such as LNG, for the coming winter.
CO-OPERATE OR DIVERSIFY?
Despite recent measures to diversify the sources and the directions of supply, Russia remains today Bulgaria's main partner in gas (and energy) matters. Bulgaria’s limited integration with its neighbouring countries and its diversification of supply sources mean that relations with Russia will also be key to ensuring security of supply in the coming winter – and most likely throughout the whole of next year too.
Gazprom remains the most important supplier of gas to the country and Bulgaria also profits from the transit of Russian gas which accounts for about 60% of the annual revenue of the state-owned TSO Bulgartransgaz. According to the operator's data, the TransBalkan line carried 15.5bn m³ in 2018, and three-quarters of it went to Turkey.
Transit towards Turkey has significantly fallen in the last few months owing to Turkey's reduction of Russian gas imports via this route and increased imports of LNG. What is more, accord-ing to Russian announcements, transit via the TransBalkan pipeline towards Turkey is expected to cease completely from 2020 – owing to the possible halt of transit via Ukraine and planned launch of TurkStream. The first line is aimed at supplying only Turkey.
It is not known whether and on what basis the capacity of the TransBalkan gas pipeline that has thus been freed will be made available to other market participants. Theoretically, they should be made available according to EU network code rules on capacity management, which would allow for their use by third parties. However, the capacity of the TransBalkan gas pipeline is booked by Gazprom under terms and conditions set out in the transit contracts with gas pipeline operators in individual countries.
Bulgaria has such a contract with Gazprom running until 2030. It is not clear if Sofia is going to seek compensation if it is substantially reduced or stopped owing to the implementation and launch of TurkStream.
The prospect of a long-term loss of transit revenues and the lack of sufficient alternative gas supplies are the main reasons spurring Bulgaria on to build the European leg of the TurkStream gas pipeline across its territory. The pace of works related to the implementation of TurkStream-related infrastructure in Bulgaria contrasts particularly strongly with delays in the implementation of the IGB project, which is aimed at the diversification of gas supply sources and routes.
In the first half of 2019 Bulgartransgaz completed the open season procedure for new capacities and tenders for the construction of the longest section of the Bulgarian leg of Turk Stream. The construction of the related Turkey-Bulgaria interconnector began, according to media information, in March this year; and – if everything goes according to the plan – is to be completed in October 2019. The whole Bulgarian infrastructure for TurkStream’s European leg is planned, according to Bulgartransgaz, to be built in 2020.
BULGARIA’S TWO-TRACK GAS POLICY
Bulgaria’s attempts at implementing competing infrastructural projects (IGB and TurkStream) and the hesitant opening up to the new options in gas – including US LNG – imports are reinforced by the visibly competing plans and interests of Russia and the US regarding the gas market in Bulgaria, southeast Europe and Europe as a whole.
Russia aims to keep its position as the dominant supplier, and in order to make that happen, it is driving the building of new gas export routes to Europe: Nord Stream 2 and TurkStream . It hopes to ensure a quick implementation of these projects by all means available to it, including threats that it will stop transit through Ukraine. But it also reminds Bulgaria & others about the prospect of lost transit revenues for ‘certain countries’ in the region. The US criticises Russia’s approach, seeing in it both a challenge to security of supply and a means to keep up Russian influence in the region and in the EU more generally. Washington, like Brussels, supports the implementation of alternative supply routes in the region – such as the Southern Gas Corridor, IGB interconnector and LNG terminals, including the terminal in Croatia and a second terminal in Greece.
It is also trying to promote exports of US LNG, which the US energy secretary, Rick Perry, has labelled "liberty gas." The idea that the recent acceleration of the Bulgarian diversification efforts is related at least in part to American pressure, cannot be rejected.
Bulgaria’s activities in recent months and years show its two-track gas policy: Sofia strives both to diversify the sources of gas and the routes of Russian gas supplies. At the same time, there is clear asymmetry in results of these activities. Despite the sustained heavy dependence of Bulgaria on Russian gas supplies and the years of effort to reduce this dependence, Russia remains Bulgaria's key partner in the gas sphere and a guarantee of security of supply for the coming years. This inclines Bulgaria to look for different sorts of compromises and thus may hinder the degree of future diversification of supplies. Particularly important will be what happens this winter: will gas transit via Ukraine be stopped; how would that affect Bulgaria; and can alternative deliveries be launched from other quarters.
This can affect, among others, Bulgarian decision on whether and on what basis to extend the long-term contract for Russian gas supplies which expires in 2022. Its extension on current terms would impede diversification of supplies, so that will also impact the pace of implementation of different gas pipeline projects.
At the same time, the recently growing availability of LNG, its currently attractive prices and the practice of short term trad-ing in contrast to long-term contracts with potentially onerous commitments are among the factors that will boost gas trade in the region. This could gradually force change also on Gazprom’s rules of trade in Russian gas both in Bulgaria and in other countries of southeast Europe.