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    Gazprom concedes defeat in Bulgaria [NGW Magazine]


From being the least connected gas market in Europe, Bulgaria is now spoiled for choice. It is payback time for the former monopolist Gazprom. [NGW Magazine Volume 5, Issue 9]

by: Dmitry Shlapentokh

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Natural Gas & LNG News, Europe, Top Stories, Europe, Insights, Premium, NGW Magazine Articles, Volume 5, Issue 9, Supply/Demand, EU, Bulgaria, Russia

Gazprom concedes defeat in Bulgaria [NGW Magazine]

Russia has heavily discounted its gas for Bulgaria, its “brotherly” Slavic nation, describing the gesture as a gift to commemorate the anniversary of its liberation from Ottoman rule.

But the reason was more prosaic than ancient ties of friendship that outlived the Soviet Union. Russia has found it harder to deliver gas to Europe, including Bulgaria, and this will only become harder when alternative gas lines are fully in use. More generally, the Bulgarian deal has pointed up serious problems with Russia’s geopolitical arrangements.

Bulgaria has depended on Russia for 95% of its gas and their contract stipulates that Bulgaria will buy at least 80% of its gas from Gazprom until 2022. The price has been a major sticking point but Sofia achieved its goal this spring with a 40% cut, bringing the price down to the level in the rest of Europe. What was the reason for Moscow’s concession?

Some observers believed that Bulgaria’s ability to reduce the price for Russian gas was only due to pressure from the European Union. EU officials believed Gazprom had abused its monopolist position in the Baltic states and Poland. In 2018 Gazprom appeased the EU with certain concessions to these regions and the states.

It became clear from the EC’s report that seven of the eight countries under the anti-trust probe had already received a reduction in their supply prices from Gazprom. Bulgaria was the only exception.

Sofia decided to use the power of the EC to reduce the price. If Gazprom could not make price concessions and insist instead on the take-or-pay clause, Gazprom would once again face the EC.

But there were other, possibly even more important, reasons for concessions. These include the general collapse of gas prices, the shrinking Turkish market and, most important, alternative ways for Bulgaria to buy gas.

Collapse of gas prices

Gazprom reduced prices for Bulgaria for two well-known reasons: gas prices in Europe had collapsed and second, Bulgaria is vital to the second TurkStream line.

But even before the present-day economic meltdown, Europe did not need that much gas. Indeed, Russia has been hit hard, possibly more than any other gas-producing country by the turmoil now in Europe. The EU has tripled LNG imports, including from the US, and since 2012 Russia’s share of the European market has fallen from 34.7% to 32%. Besides the general problems with the gas and oil industry, there were specific problems that affected Gazprom. One of them was disappointment with TurkStream.

The Kremlin believed that the US had a limited capacity to stop both Nord Stream 2 and TurkStream. Indeed, one observer noted that if the US imposed sanctions on the companies in Europe that bought gas from both lines, it would be a war against Europe.

But Turkey also emerged as a sizeable market for Russian gas. It looks as if Moscow has achieved success at least in building the first string of TurkStream, which was officially opened in early January.

But Moscow’s triumph was short-lived as the country has gone from a major client to one of shrinking importance, taking 36% less gas last year and taking instead more pipeline gas from Azerbaijan or LNG from further afield,

So both Nord Stream II and TurkStream have failed to deliver what was expected. The Kremlin was clearly displeased with Gazprom, which manages both, and this, combined with the arbitration award against Gazprom in favour of Ukraine, was possibly the reason for the purges of top management.

LNG as alternative

Gazprom had long believed LNG could never compete with pipeline gas, but that is no longer the case. Sofia developed its relationship with Washington and Bulgaria purchased US weapons. Purchasing US weapons goes along with purchasing US gas, and by spring of 2019, Bulgaria started to buy US LNG.

The US was not the only source of LNG. Sofia also believed that it could get LNG via Greece. Consequently, Bulgaria joined the Gastrade project to build an LNG terminal in Greece and indeed to invest heavily in the project. Now being built it is due to be finished by 2022.

The Interconnector Greece-Bulgaria (ICGB) will also help deliver regasified LNG and that project should be finished by 2021. In conjunction with the Southern Gas Corridor, comprising the TransAnatolian Pipeline (Tanap) and the TransAdriatic Pipeline (TAP), Bulgaria will be able to buy gas from anywhere, including Russia’s former Soviet neighbour and now major resource base and rival Azerbaijan.

Azerbaijan and gas for Europe

Azerbaijan has been engaged in the creation of Southern Gas Corridor (SGC) since at least 2002, a time when ultra-cheap Iranian gas was also a contender; and indeed TurkStream 1’s predecessor, South Stream, was intended as Gazprom’s spoiler for it. A truncated version of the SGC, from Azerbaijan, would only work if TAP and Tanap were built and Bulgaria could receive gas from both of them.

TAP was seen as a major way of delivering Azerbaijanian gas to Europe, especially Italy. Bulgaria also expected to receive a considerable amount of gas from TAP. Indeed, Bulgaria could get up to 1bn m³/yr from Azerbaijan by this autumn.

Construction seemed to proceed smoothly, and by February 2020 the Azeri state company Socar believed TAP would start by the end of 2020, as would also the ICGB. Sofia continued to regard the project as important, and by early March 2020 continued to believe that it could get Azeri gas from TAP if it could only build the infrastructure.


There are plans to tap Turkmenistan’s resources. Still, it is not likely at present, and the project’s major source is Azerbaijan’s gas field, Shah Deniz.

In November 2019, the Turkish and Azeri presidents inaugurated the European link of Tanap, which assumed importance for Bulgaria and indeed required a certain geopolitical adjustment; it affects Bulgaria’s relationship with Armenia. Bulgaria’s minister of foreign affairs noted in her conversation with Armenian colleagues that Bulgaria valued very much its good relationship with Armenia. Still, she noted, Bulgaria needs Azerbaijan’s gas. It is not only Bulgaria, but also Ukraine that hoped to receive Azerbaijani gas through Tanap. The the two major gas lines may still be under construction or not at full capacity, but Azerbaijan already has a strong foothold in European markets, and competes with Gazprom, selling gas in several eastern European countries.

Enjoying alternatives to Russia and assuming that even more alternatives will emerge in the future, Bulgaria, followed suit. Sofia was confident that it could well survive even if it reduced its dependence on Russian gas considerably. Sofia also felt strong pressure from Washington if not to abandon TurkStream completely, then at least to slow down its construction, and Sofia gave in to this pressure.

Bulgaria and Russian gas line

TurkStream was in many ways, a replica of the abandoned South Stream, renamed “Balkan Stream,” in Bulgaria, possibly to downplay Turkey’s importance in the project. But despite initial enthusiasm, by September 2019 Sofia indicated that it could abandon the project. Despite their very close ties during the Soviet era, Bulgaria has since taken an ambivalent attitude to Russia.

The problem with TurkStream crossing Bulgaria clearly emerged by March 2019. Most likely responding to Moscow’s impatience, Sofia found convenient explanations for the delay; one of them was that Bulgaria had not yet received EU’s blessing for building the second string of TurkStream and while this was a convenient excuse, some Russian observers assumed that it was not the only reason or possibly not a reason at all. They assumed that Sofia had had second thoughts about the project in general. Indeed, some believed that Bulgaria could completely abandon TurkStream.

Bulgaria’s reluctance, or at least procrastination, when it came to engagement in the project went along with other negative news relating to Russian gas demand in Europe that could even make the second line a waste of time.

Late last year Sofia said that Bulgaria would start receiving Russian gas from Turkey from January 1, and later transmit it onwards to Serbia and Hungary. But it confused matters by simultaneously implying that Bulgaria either was not very interested in the project, or would delay it, possibly indefinitely. Then in early December Turkey’s president Recep Erdogan stated that the gas pipeline would start operating January 8, taking gas to Bulgaria before the rest of the pipeline northwards was complete.

The very fact that Bulgaria delayed the construction of TurkStream compelled Russia to sign a new agreement with Ukraine, which it had tried to avoid by all means possible. It was not surprising that the Kremlin was outraged. Putin reportedly said that if the Bulgarian authorities do not want to participate in the project and if the situation repeats itself as with the South Stream gas pipeline project, then another route will be found for the transit of Russian natural gas.

But despite the Kremlin’s warnings and threats, Bulgaria continued to delay construction. Additional problems also emerged. In January 2020 Bulgaria announced that it was going to replace half of its Russian gas imports. There were also tensions between Moscow and Sofia, due to spy scandals.

Russia was not the only country that was frustrated with the delay. The same was the case with Serbia, which demanded that Bulgaria finish TurkStream on Bulgarian territory. Serbia badly needs Turkish Stream, for it has no other alternative sources for gas and has resisted US pressure to abandon the project. It is now perhaps Russia’s closest ally in the Balkans but its demands that TurkStream be built through Bulgaria carried little weight.


Gazprom’s desire to drastically reduce prices for Bulgaria has nothing to do with either abstract benevolence or supposedly historical ties between two “brotherly” Slavic peoples. Even pressure from the EU might not be the most important factor in Gazprom’s decision-making.

The price cut was the only response possible for the gas giant: the unthinkably low price and quantity of LNG and the availability of more pipeline gas have changed the rules of the game. In this situation, Sofia has demonstrated its willingness to respond to Washington’s pressure and delay the construction of the second string of TurkStream. Moscow knows that Sofia will continue with the construction work only if it receives a considerable discount and relented.