To this end, the government is making efforts to diversify transit routes and sources of natural gas supply, increase the liquidity of the Bulgarian gas market, improve the terms of the current long-term contract with PJSC Gazprom according to which Bulgaria is obliged to annually follow the “take or pay” path and purchase 2.4 billion cubic meters of gas till the end of the contract’s validity term in November 2022.
According to the results of 2020, 76% of Bulgaria’s domestic natural gas needs were met by Russian gas, 23% were covered from other sources (18% in 2019) and 1% was supplied from Bulgaria’s own gas production.
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At present, important elements of the project to create the so-called “Balkan gas hub” on the territory of Bulgaria are: expanding the capacity of the underground gas storage (UGS) Chiren, establishing imports of up to a third of natural gas from Azerbaijan, increasing supplies through Greek LNG terminals, connection to the Serbian GTS, providing reverse mode of operation of the Bulgarian GTS through the territory of Romania in the direction of Moldova and Ukraine.
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The state operator of the Bulgarian GTS, Bulgartransgaz EAD, plans to double the operating capacity of the Chiren underground storage facility from 550 million cubic meters to 1 billion cubic meters and ensure simultaneous gas injection and extraction at the level of 8-10 million cubic meters per day. The increase in UGS volumes is necessary to ensure the liquidity of the Bulgarian gas market (storage of surplus gas) due to supplies from Azerbaijan and Greek LNG terminals. Completion of works is expected by 2024. The cost of the project is EUR 308 million. Funding is partially provided by EU funds (Connecting Europe Facility, CEF).
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According to our experts, the gas storage system in Bulgaria is inflexible, and most of the UGS capacity meets the needs of the state gas distribution company Bulgargaz EAD, which uses storage facilities to optimize the long-term contract with PJSC Gazprom. Access to storage for other gas market participants who need to balance their positions is difficult.
As a part of the Chiren project, it is planned to connect an underground storage facility to the route of the Russian gas pipeline project “Turkish Stream” in the direction of Serbia near town of Bhutan by means of additional 45 km of gas pipeline with the diameter of 700 mm. Bulgartransgaz claims that this is part of its long-term strategy to improve the functioning of the local market. By contrast, experts expect that after ensuring the physical connection of the underground storage facility to the Bulgarian branch of Russia’s Turkish Stream (the so-called Balkan Stream), Gazprom may book new Chiren facilities to ensure the flexibility of its supplies to European consumers. In this case, an important part of the functionality of the promising gas market in Bulgaria will be inaccessible to other players.
The organization of stable supplies of natural gas from the territory of Azerbaijan to Bulgaria depends on the implementation of the project to build an interconnector “Greece-Bulgaria” (IGB, Interconnection Greece-Bulgaria), the commissioning of which “Bulgargaz” expects by the end of this year. It is more likely that the construction of the IGB will be completed by 2022.
Joint Bulgarian-Greek project for the construction of an IGB interconnector 182 km long, 800 mm in diameter, between the Bulgarian town of Stara Zagora and the Greek town of Komotini, should provide transportation of up to 3 billion cubic meters of gas per year with the possibility of increasing its capacity to 5 billion cubic meters of gas per year (in the case of additional construction of a compressor station). The project is funded partially by EU funds.
Such a delay in the creation of gas transportation infrastructure does not allow Bulgargaz to receive in full in accordance with the 25-year agreement with the Azerbaijani side 1 billion cubic meters of natural gas from the volume of supplies of the “Shah Deniz” consortium to the European market, which began on 31.12.2020 on the TANAP (Trans-Anatolian Pipeline), TAP (Trans-Adriatic Pipeline) gas pipeline system.
At present, the Bulgarian side, using the scheme of virtual exchange with Greek companies, expects to receive up to 225 million cubic meters of Azerbaijani gas during January-September this year. Under the exchange agreement, Greek firms receive Azerbaijani supplies via TAP to the Greek connection point Nea Missimvria, and Bulgargaz retains the equivalent amount of Russian gas allocated for Greece, which is received to Strandzha 2 – Malkoclar at the Bulgarian-Turkish border. Under the concept of a “Balkan gas hub”, the implementation of such an interim agreement does not facilitate the access of other participants in the Bulgarian market to supplies through the territory of Greece.
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In addition to access to the TAP pipeline, Bulgaria also plans to physically transport regasified LNG through the operational Greek Revithoussa terminal (a virtual exchange scheme was used in 2019) and through the Alexandroupolis LNG terminal, which is scheduled to be commissioned in 2023.
The operation of the floating terminal for reception, storage and regasification of LNG within the INGS project (The Alexandroupolis Independent Natural Gas System) is foreseen in conjunction with the Greek and Bulgarian GTS, TAP gas pipeline, IGB, IBS, “Greece-Northern Macedonia” interconnectors. The planned capacity of regasification of the LNG terminal is 6.1 billion cubic meters per year; LNG storage capacity is 170 thousand cubic meters. On January 28, 2021, Bulgartransgaz acquired 20% of the Greek company Gastrade S.A., which implements the INGS project. In turn, Bulgargaz has booked annual volumes of natural gas transportation from the LNG terminal at the level of 500 million cubic meters.
Experts believe that the implementation of the INGS project and the supply of regasified LNG through the Alexandroupolis terminal and the IGB interconnector to Bulgaria will not lead to a significant increase in the liquidity of the Bulgarian gas market. The commissioning of the second Greek LNG terminal may increase the demand for the use of the IGB interconnector, more than 50% of the capacity of which has already been booked by Bulgargaz on a long-term basis. Given that the Bulgarian gas monopoly will try, first of all, to minimize its own costs for gas supplies to Bulgaria, it will not promote competition in the country’s gas market.
This dominance of the state-owned company in the natural gas market in Bulgaria creates problems for the development of the wholesale segment due to the inefficiency of gas release procedures. Initial prices at gas auctions are set according to the price of Russia’s long-term contract, but Bulgargaz’s ability to use access to Azerbaijani gas and LNG through Greece to reduce its total supply costs significantly worsens the position of other buyers.
Insignificant opportunities to re-export gas from Bulgaria to neighboring countries reduce the attractiveness of trade in the local gas market. According to experts, the possibility of using existing import and export routes to move something other than Russian gas is virtually non-existent. Thus, the “Trans-Balkan gas pipeline”, which is used for the transit of Russian gas through Bulgaria, is 90% booked by Gazprom in the Turkish direction. The transport capacity of the “Turkish Stream” project branch to Serbia (the so-called “Balkan Stream”, put into operation on January 1, 2021) is reserved by Gazprom and other companies selling Russian gas.
In these circumstances, the construction of the Interconnector Bulgaria-Serbia (IBS, Interconnector Bulgaria-Serbia), the use of which will increase cross-border trade and which is co-financed by 40% under the EU CEF program, has been delayed for years. In January this year the Serbian Ministry of Energy has announced that IBS will be completed not earlier than the third quarter of 2023.
Joint Bulgarian-Serbian project for the construction of IBS interconnector 170 km long, 700 mm in diameter, between the Bulgarian town of Novi Iskar and Serbian town of Nis should cover transportation of up to 1.8 billion cubic meters of gas per year with the possibility of reversal. The cost of the project is EUR 81 million.
There is a theoretical possibility to sell natural gas from Bulgaria to Romania and Ukraine, but local market participants believe that re-exports will not be competitive, given Bulgargaz’s commitments under its long-term Azerbaijani and Russian contracts and associated costs. With limited re-export potential reducing trade opportunities in the wholesale gas market, only an increase in domestic demand can allow Bulgaria to slightly enlarge its consumption of non-Russian gas. In the medium term, Bulgartransgaz envisages an increase in gas consumption for heating and electricity generation.
The key factors hindering the formation of a liquid competitive wholesale natural gas market in Bulgaria remain the monopoly of state-owned gas companies and the policy of Russia’s main gas supplier, Gazprom.
Implementing Chiren UGS modernization plans can provide physical flexibility and allow the wholesale market to play a greater role in balancing supply and demand. The new gas import infrastructure, which provides access to Azerbaijan’s resources and regasified LNG from Greece, has the potential to diversify not only gas supply but also gas prices, which can increase competition between suppliers and increase liquidity in the wholesale market. At the same time, without opening access to infrastructure and sources of supply to commercial market participants, this potential may remain unrealized.
The strengthening of the role of the Bulgarian gas market in the Balkan region may take place not earlier than 2023 and, first of all, it will depend on the success of the Greece-Bulgaria interconnector project and the commissioning of the Alexandroupolis LNG terminal.
