Over the past decade many European countries have started to implement natural gas aggressively into their economy. The plan was always to use it as a transition fuel to replace the dirty and old coal units. Of course, this policy was powered by thousands of cubic meters of gas coming through the Russian pipelines, fueling the green transition plans of Brussels. This was a formula well-known to every European politician.
Bulgaria, however, bucked the trend and leading politicians never really tried to replace lignite coal with natural gas. This was not due to the lack of Russian influence in the Bulgarian energy sector, but rather because of the lack of new renewables, and powerful lobbying from the coal industry. The yearly consumption of gas has always been around 3 billion cubic meters.
However, Bulgaria needs gas and it needs it for a few simple but important reasons: for its central heating system and also for glass and fertilizer factories. Ever since the communist era, the state has been buying gas from the Kremlin, but the previous cabinet of Kiril Petkov broke all ties with Gazprom after refusing to pay in rubles following Russia's invasion of Ukraine. This was undoubtedly one of the factors leading to the fall of the government.
After the Petkov cabinet, the new caretaker government decided to reverse course and in a move that confounded some energy experts it returned to courting Gazprom for supplies. Caretaker Energy Minister Rossen Hristov claimed that Bulgaria could only broker a competitive price if it sought Russian gas. Soon after, the fledgling cabinet realized that Gazprom is unpredictable and volatile as polite requests went unanswered.
This provoked a giant U-turn again. The newly appointed director of state supplier Bulgargaz Denitsa Zlateva and Hristov announced tenders for liquefied natural gas (LNG).
Three tenders were announced - for supplies until the end of the year, for the whole of 2023 and, most significantly, for the period 2024-2034. It was hoped that this would serve to provide about one third of the country's needs annually.
Just a few weeks earlier, the caretaker government had contended that liquefied gas was extremely expensive and that there was nothing cheaper than pipeline gas. Six cargoes, booked by the previous cabinet, were essentially declined for this winter on the basis that there were no terminal slots available for regasification.
President Radev cast some light on the cabinet's actions, declaring that the tankers booked by the previous government were refused because of the way they had been brokered, not because of their prices or the lack of slots available to unload them. Now, however, there is no guarantee that better prices will be achieved, nor is there any guarantee that anyone will be able to deliver gas for November and December given the short notice.
"Additionally, a tender will be held for the supply of pipeline gas, and there are options to use Turkey as a partner," said acting minister Rossen Hristov, without giving further details.
What is the plan?
The three auctions are for three different periods. The first is for November and December this year. The second is for the whole of 2023, and the third is for a 10-year contract from 2024 to 2034. By comparison, the Azeri gas contract runs until 2035.
The following quantities will be sought:
- 1.5 million MWh (142 million cubic meters) for November and 2 million MWh for December
- 16 million MWh (1.5 billion cubic meters) for 2023
- 10.6 million MWh (1 billion cubic meters) per year in the period 2024-2034.
Clearly, supplies have been settled for November and December under the Azeri contract and some may be pumped from Chiren, but the remaining one third of gas needed by Bulgaria is still unaccounted for. And it is still unclear from where it will come and at what price. Presumably, this is the reason for the tender. However, it is unclear why the government had to waste weeks waiting for Gazprom and why it dismissed previous LNG offers.
In an exclusive interview for KInsights, minister Hristov admitted that Gazprom's refusal is on the back of a political decision in Moscow not to work with Sofia. Simply put, the Kremlin considers Bulgaria an "enemy country".
The other auction, which will seek quantities for 2023 equal to half of Bulgaria's annual consumption, is certainly a step in the right direction. It is being done now because at the end of September and the beginning of October, applications must be made for slots at the Greek liquefied gas terminal in Revitusa. In this way there is a chance of achieving better prices and much greater certainty for the coming year.
Natural gas in a decade
However, the idea of a 10-year long-term contract for the supply of liquefied gas seems rather fanciful. It has already been stated that this is a measure to assist a future "regular" cabinet - but the tender will drag on for at least six months. Another reason for the maneuver is the increased booked capacity in the newly built terminal in Alexandroupolis, in which Bulgaria has a 20% stake.
In general, a long-term contract for LNG supply should secure the best prices and give predictability of supply. Combined with the Azeri contract, this would provide Bulgaria with two-thirds of its needs.
However, there are still some worrying aspects to all this. First of all, there is no clarity regarding how such a contract would be related to the national energy and climate plans, and the National Recovery and Resilience Plan. How will it work around the 24 thousand megawatts of new renewables requests to the system operator? Furthermore, it is very likely that in 10 years' time the overall consumption of gas will be reduced in the EU.
In addition, there is the outstanding issue of tariffs. To tender long-term supplies right in the middle of such a crisis, bearing in mind the scale of the provision required, may lead to less favorable pricing. The European benchmark TTF is as volatile as ever. The suppliers are now in a strong position and will not be inclined to make concessions for the time being. Overall, it's still a fluid and potentially fraught situation for whatever government rules Bulgaria.