Two weeks into July, the Bulgarian energy regulator CEWR finally announced the price of natural gas for July. Unfortunately, the delay did not usher in any good news - the new price is 32% higher than the previous month's and the highest in general for the regulated gas market in the country in 2022. Natural gas itself has played a massive role in the country's politics, with many political parties blaming the now resigned Prime Minister Kiril Petkov for cutting supplies from Russia's Gazprom. However, this is just one of many reasons for the shortage of gas in the region and why prices are so volatile.
It is fair to mention that - even with the rapid rise in Bulgaria - the price will not be as high as that of other European countries. With the increase, it will be 186.17 BGN/MWh, while the Dutch TTF index has averaged above 150 EUR/MWh (293 BGN/MWh) since the beginning of July and at levels above 180 EUR for July 14.
This is due to the alternative supplies that the national distributor "Bulgargaz" provides - Azeri gas and LNG from the USA. If the contract with Gazprom was still being implemented, it is likely that the price of gas for the domestic market would be higher, as it depends to a large extent on the TTF and crude oil derivatives.
Even with the alternative gas routes, however, Bulgaria and the region is still very dependent on Russian fuel and so there is a high possibility of gas shortages this winter. One reason lies in the gas storages which are not fully prepared for the heating season which usually begins in November.
The CEO of "Bulgartransgaz", natural gas transmission and storage system operator of Bulgaria, Vladimir Malinov, stated earlier this month that if all the requested volumes arrive, the Chiren storage would be up to 78-79% of capacity by November. However, it is worrying that by other calculations, gas replenishments could provide only levels of 60%. Since the full capacity of the storage is half a billion cubic meters, 60% means roughly 330 million cubic meters. This will put at risk the central heating of major cities and industry's big manufacturing sites that depend on gas.
Given that it is almost impossible to predict what will happen in a few weeks on the market and with the lack of a long-term contract for liquefied gas, it is highly possible that Bulgaria will not be able to reach the 80% desired levels by the EU and could face a harsh winter. In mid-July the storage is at 35% while most European storages are way over 50%.
Gas auctions not according to the plan
"We made two tenders in June (for July) at the Balkan gas hub, but there was no interest whatsoever and we did not find necessary quantities. We know, as traders, where the supplies are in the region and how much of them are up there to be traded," said the executive director of Bulgargaz, Lyudmil Yotsov.
He also added that May and April were exceptionally hard and there was one day when transit gas from Turkstream had to be used because there was not enough in the country.
The problem with the tenders, organized by "Bulgargaz", lies in the gas programs set up by the gas distributor. It was expected that at least certain quantities would come from that and add to the storage in Chiren, helping the overall winter preparation. The state supplier decided to buy the blue fuel at lower than market prices, but this only accelerated volumes diverted to Hungary and Romania.
More supply auctions are planned for August, which will be key because of the planned rehab of the TAP (Trans-Adriatic gas pipeline), which will stop supplies from Azerbaijan for two weeks in the summer. Essentially, this will stop the flow of 2.7 million m3 of natural gas per day to Bulgaria. In 14 days, it equals 40 million m3, which in itself is not much, but given the difficult situation in the country, it could have a long-term impact.
A system that has failed long time ago
If Bulgaria, and also Southeastern Europe, stop receiving its large amounts of blue fuel from the Turk Stream, and if Russia cuts large quantities of supplies in the Nord Stream, this will ultimately cause a gas crisis and shortage. The exact when and where are imponderables but given that the shortages are already being felt, it might reach an exclamation point right before the winter kicks in.
The Kremlin's recent policies show that it is using its unjustified suspensions of gas supplies to a number of countries, the repair of Nord Stream 1 and bizarre accidents, to try to force the EC to abandon new sanctions. So far, Moscow has managed to cause panic in the market and the prices of gas hubs are booming at unprecedented levels.
Gazprom does not currently offer quantities on the spot market, but contract prices with its European customers are largely linked to hub prices. This means that the price of Russian gas is not certain, but follows hub volatility. It also takes into account the prices of the oil due to a small component in the contracts with EU countries. Crude oil also rose in price after the start of the war in Ukraine, and Russia, as a member of OPEC+, benefits from the high price of fuel.
In the last few weeks the most liquid European gas hub TTF rose to unprecedented levels per MWh. And this is the "place" to which more than 90% of Gazpromexport's gas transactions with Europe are tied. Electricity prices immediately shot up to 350-400 euros per MWh ( BGN 700 per MWh) throughout Europe, and although there could be many factors, the most significant contributor to market volatility is natural gas.
In general, the "month ahead" futures is the most liquid and it is the benchmark in gas contracts. The daily prices at which the index closes are averaged and, according to them, quantities are sold for the next month. This means that the TTF index is extremely susceptible to what is happening in the big European pipelines. For example, when Russia reduces the supply of the Yamal gas pipeline and Nord Stream 1, it immediately reduces the liquidity of gas in Central and Western Europe and this impacts the price of the gas hub. In contrast, the quantities that enter from "Turkish Stream" through Bulgaria do not have such a strong relation to the quotations of the Dutch hub, which leads to the paradox that even if Bulgaria receives enough quantities through the pipe, we will still have to pay more since TTF is the benchmark.
The share of Russian gas in Europe has currently fallen from 40 to 25%, but this is happening on the back of very high prices, and Europe has a long way to go before finding sustainable alternatives.
So far in July, Bulgaria has received one American LNG cargo via Greece, compared to two in June. According to data from the platform of the Greek gas supplier DESFA, the Bulgarian company received 650,000 MWh of natural gas, which is approximately 62 million m3. The tanker OAK SPIRIT (under the Bahamian flag) holds 95 million m3.
The cargo arrived at the Greek terminal Revitusa on July 2 and, after being re-gasified, was transported through the Kulata-Sidirokastro gas point in order to enter the Bulgartransgaz network. Similarly, Bulgargaz bought up equivalent quantities twice in June (Turkish terminals were also used). According to different sources, Bulgaria has booked 2 more cargoes, however, there is no evidence of a long-term contract or planned supplies from September onwards.
LNG is one of the keys for diversifying gas flows to Bulgaria. Alongside Azeri gas, these are the only natural gas sources which Bulgaria is receiving right now excluding occasional swap deals with Greece. After Moscow decided to cut supplies to Sofia in April, the cabinet decided to make drastic changes in blue fuel diversification, but switching from Russian gas so quickly has proved difficult. Bulgaria's consumption is around 3 billion cubic meters, two thirds of which is consumed in the winter, which makes it one of the smallest gas markets in the EU: main consumers are the central heating systems and glass/fertilizer sites. If the political crisis spreads more and there are new parliamentary elections in October, finding the necessary gas could become impossible. Still, there are several crucial months ahead for politicians to find a way, even beyond Russian sanctions, to supply the Bulgarian market or ..