Only 400 km northeast of the Bulgarian border, a war is waging in Ukraine - a bitter conflict that has reshaped regional politics forever. Contrary to some false prognoses in February, the war is here to stay and it is unlikely that Russia will simply cease its aggression soon. It may even continue for years. The conflict has already triggered severe geopolitical turbulence and disruption to energy supplies: gas, crude oil, coal, metals and raw materials have either become more expensive or the Russian-European supply chain has been blocked. Bulgaria is no different from many other European countries; it imports most of its gas from Russia (90% in 2021) and events in Ukraine will inevitably always affect Sofia greatly.
Sofia's full dependence on Gazprom did not dissuade the Kremlin from halting Bulgarian deliveries at the end of April. In fact, Bulgaria and Poland were the first EU countries to feel the Russian kickback to sanctions. Some countries soon decided to pay for Russian gas through the new formula: finding a way to pay in rubles, and praying that Gazprom would continue their deliveries. Bulgaria, however, refused and many argued that this was a serious error.
After so many years with a long-term contract with Gazpromexport, the national Bulgarian distributor Bulgargaz was in a strange position. Now, it had to act like a typical gas trader, forced into finding spare quantities and booking spare slots in the Liquid Natural Gas (LNG) terminals. So far, the state owned company is doing relatively well - although deliveries booked to date have been very limited, notching up just two cargoes in June and one in July amid many promises that negotiations are still ongoing with LNG companies. Even the best gas traders will say that finding natural gas right now in this region is incredibly difficult. The biggest problem is not even the price, but its scarcity and lack of available infrastructure.
In the last days of Petkov's cabinet, the former PM announced that a new gas deal with an American company was being negotiated involving seven monthly cargoes from September onwards. Petkov did not have time to sign the deal and so it passed over to the caretaker government appointed by President Radev. The same caretaker cabinet that has since tried to maneuver Bulgaria into negotiating with Gazprom again (having announced several times that the country might not have any other choice.)
The 13-year history of the development of the natural gas interconnector between the Bulgarian national transmission system and the Transadriatic pipeline (TAP) has been marked by political meddling and sheer incompetence. The pipeline itself is 180 km long. It goes from the Greek city of Komotini and finishes around the Bulgarian city of Stara Zagora. It is only fair to say that it goes through a very mountainous area which makes it difficult for builders and engineers. However, this shouldn't divert from the reality that the pipeline gives direct access to non-Russian gas not only to Bulgaria, but to the entire region north of Greece.
Long ago, right after the first cabinet of Boyko Borissov emerged in 2009, the former prime minister announced that his priority was building this gas pipeline. The idea behind the transmission utility looked great on paper, allowing Bulgaria to import natural gas from the gas field Shah Deniz in Azerbaijan. However, through the years Bulgaria's political elite gave the green light to another project - the Turkstream pipeline. Yet Turkstream does not really benefit Sofia because Gazprom has booked the capacity in the next 20 years and cost Borissov's government nearly 3 bln leva. But it has the effect of making Bulgaria fully dependent on Russia and its gas deliveries. The GERB government built it in just 18 months, while at the same time the Greece-Bulgaria interconnector (IGB) is still not operational.
Where is the interconnection now ?
In the past weeks, the Transadriatic pipeline has become increasingly popular. The reason is simple: since Gazprom stopped gas deliveries to Bulgaria in April, Bulgaria needs Azeri gas more than ever. Moreover, Bulgargaz has a contract with Azerbaijan Gas Supply Company for 1 bln m3 natural gas per year. In other words, 30% of the gas consumption in Bulgaria could be covered by Azeri gas if the whole capacity were delivered. On one hand, Bulgaria receives even now the quantities through a swap deal with Greece, but, on the other, it depends on other routes and cannot opt for more with the Azeris.
The former cabinet of Kiril Petkov prioritized, unlike Borissov, the IGB and for a few months (some parts were delivered late) the engineering and building of the pipeline was 91% completed by May.
Not long after Radev's caretaker government stepped in, the gas pipeline to Greece was stalled for odd reasons. There was even a risk that it would not start at all in the coming months, but it is hard to say whose fault it was and why it happened. What is known is that mandatory changes in the management structure of "ICGB" were not made. (ICGB is the company that operates the interconnector and whose shareholder is the state through the Bulgarian Energy Holding). Also, incoming energy minister Rossen Hristov did not appoint new members to the commercial register. Appointing them is a mandatory condition set by the regulators of Bulgaria and Greece, for the certification of the gas pipeline.
Without the gas connection, Gazprom's return to the Bulgarian market looks even more likely. Moreover, this is happening just as Greece announced that it has expanded the LNG terminal in Revitusa and the tankers agreed by the "Petkov" cabinet could be unloaded there in the winter.
The case was soon resolved and on the 15th of August the supervisory and management board of the interconnector were successfully filled in the Commercial Register. Although this seems like a ridiculously bureaucratic obstacle, this small hurdle - if not attended to - could have delayed the completion of this important gas project.
The blunder did not pass unnoticed. After news of this emerged - principally publicized in a Kapital article - that the caretaker government was blocking the certification, a series of protests against President Rumen Radev were staged in Sofia.
Falling in love with Azeri gas
The series of events provoked an immediate response from the presidency. After a meeting with the Greek construction company Avax which is in charge of IGB, President Rumen Radev and his ministers, it was announced that natural gas will flow through the interconnector on October 1st.
Energy Minister Rosen Hristov confirmed this immediately after the meeting: "We have confidence that the project will be completed and put into operation on time. Avax has made all commitments that it will be on schedule - gas should flow through the pipe on October 1."
"The intersystem gas connection is not just an infrastructure project, it is an object with a strong regional and geopolitical dimension", President Radev also stated, adding that the completion of the gas pipeline is of extreme importance for Bulgaria. The presidential stance, however, is not always very clear. Since his caretaker government came into power it has frequently seemed to imply that Bulgaria has no option but to revert to Gazprom. Hence Gazprom seemed to be returning to the fold just months after it decided to stop supplying Bulgaria.
Fortunately or not, this time is different because the contract with Gazpromexport expires at the end of the year. A comment from the deputy energy minister in the caretaker government was particularly noted: "Maybe we can negotiate with Gazprom to supply Bulgaria with all the gas that the country forfeited after April". In other words, some Bulgarian politicians think that Gazprom would supply Bulgaria with gas after the long-term contract expires, but with quantities stipulated in the same contract.
Meanwhile, Bulgaria's regulated natural gas price in the last months has risen sharply. From 142 leva per MWh in June, it rose more than 30% in July. Just some days ago the energy regulator decided that it will rise by another 60% in August and it is estimated at 298 leva per MWh. Rumors are circulating that it will go way above 300 in September and this is without even knowing where gas will come from. The only secured delivery is through a swap deal with Greece for the Azeri gas.
There will be gas
In the meantime, the European benchmark TTF is setting record after record. From prices below 200 euro per mwh, the index closed at 216 euro per mwh on the day ahead segment on August 16th. Quantities are even traded at 230+ euro per mwh for the day after. Benchmark European gas futures for next month climbed as much as 8.8% to the highest intraday level since early March. While Bulgarian prices are high, European indexes are skyrocketing and this is feeding into rising electricity prices and overall inflation throughout the continent.
Bulgaria has one advantage since Gazprom deliveries were shut. It does not fully depend on the volatility of the TTF hub like many other countries. The importance of the TTF resides in the contracts with Gazprom- 90% of them calculate the price of the gas delivered by having TTF as the main component of the formula. Still, nobody can break off TTF on 100% due to the majority of gas deals in European markets using TTF as a benchmark. As a comparison, the Azeri deliveries use crude oil as a benchmark which makes it several times cheaper recently.
The real question to be addressed now is not the price of the gas, but its availability. The Bulgarian government should focus on finding LNG. However, this can prove to be a difficult and very expensive task since there are no slots available in the terminals nearby. Putting all the pressure on Bulgargaz - the gas distributor has a new CEO - to find extra fuel is not necessarily the right route to take. Many local gas traders argue that the state monopoly on the gas market is wrong and Bulgargaz is rather destructive in the market. Even more, Bulgaria consumes only 3 bln m3 per year- with already having Azeri gas and some LNG - the rest should not be that hard to find.