Bulgargaz: Even if Bulgaria received Azerbaijani gas in full, from the beginning of 2022 there would be an increase in the regulated price again

Energy / Bulgaria
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Once again, the public supplier in the person of Bulgargaz explains the company's point of view regarding the supply of natural gas from Azerbaijan, the increase in the price of natural gas, and whether there is a sufficient amount in the gas storage in Chiren. The answer to these questions was given by the executive director of the company during the open meeting of the EWRC on the price of gas on December 29, 2021. Before that, several times the public supplier also disseminated an opinion on the supply of Azerbaijani gas. This time the gas company has prepared an opinion in the form of a "question-answer", which we publish without editorial intervention.

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In connection with the great public interest in the supply and prices of natural gas, Bulgargaz EAD provides information on some of the most frequently asked questions.

Why does Bulgaria receive only part of the agreed quantities of natural gas from Azerbaijan?

The only route for the supply of Azerbaijani natural gas to Bulgaria, according to the agreement with the Azerbaijani country, is the IGB (Greece-Bulgaria gas interconnection) pipeline, which has not been built. Its construction is the responsibility of the Greek-Bulgarian company ICGB AD. Bulgargaz EAD cannot influence this process, but suffers the negative consequences of the delay in its construction.

In 2020, the Azeri supplier informed us that it was starting deliveries on the Trans-Adriatic Pipeline to the place of connection to Komotini's IGB, but the IGB pipeline was not built. In this situation, Bulgargaz EAD not only cannot receive natural gas under the contract, but is also threatened with penalties.

The Azeri company, for its part, is neither obliged to supply gas through a pipeline other than the IGB, nor is it obliged to supply all the quantities it would supply via the IGB.

After the launch of the IGB gas pipeline has been postponed several times, Bulgargaz EAD has no choice but to negotiate with the Azerbaijani side and seek the best possible interim solution with the explicit consent of the supplier.

Bulgargaz EAD did just that and managed to negotiate with the Azeri supplier to receive gas from another gas pipeline nearly 300 km from the IGB (via the Greek gas transmission network DESFA).

At present, Bulgargaz EAD receives the quantities that the Azerbaijani supplier has agreed to deliver. Obtaining the full amount of the contractual quantities of the alternative gas pipeline depends entirely on the will and capabilities of the Azerbaijani side.

Any postponement of the commissioning of the IGB gas pipeline puts Bulgargaz EAD in an increasingly unfavorable position in the negotiations for the supply of the alternative gas pipeline with the Azeri company. To this day, Bulgargaz EAD has not been informed by the project company building IGB when the Greek gas connection will be ready. Therefore, Bulgargaz EAD cannot inform the Azeri partner when the Bulgarian side will start implementing the contract, instead of asking for temporary decisions.

Could the increase in the price of natural gas from January 1, 2022 have been avoided if Bulgaria had received all the agreed quantities of Azerbaijani gas?

No. If Bulgaria received Azeri gas in full from the beginning of 2022, it would be necessary to increase the regulated price again. It is important to know that currently Azerbaijani gas is relatively cheaper, but its price is also rising. Also, even if Bulgargaz EAD receives the entire amount under the contract, during the winter months it will not be enough to satisfy even a quarter of the consumption in the country. Azeri gas is not and cannot be a solution to the problem of high prices on international oil and gas markets.

When will Bulgaria receive all quantities of natural gas from Azerbaijan?

In his interviews, the Ambassador of Azerbaijan to Bulgaria repeatedly answered this question - the agreed quantities will be received when the Greece-Bulgaria interconnection (IGB gas pipeline) is completed.

Is it true that Bulgargaz has given up receiving the entire amount of Azerbaijani gas?

No, on the contrary. From the first day of deliveries, Bulgargaz EAD insists on receiving the entire agreed amount of gas. And not just because of the price. In fact, when negotiations began in 2020, the price of Azeri gas was higher than that of Russian gas and liquefied natural gas (LNG). It is currently lower. Depending on the development of the markets in 2022, Azeri gas may again become more expensive than other sources.

It is important for Bulgargaz EAD to have a balanced portfolio of different natural gas sources, not to depend economically on only one supplier and to ensure security of supply. Diversification is the reason №1 Bulgargaz wants to supply all quantities of gas from Azerbaijan and has not backed down from this position.

Why Bulgargaz does not receive Azerbaijani gas through Turkey?

The reason is that the operators of the Bulgarian and Turkish networks do not offer such an opportunity. To this day, no capacity products are offered at the connection point of the gas pipelines between Bulgaria and Turkey.

Given the lack of the IGB gas pipeline, in order to avoid huge sanctions, Bulgargaz EAD explored the possibility of supply both through Greece and Turkey.

Bulgargaz EAD has repeatedly sent inquiries to the Turkish operator Botas and to the Bulgarian gas transmission operator on technical capabilities and commercial conditions for transmission.

Bulgargaz EAD did not receive an answer to the inquiries from the Turkish operator.

In any case, the question of whether it is delivered via Turkey or Greece is of secondary importance - Bulgargaz EAD cannot choose and specify another route other than the contractual one and receive quantities of Azerbaijani gas on it without the consent of the Azerbaijani side.

Are gas supplies to Bulgaria threatened?

Absolutely not. Indeed, there is a gas crisis in Europe, storage facilities are not full and prices have reached record levels, including due to fears of shortages. Bulgargaz EAD has planned and ensured the deliveries of all its customers who have concluded supply contracts up to the amount of the agreed quantities. Bulgargaz EAD closely monitors consumption and has warned its customers that they should plan their orders precisely. If they fulfill this commitment, there will be no supply problems.

Is there enough gas in the Chiren UGS?

Bulgargaz EAD has fulfilled 100% of its obligation to inject gas in the gas storage facility under the Emergency Action Plan. Moreover, the company agreed to pump additional quantities of gas instead of Toplofikacia Sofia EAD, which in the summer of 2021 transferred capacity to Bulgargaz EAD, as it was unable to fulfill its obligation to pump under the Action Plan. emergency cases. As it is known, Bulgargaz EAD and all suppliers inject gas into gas storage facilities during the summer season and extract it during the winter season, when consumption is significantly higher.

The beginning of the production season usually coincides with the beginning of the heating season district heating and gas distribution companies. The goal is the injected quantities in the UGS Chiren, together with the quantities that Bulgargaz EAD imports under the long-term contracts, to cover increased customer consumption during this period.

Bulgargaz EAD is not the only user of the gas storage facility. The operator of the gas storage facility Bulgartransgaz EAD distributes among all applicants capacity products for injection, storage and extraction of gas in the Chiren UGS in accordance with the Rules for the use of the gas storage. With the approval of the schedule for injection, storage and production, the Operator is committed to its implementation and Bulgargaz EAD has no reason to expect a shortage of gas.

The distributed quantities should be obtained by the end of the extraction period 31.03.2022.

As a public supplier, Bulgargaz EAD guarantees the supply of the agreed quantities of natural gas for the regulated market and for all its customers at the best prices.

The company correctly executes its contracts and transfers all the benefits of its long-term contracts to its customers.

Bulgargaz EAD with priority fulfills the requests of its customers in the country and its obligation under the Natural Gas Release Program (by releasing the normatively determined quantities on the gas exchange of Gas Hub Balkan EAD). In deliveries, Bulgargaz EAD accepts the quantities of Azeri gas, fulfills its obligation to extract from Chiren UGS, strictly adhering to the operator's schedule for extraction, and uses the flexibility of the Agreement with Gazprom Export. In the presence of free quantities, Bulgargaz EAD sells at free prices on a daily basis on the organized stock market under the terms of the Energy Act and the rules of licensed gas exchanges in the country. Bulgargaz EAD sells the free quantities of the anonymous segment at stock exchange prices, which are significantly higher than the price of the most expensive gas in the mix of Bulgargaz EAD. The sale on the stock exchange generates an additional financial flow, which allows Bulgargaz EAD to realize positive financial result.

Bulgargaz EAD does not have a mechanism to track the final destination of the amount of gas sold on the stock exchange, nor does it have the right to include a "destination" clause. This would impede free trade in natural gas, including intra-EU trade, which could be considered a breach of EU competition law.

In 2021, Bulgargaz EAD sells natural gas to Bulgarian consumers at prices significantly lower than the prices on the European gas markets, including district heating, gas distribution companies and large industrial customers. The price advantage for the clients of Bulgargaz EAD, only for 2021, calculated through the delivered quantities and the difference between the price at which Bulgargaz EAD also sells to its customers the current prices on the European gas markets, amounting to approximately BGN 675 million.

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