Bulgaria’s natural gas monopoly has finally announced in public its intent to buy natural gas in the second quarter of 2019 for its needs using an open and competitive procedure. This is the official narrative, at least what Bulgargaz is trying to sell to the public. The volumes are more than modest – 22 million cubic meters in April and 62 million cubic meters in May and June. That is nothing dramatic, yet the management and the government media use the opportunity to trumpet a major shift in Bulgaria’s longtime allegiance to Gazprom, as the country remains the sole SEE state with a near total dependence on Russian gas.
The national gas company, Bulgargas, has long been accused of acting as a Gazprom proxy with Stockholm syndrome, refusing to look elsewhere for diversification of source both in pipeline and LNG gas. This is the background against which Bulgargaz’s announcement is PR-ed as a long-expected breakthrough.
Yet the expectations are exaggerated, and a deeper look into the announcement and the context could reveal a different substance and motivation.
This is not the first instance when Bulgargaz has invited gas supply offers. One happened three weeks ago, but it did not hit the news boards, as it was distributed to active traders only. So in real terms the current announcement is the first public call.
The market players are likely to question the sincerity of this prime public shot of a gas company addicted to Gazprom, as Bulgargaz is, announcing a tender to purchase gas on March 15th, for deliveries for the second quarter starting April 1st.
There is nothing stopping Gazprom or its backstage partners from taking part and offering non-market prices for gas — just to make sure that it keeps Bulgaria off limits to serious international gas traders.
Strategic players are struggling to believe that Bulgaria and Bulgargaz are genuinely interested in buying gas from Gazprom competitors.
Even more so for LNG traders, who require more time to optimize source and logistic options, to say nothing of competing on discounts at a yet-to-be-determined price by the regulator at the end of March.
The end date for submissions of offers is March 29th, while the regulator finally determines the price for natural gas two days later.
For the sake of the argument, let’s assume that traders should take Bulgargaz at its word and should benchmark their bids against price proposals and statements submitted to the regulator.
Let’s take a step back and look at what Bulgargaz officials have told the public prices for the second quarter would look like. At the end of February, according to local media, the national gas trader assured the public that natural gas prices from April to June will be 0.5% below current levels.
A week later, Bulgargaz revises its estimate and submits a new proposal – for a 0.87% increase in gas prices for the second quarter. The final word rests with the regulator at the very end of the month. Yet Bulgargaz sets out in the official invitation “to all interested parties” that their bids will be ranked with the top criteria being the size of the discount below the regulated price for the second quarter.
Although the possible margins around the regulated gas price are not huge, they are material, notably for newcomers – which is a qualification that fits everyone but Gazprom. For most of the new players, the entry to a new and perceived-as-hostile (so far) market, comes with very modest expectations for profits, where 2-3 percent on the price could be a make or break case.
To add a further grain of doubt, bidders are asked to provide proof of booked capacity to deliver the offered gas, starting April 1st, which seems a near impossible condition to meet, as most gas grid operators’ deadlines (Bulgartransgaz) for trading monthly (for April) and three-month (April-June) transmission capacities are March 18-19th. For a good reason.
Examining in greater depth the ‘breaking’ part in the news – that for the first time Bulgargaz decides to go public with its intent to buy gas from someone other than Gazprom – one clearly sees that there is more hype than substance.
If serious, Bulgargaz should have tried with larger volumes with a delivery term after July 1st, to allow traders and producers more time to plan and optimize bids. It has been a long-time excuse of Bulgargaz that it can’t risk buying gas from anyone other than Gazprom without risking huge penalties under the ‘take or pay’ clause — not even for quantities above the ‘take or pay’ threshold, which are well over 0.6 billion cubic meters.
In its current format, Bulgazgaz’s call for bids to supply these 144 million cubic meters of gas over the next three month looks more like a formal procedure and a PR stunt to legitimize the purchase of gas from a pre-agreed source. The level at which such an agreement could have been reached could be either corporate – Bulgargaz management for internal sources – or the Bulgarian government for external sources, tracking the recent visits of the prime minister.
The belated move of Bulgargaz could then serve a dual purpose – on one hand, a PR one to portray the company’s management as opening up to the new reality. On the other hand, it would give fresh PR credit to the Bulgarian government, just when it needs to allay fears of playing the role of Russia’s ‘Trojan horse’, at a critical time for the Balkan Gas Hub project – the extension of Turkish Stream via Bulgaria to Serbia and Hungary.
Hence the conclusion – Bulgargaz’s step, although in the right direction, is too little, too late and too ambiguous to impress.