The market test for the LNG terminal in Alexandroupolis – the market believes Gazprom has an alternative

The market test for the LNG terminal in Alexandroupolis – the market believes Gazprom has an alternative


The first non-binding phase of the market test for the capacities of the floating LNG terminal in Alexandroupolis has generated unexpectedly high demand – more than 12 billion cubic meters in bids, which is more than double the FNLG’s planned capacity of 5.5 billion cubic meters. Twenty companies submitted intent to book capacity.


In the next binding phase, the digits for capacity take-up will fall significantly, yet the message from the LNG gas market could not be more unequivocal – gas traders trust they can offer competitive prices for natural gas and gain market share in Southeast and Central Europe. In other words, they are confident that gas from the global LNG market can compete with Gazprom’s pipeline gas for the cash of customers.


Another important deduced message is that capacity booking for the Greece-Bulgaria interconnector is likely to soar, as it is the natural extension to the north.


It is too early, however, for euphoria, as a few topics remain open. First, the conversion ratio of non-binding to binding bids will depend on the removal of special privileges, i.e. discounted tariffs for transit of natural gas for Gazexport, which reach up to 10% of the end sale price of natural gas at the client’s national border. This screen, provided by governments and state companies in the SEE to the Russian gas monopoly, calls for special investigation by the European Commission. Without equal access to capacities and customers, there is no company that will be willing to sacrifice commercial returns and pay bank guarantees to engage long-term capacity at the southern entry point into the GTS in the Balkans at Alexandroupolis.


Expectations might be easily overblown, considering the low occupancy rates at LNG terminals and transport infrastructure in Greece and elsewhere in SEE. The first large LNG cargo is being discharged at the Revithoussa Terminal, but the commitments and the revenue on a long-term basis are uncertain.


At any rate, 20 bidders is well over optimistic expectations and is proof of pending new market dynamics, as major international players are in the game, ready and willing for a battle for customers in the regional gas market.


Some educated guesses include that the Russian gas monopoly is playing with a few players in the capacity auction at the Alexandroupolis FNLG. The old adage in Gazprom’s strategy in the Southern Gas Corridor works flawlessly – engage capacities and block access by overwhelming competitors. The bad news for Moscow is that American and European LNG players are not impressed by Gazprom’s pretense that its pipeline gas is beyond competition.


Despite the reassurances that the Bulgarian Energy Holding is ready to buy in a minority stake in Gastrade’s FNLG project, the conduct of the Bulgarian government remains ambiguous. There is no risk and cost-benefit analysis and no strategic line of pursuit, as the proposed shareholders are constantly changing – BEH or Bulgartransgaz. The benefits of an equity stake in the operator of the FNLG are different from engaging a capacity in it by operator/trader. Bulgarian customers’ interest could hardly be associated with equity ownership, as low prices and liquidity are associated with competition from multiple sources and destinations. Gas consumers are not interested in pre-designated ‘winners’, even less so in monopolies. Therefore, it seems more logical for the national gas trader Bulgargaz, rather than the operator BTG, to book capacities in the FNLG to contract LNG supplies from various sources, including the United States. On the other hand, the drive to engage in strategic LNG business via state companies leads to the consideration of a ‘political’ motive for BTG acquiring a stake in the LNG terminal in Alexandroupolis.


Equity could hardly be an end in itself. For BTG it might make some sense only in the context of integration of transmission capacities across the region so that the company is able to offer cheaper, integrated, cross-border products to its customers. Instead of buying capacity into critical transport infrastructure, the operator could engage in broad capacity swaps with other operators. At the same time, the lack of consistency looms high against the fact that Bulgargaz has booked capacity in direct mode in the IGB, which is the natural extension of the FLNG terminal. The impression of ambivalence persists with the main question still unanswered. The Bulgarian government maintains that the prevailing ‘national’ interest is to secure a maximum load for Bulgaria’s GTS with significant liquidity of gas, regardless of source, including a quick and unrestricted liberalization of the national gas market. The latter presents the ‘hands-off’ or ‘let-the-market-decide’ approach. The other and seemingly dominant line is the dirigiste, or the proactive policy of directing state investments to egocentric, geopolitically motivated projects paid for with taxpayers’ money.


Neither BTG nor Bulgargaz or BEH have been particularly open to the public in laying out their plans and motivation. Most, if not all, of their management’s attention has been focused on servicing the Russian gas streams in the region – the extension of the TurkStream-2 into Bulgaria, presented as an EU-backed Balkan Gas Hub. The Bulgarian government seems keen to invest almost 1.4 billion euros, most probably with quasi or full state guarantees, seeking to avoid a perceived loss of transit revenues from Gazexport, which seems to be a self-destructive point of departure to address the situation.


It is suffice to compare the frenzy associated with Russian gas projects with the efforts to leverage Bulgaria’s transit system’s potential against alternative shippers’ and traders’ demand, including from the Southern Gas corridor and the Greece-Bulgaria interconnector. Although at a non-binding phase, these 12.2 billion cubic meters in intentions are impressive, coming so early in the process of opening the region to the global LNG market. Russian gas finally has a credible and accessible alternative.


The $100 million that BTG currently collects, or the twice as high revenues expected for the transfer of Gazprom gas after Turkish Stream, can be fully matched by earnings from transport services offered to Gazprom’s competitors. This line of thought, however, has not fully transpired as a leading motive of Bulgaria’s top statesmen and managers of state energy companies.


The explanation is simple – the long years of exclusive work with a single supplier have created a Stockholm syndrome dependency, generating a corruption-oiled mechanism of acquired blindness to alternatives and competitors.


The bottom line is: the first leg of the FLNG market test has clearly attested LNG is a strong contender and Gazprom will inevitably lose market share and its dominant role in Southeast and Central Europe’s gas market.


By Ilian Vassilev

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