BULGARIA is among a large number of European countries that has taken a new interest in the topic of natural gas, and is among those seeking an alternative to dependency on Russia.
Russia, the dominant supplier of natural gas to many parts of Europe, is on the offensive to charge higher prices, a move that has pushed the issue to the top of the continent’s agenda - and precipitated a government crisis in Ukraine, the country that first felt the brunt of the offensive.
For Bulgaria, departing from the terms of the current contract would have serious implications, as Economy and Energy Minister Roumen Ovcharov has pointed out. Under the current contract - which expires in 2010 - the set price enables domestic prices to be kept relatively low.
Ovcharov, and Bulgaria’s Bulgargaz, have labelled the attempts by Russian gas giant Gazprom to hike the price as “unacceptable”.
After the dispute with Ukraine erupted, Gazprom spokesperson Sergei Kupriyanov said on January 9 that the average gas export price for European countries would increase to $250 for 1000 cubic metres.
While the provisions of Gazprom’s contracts with countries are secret, media reports listed that for Bulgaria as being $83 per 1000 cubic metres, Latvia $120 to $140, Lithuania $151, Estonia $100, Poland $200 to $250, and Romania $230.
Russia’s stance is being opposed by European countries collectively and individually, and by European Union member and candidate countries alike.
For Bulgaria, almost wholly dependent on Russia for natural gas, the issue is critical.
In a January 9 letter to Gazexport, the export arm of Gazprom, Bulgargas officially refused a Russian proposal to pay a gas transit tariff rate to Turkey, Greece and Macedonia through Bulgaria at base prices of $82, while Bulgaria would have to buy natural gas at market prices. Currently Bulgaria receives gas for the transit.
In the letter, Bulgargaz said that it expected to continue working with its Russian partners to increase the transit of natural gas through expansion of the network and extension of the transit agreement until 2020.
Bulgargaz said that it supported Gazexport’s plans to boost investments in the network expansion through its subsidiary Overgas Inc and was ready to discuss Gazprom’s participation in the development of Bulgarian heating and nuclear power facilities. The letter, signed by Valentin Ivanov, Deputy Minister of the Economy and Energy and chairperson of Bulgargaz, was addressed to Alexander Medvedev, Gazprom’s deputy chairman and Gazexport director-general.
The letter said that Bulgaria’s Economy and Energy Ministry and the Bulgargaz management were ready to co-operate with Russia and the two Russian companies - Gazprom and Gazexport - on strategic energy projects in Bulgaria and South Eastern Europe.
The current agreement precludes revision or unilateral termination before its expiry in 2010, the letter said.
The current agreements on Russian natural gas supply and transit were signed after the two countries had made the transition to a market economy, and were based on free-market principles, Bulgargaz said in its letter.
Tensions surrounding the issue were heightened earlier after, on January 5, Bulgarian journalists questioned Russian ambassador Anatoli Potapov about the issue.
Pressed for a response, Potapov said that in 2006, the prices for Bulgaria for natural gas transit would change.
Diplomatically, he added, “this would not change the political relations between the two countries”.
According to Potapov, the agreement, signed in 1998 when the United Democratic Forces government headed by Ivan Kostov was in power, provided for annual price revisions and it was not clear why such revisions had not been made. Potapov said that the relevant ministries of the two countries would discuss the issue. Russian president Vladimir Putin had the discretion to advise Gazprom whether to increase prices gradually or rapidly, Potapov said.
The Potapov statement, and extensive media coverage - with varying accounts of what he had said and varying interpretations - prompted a sharp response from the Bulgarian Government, with Ovcharov insisting that there would be no change.
With the apparent dispute following hard on the heels on the row between Russia and Ukraine, the reported difference of opinion attracted the attention of international news agencies, with the BBC leading its January 6 business news with an account of the set-to between Russia and Bulgaria.
In response, Gazprom’s media office in Moscow issued statement said that the agreement on the supply of Russian natural gas to Bulgaria would not and, in fact, could not, be revised.
Gazprom said that it kept fully to all its foreign business obligations and nothing would be changed.
The Russian firm offered a new interpretation to the Kupriyanov statement that gas prices for Bulgaria, Romania and Hungary would range between $230 and $260 a 1000 cubic metres in 2006 by saying that the spokesperson had meant only that these prices “could” reach such levels.
Adding to the uncertainty was the fact that several media reports in Bulgaria said that, towards the end of 2005, Medvedev had visited Bulgaria and had floated the idea of revising the natural gas transit agreement. These reports indicated that the Medvedev proposal was to convert the basis of the agreement from in-kind - meaning the current system of paying in gas - to paying in cash.
With the uncertainty, and concern about the consequences of a revision of the agreement, Bulgaria revived its interest in the Nabucco gas pipeline project. The Bulgarian Government approached the European Commission and Austria, currently the holder of the rotating presidency of the EU, to speed up the implementation of the Nabucco gas pipeline project that will bring natural gas from the Caspian region to Central and Western Europe.
The Nabucco pipeline is a $5.4 billion venture by Turkey’s Botas, Hungarian fuel firm MOL, OMV, Bulgargaz and Romania’s Transgaz.
The 3200 km pipeline will gather natural gas from Iran, Azerbaijan, Kazakhstan, Turkmenistan, Egypt and Syria for shipment through Turkey to Austria, via Bulgaria, Romania and Hungary. It is expected to be operational by 2011.
According to Bulgarian-language media reports, Austria, which is involved in the Nabucco project through its fuel retailer OMV, had committed itself to assist in speeding up the project.
The Nabucco pipeline will pump between 13.5 billion cubic metres and 16 billion cubic metres of natural gas annually to Central and Western Europe. The project value is estimated at four billion to 4.5 billion euro. Construction is expected to start in 2008.
The push with regard to Nabucco is part of wider attempts by those seeking to reduce their dependency on Russia with regard to natural gas supplies.
Hungary is working with Croatia, Slovenia, Slovakia and Austria to create a liquefied gas pipeline from the Adriatic Sea coast. The LNG terminal is to be built in Croatia and link with natural gas pipelines in southern Europe. The closest reliable supply of liquid natural gas is Algeria.
Much of the future of the natural gas market in Europe will depend on the outcome of such projects.
As an observer familiar with the provisions of Bulgargaz’s contract with Gazprom put it, it does not mean much for Russia to talk of a “market price” when it comes to natural gas, because given Gazprom’s dominant position, it is able in effect to decide unilaterally what the “market price” of natural gas is.
