Bulgaria Signs Long-Term LNG Deal with Türkiye
Author: Haley Nelson
Jan 10, 2023
Countries across Europe are expediating their efforts to expand liquefied natural gas (LNG) import capacity as Russia’s war in Ukraine has interrupted previous long-term LNG contracts. As Southeastern Europe had been hit hard by Russian disruptions, Türkiye is successfully utilizing this shift through its emerging role as a regional energy hub. With a new LNG contract signed between Bulgaria and Türkiye on January 3, for the first time, a foreign country will have access to Türkiye’s LNG terminals, opening new prospects for cooperation.
On January 3, Türkiye’s state-owned crude-oil and natural gas pipeline and trading company Botaş signed a deal with Bulgaria’s state-owned natural gas distribution company Bulgargaz, which will give Bulgargaz access to Turkish LNG infrastructure to support energy diversification in Bulgaria.
With this 13-year agreement, Bulgargaz can use Botaş LNG transit and terminal facilities to transport as much as 1.5 billion cubic meters of gas per year, which can then be transported into the Bulgarian network. Furthermore, Bulgargaz will have access to Botaş's pipeline network, which could broaden its access to Iranian and Azerbaijani gas.
Bulgarian Energy Minister Rossen Hristov has indicated that Bulgaria intends to “Reserve capacity of one billion cubic metres (bcm) of gas per year on Turkish LNG terminals,” in addition to the 1 bcm the new IGB connector pipeline will supply, and the one bcm imported directly from the Alexandroupolis floating terminal.
Hristov stated that the new deal with Türkiye will help secure “the opportunity to buy gas from all global producers and offload it in Turkey.”
With access to Türkiye’s gas network, which can then be used to import LNG to Bulgaria, the country will gain more convenient purchasing options. In fact, Botaş and Bulgargaz are in talks regarding the joint purchase of American and Norwegian LNG in the future.
The January 3 deal will help Bulgaria reduce the strain on the Revithoussa terminal, the Greek LNG Terminal in the Gulf of Megara, which has become overwhelmed since the invasion of Ukraine in 2022. Early in 2022, in preparation for increased volume, DESFA SA, the parent company of the Greek Revithoussa terminal, announced it would increase capacity to 380,000 cubic meters from the previous 225,000 cubic meters, and that regasification capacity would be increased by 12%. However, after doubling its volume of LNG imports on the Greek island, the Greek terminal has lacked the capacity to adjust to this influx, further necessitating alternative terminals.
The Alexandroupolis floating LNG terminal, parented by Greek gas companies DEPA and DESFA, and Bulgaria’s Bulgartransgaz and Cyprus’s Gaslog, has plans to double its capacity by 2023. In fact, Bulgartransgaz has bought 20% of Gastrade, the Alexandropolous terminal developer, as a sign of its seriousness. It will be able to process 5.5 bcm per year, storing 153,000 cubic meters, affording Bulgaria the importof 1 bcm per year, which it has already reserved for 2023 and 2024. However, the high cost of booking Turkish and Greek LNG terminals has caused significant price increases for Bulgarian consumers, and as Rossen Hristov stated “it is very hard to reserve capacity.” Further, Bulgaria consumes 3.5 bcm annually, therefore, even after this agreement, it needs an additional 1 Bcm/year of gas imports to meet its energy needs. According to the January 3 agreement, Turkish LNG terminals will provide additional capacity for imports via Turkey for 2024 and help balance out terminal traffic.
Reducing the strain on Greek LNG terminals and establishing new terminals for increased capacity has become imperative since Europe has made it a priority to cut off its dependence on Russian energy imports. For Bulgaria, Putin’s decree on March 31, which requires countries to pay for Russian gas in rubles, has necessitated diversification efforts. Bulgaria refused to comply with Moscows conditions, and by April 2022, the country had ceased receiving natural gas from Russia, which had supplied 80% of its imports up to that point.
Prior to the cut-off from Russian gas, Bulgargaz was locked under a contract with Russian gas export company Gazprom. Under the contract, signed on January 1, 2020, 80% of gas quantities were subject to a "take or pay" clause, inducing Bulgaria to purchase most of its gas from Russia through the TurkStream Pipeline. This provision limited Bulgaria’s import options and hindered the import of cheaper Azerbaijani gas from Greece.
When the contract with Gazprom was suspended in 2022, efforts to diversify energy providers restarted, and it became clear that the country needed a long-term alternative to its previous contracts.
Even with the addition of Türkiye’s LNG terminals, there is still uncertainty over future energy costs in Bulgaria. High prices may continue until volume capacities are expanded in the Greek facilities. However, as Bulgartransgaz and its partners committed to having the Alexandroupolis floating storage regasification unit operational by the end of 2023, there is a clear sense of urgency to the situation.
By providing formerly Russian-energy-dependent countries with enough gas to offset energy losses, Türkiye and Greece have mitigated Russia's retaliation. Through this historic agreement, Türkiye and Bulgaria will be able to strengthen their cooperation, as well as reduce Russia's importance in energy security through enhanced LNG efficiency. Russian energy leverage will be increasingly unpromising for the Kremlin as more countries opt for alternative suppliers, and creative commercial arrangements appear in the Caspian and Mediterranean regions.