Bulgaria steps up its gas cooperation with Turkey

On 3 January 2023, an agreement was signed in Sofia between state companies Bulgargaz and BOTAŞ, in the presence of the Bulgarian and Turkish energy ministers Rosen Hristov and Fatih Dönmez. The gas contract, whose term is 13 years, guarantees Bulgaria access to 1.5 bcm of import capacity annually at Turkish LNG terminals (specifically in the newly built FSRU Saros terminal), and enables imported gas to be transmitted from these terminals via Turkish gas network to the Turkish-Bulgarian border. No information is available on the agreement’s financial details. The talks on bilateral cooperation in the natural gas sector have lasted for several years already and accelerated significantly following the meeting held in Istanbul in December 2022 between the two countries’ presidents, Rumen Radev of Bulgaria and Recep Tayyip Erdoğan of Turkey.

At present, Turkey operates four LNG import terminals. Two of these, Dörtyol (a floating storage regasification unit – FSRU) and Marmara Ereğlisi, are owned by BOTAŞ, and their regasification capacities are 10.2 and 12.8 bcm per annum respectively. Another floating terminal owned by BOTAŞ will be inaugurated later in January 2023. This facility will be located at Saros Bay in the European part of Turkey, at a distance of around 100 km from the gas infrastructure connecting Turkey, Bulgaria and Greece; its annual capacity will be 7.3 bcm.

Commentary

• The agreement Bulgaria has signed with Turkey enables it to significantly improve its gas security, both during the current winter and the ongoing energy crisis, also in the context of the next heating season and beyond. This is particularly important as Russia has withheld its gas supplies to Bulgaria since the end of April 2022 (the government in Sofia refused to pay according to roubles-for-gas Scheme). Previously, these supplies covered around 80–90% of Bulgaria’s annual domestic gas consumption. The new agreement is also important in the context of last year’s prolonged & mostly unsuccessful efforts to find alternative gas sources (for more see ‘Bułgaria: zima bez rosyjskiego gazu’). The agreement signed with BOTAŞ enables Bulgaria to purchase LNG on the global market and to transmit volumes of gas accounting for up to more than 50% of its annual gas demand using Turkish infrastructure (in 2022 Bulgaria’s total demand for gas was less than 3 bcm). As Bulgaria already has a 25-year contract with Azerbaijan, which guarantees it supply of 1 bcm of gas annually, and access to Greek terminals, Sofia will be able to import all of its gas from non-Russian sources and to transmit the potential surplus volume to other countries in the region. At present, Sofia needs to sign LNG import contracts to ensure stable supplies and predictable gas prices. As a result of the agreement signed with Turkey, Bulgaria is under ever less pressure to resume gas negotiations with Russia.
• It seems that it is Bulgaria’s President Radev who will reap most of the political benefits of concluding the agreement with Turkey, as he managed to finalise the contract within a month (talks with the Turkish side had been ongoing for several years, but they only intensified and brought significant progress in the negotiations last December). Since Russia launched its invasion of Ukraine, the start of the gas crisis and the halt in Russian supplies, the Bulgarian president has attempted to promote an image of himself as a defender of energy security for all citizens: he frequently suggested that a compromise could be reached with Moscow to restore gas supplies, criticised Bulgargaz for repeatedly applying to the national regulator to increase gas prices, and stressed that any diversification of sources should take into account the stability of supplies and the financial standing of the least affluent customer groups. While Bulgaria has recently been beset with political crises (the country is facing early elections for the fifth time in two years, the next most likely will be held in spring), Radev himself tops the public confidence polls in his country.
• Bulgaria’s gas cooperation with Turkey is becoming a key element in its energy strategy. So far, progress in diversification has mainly been made due to cooperation with Greece (access to the Greek LNG Revithoussa terminal). The launch in 2022 of the Bulgarian-Greek interconnector at Komotini–Stara Zagora has enabled Bulgaria to receive all of the gas it contracted from Azerbaijan. This and other gas supplies via the Greek infrastructure helped to meet Bulgarian last year’s gas demand needs despite Russia halting its supplies. Additionally Bulgargaz has booked 1 bcm of capacity per annum over the next ten years at the newly built (FSRU-type) terminal in Alexandroupolis, Greece, which is to be launched at the end of 2023. The intergovernmental memorandum of understanding signed on 4 January 2023 has also created opportunity for Bulgaria to seek guaranteed access to further capacities of the Greek LNG terminals (up to 0.2 bcm annually).
• From Ankara’s point of view, the gas transmission deal with Sofia brings it closer to the achievement of its strategic goal: creating a gas hub for Europe in Turkey using its own extensive infrastructure along with Caspian, Middle Eastern, but also Russian gas supplies, as well as LNG. For many years Ankara has consistently pursued a strategy of diversifying its gas supply routes and sources and developing its domestic import capacity. The Turkish state has direct pipeline connections with Russia, Azerbaijan and Iran, and will open its fifth LNG terminal (at Saros Bay) shortly. As a consequence, Turkey’s import capacity significantly exceeds its domestic demand. This became particularly evident in 2022 as Turkey’s natural gas consumption fell off, due to the economic slowdown and record high gas prices.
• Turkey’s increasing opportunities to develop its gas cooperation with Russia are boosting its prospects of securing supplies of relatively cheap gas in volumes exceeding its domestic demand. The war in Ukraine – combined with the decision of other European countries to abandon importing gas from Russia, along with the EU’s ongoing intensive search for alternatives to Russian sources and for access to import infrastructure – all create a unique opportunity for Ankara to fulfil its ambitions to build a gas hub. The agreement with Bulgaria is more than just a step in this direction. With the signing of interconnection agreements that enable increased use of new export routes, including via the Trans-Balkan gas pipeline, will open up opportunities for Ankara to develop similar cooperation with other Balkan and European countries. All this means Turkey can improve its position in the Balkans, and towards the EU as a whole, as a regional guarantor of energy stability.