Turkey, Bulgaria deal may open backdoor to Russian gas in EU

LONDON (ICIS)–A Turkish-Bulgarian supply deal could allow Russian gas to be piped into the EU as part of LNG swaps delivered anywhere in the bloc, according to sources.

Russian pipeline gas or LNG imports are not banned in the EU, but the bloc is aiming to phase them out by 2027 – eight years earlier than the end of the agreement between Turkish incumbent BOTAS and its Bulgarian counterpart, Bulgargaz.

Under the 13-year agreement announced in January, BOTAS and Bulgargaz would share cross-border capacity at the Strandzha-Malkoclar border point, which was formerly used for Russian imports into Turkey via the Trans-Balkan pipeline. Flows in this direction stopped in 2020.

When the deal was first announced , the Turkish ministry of energy and natural gas resources said Bulgargaz would be granted access to Turkish LNG terminals and domestic transmission infrastructure.

However, market sources told ICIS that under the deal, Bulgargaz would receive volumes at the entry point but it would be BOTAS delivering them at the border – rather than the Bulgarian company directly using Turkish LNG terminals and the Turkish domestic network to import them.

The details of the agreement were first revealed by Bulgarian website Trud.bg.

BOTAS did not respond to questions from ICIS while Bulgargaz declined to comment on the details of the purported deal.

ICIS believes that the deal opens up the possibility of BOTAS using Bulgargaz and the Bulgarian transmission system as a springboard to other European markets. This could include Russian gas.

A deal on this basis is likely to raise questions at EU level because companies active regionally could in effect be barred from directly competing for volumes.

LNG SWAPS

According to ICIS sources, Bulgargaz and BOTAS are to split the transmission capacity at the Strandzha-Malkoclar border point for the duration of the deal.

Bulgargaz is expected to purchase LNG for its own needs. Sources said LNG cargoes could be delivered at Turkey’s recently commissioned Gulf of Saros LNG terminal, at other Turkish LNG terminals or possibly even at terminals in EU countries.

It is unclear where the gas supplied by BOTAS could originate. BOTAS imports pipeline gas from Russia, Iran, Azerbaijan, as well as LNG from global sources. It has also recently started its own Black Sea production.

ICIS understands that BOTAS can also use the transmission capacity at the border for its own export needs, whether that is within Bulgaria or to ship volumes to neighbouring countries such as Romania, Serbia, Greece. ICIS sources say BOTAS can also sublet its capacity at the border to third parties.

BORDER CAPACITY AND FLOWS

Publicly available data published by the European network of transmission system operator for gas (ENTSOG) indicate that some entry capacity into Bulgaria from Turkey has been booked since April until October 2023.

Between 1 April-1 July, 63.2GWh/day were booked. For the period 1 July-31 October, the booked capacity has slightly decreased to 53.2GWh/day. ENTSOG data show no available capacity.

It is unclear what the maximum capacity of the pipeline is. This is not indicated by Bulgarian gas grid operator Bulgartransgaz on its website. It says there is no interconnection agreement at the border point and “the technical capacity cannot be defined”.

Since Turkey is not a member of the bloc, EU capacity allocation rules on use-it-or-lose-it do not apply. Similarly, Turkey is not obliged to publish information related to flows at the border.

On the Bulgarian side of the border, Bulgarian gas grid operator Bulgartransgaz is expected to publish data on entry points into the transmission system, in line with EU regulation. The data publication requirement relates to physical flows, technical capacity or total contracted firm and interruptible capacity.

Data published on the Bulgartransgaz website indicate that an average of 17.8GWh/day (1.7 million cubic metres/day) were imported into Bulgaria via the Strandzha-Malkoclar entry point between 12-18 April 2023.

The Agency for the Cooperation of Energy Regulators (ACER), the EU body responsible for coordinating energy regulators’ activities in the bloc, confirmed to ICIS that market participants engaged in the purchase or sale of LNG for delivery into the EU were subject to reporting requirements.

These requirements refer to transactions on wholesale energy markets as well as regulations issued in 2022, requesting companies buying or selling LNG for delivery in the EU to report data to ACER .

However, the EU body did not comment on whether this deal and any LNG contracts that may have been concluded under this framework were reported to ACER.

ACER also confirmed that the EU’s network code on capacity allocation does not apply on the Bulgarian-Turkish border since Turkey is not in the EU.