Bulgaria’s Energy Paradox: Propaganda, EU Gas Ban Circumvention, and Enduring Russian Energy Dependence

Bulgarian energy policy remains a subject of significant controversy and questionable practices, particularly concerning natural gas supplies. There’s a long-standing pattern of discrepancy between public declarations of diversification and a persistent, stubbornly high level of dependence on Russian gas. It’s no surprise that the topic of long-term U.S. liquefied natural gas (LNG) contracts has resurfaced. Yet, the chances of anything substantial materializing are no greater than any other time the media hyped expectations, only for Bulgaria to end up more reliant on Russian gas.

U.S. LNG: More Hype, Less Substance

The promise of a “coveted long-term U.S. LNG supply contract” has been circulating for years, at least since 2018, when a “window” for non-Russian gas imports first opened. It’s telling that the agreement with the Turkish company Botas was also supposed to be preceded by a similar long-term U.S. LNG purchase contract. The transit agreement was signed, but a long-term U.S. LNG import contract never materialized. Despite all the “talk,” the share of Russian gas (directly and indirectly) in Bulgaria has remained above 85 percent. This paradoxical situation – “talk gas to the West, gas deals to the East” – continues today.

Currently, discussions about long-term U.S. natural gas supply contracts appear to be more of a PR distraction from actual deals than a genuinely calculated commercial operation. This political activity across the Atlantic is purportedly under the guise of “reducing losses” from the Botas contract – a position that in itself sounds hypocritical, especially against the backdrop of ongoing media skirmishes between Boyko Borissov and Delyan Peevski, on one hand, and President Rumen Radev, on the other, regarding responsibility for arguably the most disadvantageous energy contract in Bulgarian energy history: Bulgargaz’s deal with Botas.

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The availability of U.S. LNG in the region is solely contingent on market dynamics and its ability to compete with other energy alternatives. While statements from current energy leaders and their political sponsors advocate for diversification from Russian gas, Russian supply consistently demonstrates greater competitiveness in pricing and delivery. This advantage stems from Russia’s capacity to establish a dominant market position, as evidenced by the TurkStream cross-border coalition. Gazprom Export’s competitive edge is a direct consequence of advantageous terms within long-term transit contracts.

Moreover, it seems that no one in Bulgaria is genuinely preparing to halt Russian gas supplies, even if and when the EU decides on a complete import ban within two years. On the contrary, there are clear indications of active preparation for circumventing a potential EU ban on Russian gas imports.

Schemes for Circumventing a Ban on Russian Gas

At least three plausible strategies are being prepared by Bulgartransgaz (BTG), Gazprom Export, and their regional clients to circumvent a ban on Russian gas:

• Playing with Certificates of Origin: This is a proven tactic, observed years ago after the unilateral halt of Russian gas supplies in 2022, when “Turkmen” gas suddenly appeared at the Strandzha 2 entry point of the Bulgarian gas transmission system. TurkStream 2 reaches the Turkish coast at Kiyikoy and from there, without entering the Turkish system, heads to Bulgaria via a dedicated pipeline, jointly owned by Gazprom Export and Botas, but with 100% capacity controlled by Gazprom Export. For years, Gazprom Export has not imported Turkmen gas into Russia. Now, the Russian company conveniently swaps its roles as operator and owner of natural gas. Therefore, if the EU genuinely intends to ban Russian gas imports, simply requiring proof of origin will not be enough. “Kazakh,” “Turkmen,” or other certificates of origin can always appear, as the systems of Russia and the Central Asian republics are interconnected. However, the immutable fact remains that gas supply contracts to the EU are solely with Gazprom Export, which operates the TurkStream 2 pipeline both offshore and onshore, and this cannot be changed. Even more critically, with 100% control over the capacity at the exit of the TurkStream pipeline in Turkey, any gas transported by Gazprom Export as the operator of TurkStream should be subject to a ban. The European Commission may not directly monitor Gazprom Export and Botas, but it can monitor BTG as the operator on the Bulgarian side to ensure it does not accept gas from the operator Gazprom Export on the Turkish side (the so-called “matching process”).
• “Re-Labeling” Russian Gas in Turkey and Exporting it as a Turkish Gas Mix: This was the original concept behind the “Turkish Gas Hub” involving Russian gas. Although the two sides (Russia and Turkey) did not agree on who would “play first fiddle” – Gazprom wanted to sell its gas independently at the Turkish hub, while Botas insisted on doing so itself – it’s uncertain when the spark of mutual benefit won’t reignite between Erdogan and Putin. For now, Turkey holds the stronger cards.

Circumventing a European ban on Russian gas would become possible if Gazprom’s European clients purchase this gas in Turkey at the Turkish gas hub. However, this isn’t necessarily easy, as at the only point where this can happen – the Malkoclar-Strandzha interconnection – the only two companies authorized to export gas from Turkey are Botas and SOCAR. It’s likely that Turkey, within the framework of stimulating trade through the “Turkish Gas Hub” (which will include its own production and other imported non-Russian gas), could allow Russian gas, acquired through the Turkish gas exchange, to leave Turkey, including through its less transparent segments. But this is not a certainty.

• Deals through the Bulgarian Gas Exchange – “Gas Hub Balkan”are more likely: A study by the Compliance Program of Bulgartransgaz (BTG EAD) and the Bulgarian Stock Exchange (BSE), concerning the prevention of conflicts of interest and adherence to rules for free competition and transparency, found significant deviations in the activities of the Independent Gas Transmission Operator (BTG EAD) and Gas Hub Balkan EAD. These deviations can be directly linked to schemes for circumventing EU bans on Russian gas. By the same logic that BTG must exit BEH to guarantee its independence from all other commercial entities, Gas Hub Balkan has no place in the structure of BTG. There is an intertwining of the powers of the heads of the two companies, BTG EAD and “Gas Hub Balkan” EAD, which influences not only management decisions but also capacities for gas transmission and storage, including access to information provided by Gas Hub Balkan and the deals concluded there.
• Privileged Position of Gazprom Export: An example of this is the agreement between BTG and Gazprom Export for the transmission of natural gas via TurkStream/Balkan Stream to Serbia, which places one client – Gazprom Export – in a privileged position compared to all others.
• Using the Anonymous Segments of GHB EAD to trade Russian Gas: It’s noteworthy that a new attempt is currently being made to anonymously/covertly introduce Russian natural gas into the European Union and Bulgaria via the adoption of Draft Rules for Amendment and Supplement to the Rules for Operation of the Organized Exchange Market of “Gas Hub Balkan” EAD. Thus the concealment and anonymity of deals with Russian natural gas through the anonymous segment of the GHB EAD exchange market becomes foregone. This includes the Vertical Gas Corridor project implemented by Bulgartransgaz EAD, which will also rely on trade through GHB EAD. The VGC serves as a cover for supplying natural gas to the private thermal power plants TPP Pernik, TPP Bobov Dol, Brikel, and TPP-3 Dimitrovgrad, owned by Hristo Kovachki, the energy lieutenant of the Magnitsky sanctioned Delyan Peevsky, thereby solidifying Russia’s influence over Bulgarian energy.

Since the primary beneficiary of the Turk Stream is Hungary, the schemes for circumventing European ban on Russian gas are primarily implemented with the participation of Hungarian companies. Notice how the circle closes: first, a Hungarian platform for capacity auctions – RBP, which operates under Hungarian law, not PRISMA, which is much more integrated with European law. De facto, the Hungarian platform is dominating an entire regional trading segment – through and north and west of Bulgaria, of the gas market, primarily of Russian natural gas, which is under the control of the Hungarian platform and which hinders the functioning of the Vertical Gas Corridor as an integrated infrastructure for the transmission of non-Russian gas. Secondly, BTG, which has a conflict of interest with its control over “Gas Hub Balkan,” coincidentally again chooses a Hungarian company – KELER CCP – as a clearing house, i.e., the holder of all information about transactions and accounting of payments, in general, everything traded through the anonymous segment of the main Bulgarian exchange – “Gas Hub Balkan.” EAD Bulgartransgaz and GHB play the tune ‘neither saw, nor heard’. Thirdly, the share of Hungarian traders registering on this exchange has significantly increased. Thus Hungarian based companies will control all information regarding the origin of the traded gas (to prevent leakage) and the verification process that the natural gas is not Russian – through declarations.

And what are the two common denominators of all these puzzle pieces of the new edition of “TurkStream” in the context of a ban on Russian gas in the EU?

Firstly, both BTG, Gazexport and the Hungarian companies, share an interest in maintaining the flow of Russian gas after the imposition of a ban. Worth noting that lately, Hungary hasn’t been as active in opposing proposals to impose a ban on Russian gas – Orban is leaving the prime role to Slovakia’s Fico. This is an indirect indicator that Budapest is confident enough in its ability to ensure a continuous flow of Russian gas even after a ban is imposed. Secondly, the key line in the game plan of BTG’s CEO Vladimir Malinov, the main actor in “TurkStream,” is to remain in the shades and to wrap it all up in the verbiage of “market rules procedures.” Precisely as he did when legitimizing Russia’s most important geopolitical project before the EU – he “sold” it to the EU as a diversification project and thus initially included it in the list of projects of common interest. After the EC realized it was duped it removed Malinov’s pet project from the PCI list, and in the end, “TurkStream” remained a project for diversifying Russian gas transit routes.

If you think this is being negotiated at a corporate level – you are sorely mistaken. I draw your attention to a series of meetings between Boyko Borissov and Viktor Orban, many of which were “private” and without much informational coverage. At the last of these, Borissov stated outright, in Russian style, that “Balkan Stream” (TurkStream – IV) is currently the “pipeline of friendship.” Remember, the pipeline through which Russian gas flows and which finances Putin’s war in Ukraine is a “pipeline of friendship”!? Probably true, but not with Ukraine, but with Putin’s Russia.

When I asked one of the active natural gas traders if he expected the quantities of Russian gas passing through Bulgaria to decrease after the EU ban on Russian gas, he looked at me with surprise: “What reduction, they are preparing to increase the transit of Russian gas through Bulgaria to 30 billion cubic meters per year?!” And that says it all.

If you’re wondering why in the meantime the current government is so hyperactive with visits to the U.S. and with these “eternal” gas talks about contracts for importing American liquefied natural gas, here’s the answer. They need media and informational distraction for their American hosts – the talk and big promises are for them, the real capacities and business are for Putin. Ultimately, Russian gas will not only continue to flow through “TurkStream” but also through the “Vertical Gas Corridor.”

If even this is not enough for you to understand the overall picture and the strategic intent of Putin’s friends in the region to secure a future for Russian energy in the region, regardless of EU decisions, here’s the latest news – the governments of Serbia, Hungary, and Russia have agreed on the construction of an oil pipeline between Hungary and Serbia for deliveries of Russian oil. What’s the common thread? Orban and Hungarian companies.

Ilian Vassilev