Bulgargaz again looking to buy gas and once more the outcome is foregone

Alternatives and Analyses:

Earlier this week, the Bulgarian state gas trader Bulgargaz sent direct inquiries to several traders – usual suspects – for offers to supply natural gas, with a specific schedule for January 2020 at a virtual entry point of the Bulgarian gas transmission network. The total amount is 100 million cubic meters of gas, distributed in three slots, for the respective periods from 1, 6, and 21 January until the end of the month. The request for proposals is backed by a daily schedule with minimum and maximum quantities, with an unusually high spread, between 50,000 to 2 million cubic meters per day.

The technical parameters do not interest the general public. However, the messages behind this move by Bulgargaz are more than apparent.

First, the request for proposals, in Bulgarian and English, was released on 18.12.2020 – on the eve of the holidays. In the gas business, this period is ultra-busy, and traders are working 24/7. Still, most of them are busy mitigating the different risk scenarios following the unusually warm winter and above all the unpredictable Ukrainian gas transit. Only 12 days to arrange the delivery and just two days !?  to respond to the inquiry!?Secondly, before submitting a proposal, traders should make sure they resolve the logistics in one day – book capacities and secure all other aspects of the transaction to the virtual point of the Bulgarian transmission system. In all our neighbors, transmission capacities have been already allocated. Third, the invitation to for request for proposals refers to baseload supply in even quantities, which practically eliminates the import of liquefied natural gas, which is currently the best buy given the warm season and the depressed demand in the global market. Even assuming a merchant has an LNG tanker at hand, with adequate logistics and gas storage buffer; still, it will take at least 18 days to unload and regasify an LNG tanker. In short, it is all too evident that PM Borisov doesn’t like liquefied natural gas, especially American LNG gas. Despite promises made and bragging following his meeting with President Trump at the White House. He loves Russian and oligarchic gas. Furthermore, the RfPs come at the beginning of the high season, and gas storage facilities in the region are full above 95% of capacity. Still, traders are unlikely to risk high volume sales that early before the peak consumption periods. Fourth, a deferred payment of 30 days is required, which adds a burden to the proposal as this implies engaging banks and insurers, which is pretty trivial but still needs time.

In general, those who claim that our national company is called Bulgargazprom are right. Its managers understand diversification as diversification of routes, not sources, possible only within the Gazprom options. After reading the RfPs, one is left with the impression of a pre-set deal with a pre-selected bidder, close to the decision-makers. One of the goals this time is for Bulgargaz to buy quantities that it then will offer for short trading on the Bulgarian gas hub. However, given the circumstances, it is highly unlikely that trade at the Balkan Gas Exchange will be energized, or substantial liquidity will be added, or prices lowered. Bulgarian consumers are unlikely to get cheaper gas, at least at par with Hungarian consumers, who pay 17 euros / MWh, i.e. 25 percent less.

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