Alternatives & Analyses: Bulgaria’s gas transit system operator BTG buys 20% stake in the Alexandroupolis LNG terminal project.

The transaction has been in the making for many years, as the project developers tried to attract a strategic investor – “а project anchor of sorts.” The business case looked promising, the demand for LNG in the area grew significantly, and the load on Revithoussa LNG terminal seemed to justify adding one more LNG entry point.

In the meantime, however, the LNG supply fell sharply, prices regained some lost ground. The appeal of liquefied natural gas suddenly started losing to pipeline gas. Henceforth, the economic justification of the Alexandroupolis LNG project started to look less attractive, inviting political or strategic second thoughts. Without a noticeable government push, the commercial case did not seem viable. And the Bulgarian state jumped in.

At the non-binding stage of the market test, the interest in the project developed by the Greek company Gastrade seemed overwhelming. The expressions of interest topped 11 billion cubic meters, almost double the planned capacity. However, at the binding bids’ phase, the interest plummeted, and the end-result adopted a far modest expression – 2.6 bcm or 1/3 of the planned capacity. Hopes for U.S. companies’ direct interest both in the equity and capacity take-up failed to materialize.

The project’s total estimated value is set at EUR 380 million, suggesting that the 20 percent stake that Bulgartransgaz acquired entails an obligation to secure EUR 76 million in additional capital and debt. The 20 percent acquisition costs BTG EUR 16m euros, plus another EUR 700,000 to cover the project’s initial costs. In the event of a 30 to 70 equity-debt ratio, the Bulgarian transit system operator would have to contribute an extra EUR 7 million in equity and provide guarantees for EUR 55 million in debt.

Despite rumors of an ‘imminent’ entry of a large, including U.S. investors, such did not appear. Romania’s Romgaz, which intended to buy a similar 20 percent stake, backed out of a preliminary deal in March 2020.

According to media reports, the transaction covered an initial preliminary costs’ sharing of € 350,000 and a capital contribution of € 12,5 million.

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BTG can hardly secure project financing based on the project economics and will have to recourse to the parental support of the more creditworthy Bulgarian Energy Holding. By some odd logic, BEH was substituted as a shareholder in the Alexandroupolis LNG terminal by Bulgartransgaz.

Besides, the state gas trader Bulgargaz undertook to lease a minimum of 300 million and a maximum of 500 million cubic meters of capacity in the Alexandroupolis terminal over 3 to 5 years. One naturally starts to wonder how a trader with an admitted problem – trading at a profit the one billion cubic meters of Azeri Shah Deniz gas –  would identify willing buyers for its LNG import commitments of 0,5 billion cubic meters?

Despite the Bulgarian government’s investment in a private Greek project, the prospects for the terminal’s rapid construction do not look like smooth sailing.

The owner of Gastrade, the Greek billionaire Kopeluzos, made a name for himself in the gas business as a Gazprom representative in Greece. At the time of the first announcement of his plans for the Alexandroupolis terminal, many considered his initiative an attempt by Gazprom to control the import of liquefied natural gas to the region.  A key segment in the added value chain of LNG imports is the part between the tanker and the onshore transmission system.  The regasification and storage costs oscillate around EUR 2/MWhr, which at a lower price range constitutes between 20 and 50 percent of the import price, which often proves to be a decisive factor in a challenging and competitive environment.

Owning a share in the terminal ownership does not entitle shareholders to privileged terms. Slots and storage capacities are allocated via competitive auctions.

The idea that the terminal is a profitable business hangs in the thin premise of its value as an alternative gate to the global LNG market. However, the Turkish gas trader Botas, jointly with Qatargas, has emerged as a impressive rival to the Alexandroupolis floating terminal project, just 80 km away, in the Gulf of Saros. The Turkish government seems dedicated to completing and putting it into operation on time to compete with the Alexandroupolis FLNG. The Turkish project’s stated mission is to serve the region of Southeast Europe with liquefied natural gas, just like the intended mission of the Greek project. Unlike the Greek project, however, Botas is not looking for more investors to share the project risk.

The logic behind the Government of Bulgaria’s decision to engage in a private project in Greece stems from the need to diversify political risks, as the bulk of the gas imports come from Turkey, and President Erdogan’s actions are often too ambiguous and unpredictable.

Equally challenging is the idea that dependence on Greek LNG terminals is a risk-free venture, despite its membership in the EU.  A point in case is the story of DESFA denying the terminal’s basic services (slots) to non-Greek traders at the Revithoussa terminal. Therefore, the real solutions rest in developing alternatives and letting Greece’s and Turkey’s LNG terminals compete.

From another point of view, BTG’sinvestment in the Alexandroupolis project could hardly top its priority on a cost-benefit basis. Bulgartransgaz has far more exciting and ‘burning’ projects, such as expanding the gas storage in Chiren and the development of a new UGS nearby. From a business point of view, the returns are secure, and the profit margins are in the double digits.

But from a political point of view, and when balancing between the security of supply, routes and sources, there is sound logic behind BTG’s acquisition of a minority stake in a terminal under construction in Greece, which can serve the LNG gas needs of the region. More LNG imports via the Alexandroupolis LNG could lead to a more significant load up of the Greece-Bulgaria interconnector, Bulgaria’s gas transmission system, and lower transmission tariffs, beefing up competitiveness and revenues.

Ilian Vassilev

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