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Bulgaria’s gas sector: A turf war with geopolitical implications

The recent flurry of activity in Bulgaria’s gas sector highlights the ongoing battle for control of the Vertical Gas Corridor (VGC) – a strategic pipeline network that aims to bring gas from the Southern Gas Corridor to Ukraine, Hungary and Slovakia.

Tangled alliances and infighting

At the recent Antalya Diplomacy Forum, President Radev sat alongside Erdogan, Orban and Putin’s representative, FM Lavrov – all ardent supporters of the Turk Stream project and part of the complex web of past and present formal and informal alliances surrounding the Russian gas transit stratagem. While Turkey seeks to leverage its position as a gas broker, Russia is pushing its Turk Stream upgrades, using well established elite-corrupting webs in Bulgaria, Serbia and Hungary.
Despite verbal opposition to Russian gas, the Denkov government did not engage in a critical audit of the past work of Bulgartransgaz (BTG) and Bulgargaz on Turk Stream and the implementation of the Turkish gas hub, a fact that raised eyebrows in some quarters. Both the state-owned gas trader and the transmission system operator have played and continue to play a crucial role in the uninterrupted transmission of Russian gas to and beyond Bulgaria.
However, Finance Minister Vassilev’s recent visit to the US and his meeting with Amos Hochstein, Deputy Assistant and Senior Advisor for Energy and Investment to President Biden, has indicated that the Denkov government is keen to dig deeper and divest Russia’s energy assets’ portfolio to non-Russian options.
Meanwhile, BTG CEO Malinov, the mastermind behind the Turk Stream (TS) and the Turkish gas hub logistics, has been waging a parallel counter-offensive in the US, seeking allies, offering identical TS-type deals to US companies, and preaching the new faith of the Vertical Gas Corridor (VGC). However, recent email leaks by Ukrainian hackers InfoNapalm, decoded by BG Elves, have shed light on his role as Gazprom’s chief ‘influence agent’ and cast doubt on his current commitment to the VGC. BTG’s record during Mr Malinov’s tenure as CEO speaks volumes for his earlier role in securing Gazprom’s interests at various stages of the Turk Stream implementation, failing to ensure equal access to Bulgaria’s gas transmission network for Russian gas competitors.

US scrutiny and the Turk Stream shadow

The US State Department has viewed the Turk Stream with suspicion, although its approach has evolved from leniency under Trump to pragmatic acceptance under Biden. The Magnitsky sanctions targeting key Bulgarian officials and managers of energy SOEs linked to pro-Russian policies underscore US concerns. Notably, Borisov’s absence from the list may explain the remarkable sway from pro-Gazprom Turk Stream chords to safer pro-Atlantic tunes.
Interestingly, despite US Congress sanctions via the Countering America’s Adversaries through Sanctions Act (CAATSA) and the PEESA (Protecting Europe’s Energy Security Act), neither the Trump White House nor Ukraine has publicly opposed the construction or launch of Turk Stream. However, the spike in Russian gas flows through the Turk Stream in mid-July 2023 – 48 mcm/d, exceeding those through Ukraine, triggered a change in sentiment. To date, not a single word of criticism of Turk Stream has come from any senior Ukrainian politician, in dramatic contrast to the wide condemnation of Nord Stream – 2. The war in Ukraine has changed the backdrop against which Merkel’s gas camaraderie with Putin has become obnoxious these days, leading to increased scrutiny of Bulgarian actors involved in the project, especially as Putin seeks further expansion of Turk Stream capacity.

The Vertical Gas Corridor: A tug of war

The expansion of the VGC, agreed in December 2023, adding Slovakia, Ukraine and Moldova to the current members – Greece, Bulgaria, Romania and Hungary – marks a significant shift. The move prioritises northward gas flows through the existing Trans-Balkan pipeline over those of the Balkan Stream, potentially bypassing Serbia and Hungary, traditionally seen as key markets for Russian gas.
The struggle for control of the VGC reflects a wider geopolitical context. As Bulgaria navigates its complex relationships with the US, Russia and its internal political factions, the future of this crucial energy corridor remains to be determined. The Turk Stream has created an asymmetrical and higher level of dependency of Bulgaria on Gazprom, exemplified by the unilateral gas cut-off in April 2024, while its pipeline gas transit continued unabated. After the TS’s launch, Bulgartransgaz became heavily indebted, and its servicing depends on continued high revenues from Russian gas transit, which in turn presupposes BTG’s vital interest in protecting Russian gas trade and transit in the region. After February 2024, the destinations of Russian pipeline gas flows have gradually been restricted to Putin’s friends in Europe – notably Orban’s Hungary and Vucic’s Serbia, which have a vested interest in maintaining and increasing Russian gas flows, including the generative Turkish gas mix, to the EU. This gave rise to the Erdogan-Borisov/Radev-Vucic-Orban gas axis, with the VGC heavily tilted towards Hungary rather than Ukraine. Balancing this entrenched pro-Gazprom bias will be essential to unlocking the full potential of the VGC and ensuring a more secure non-Russian energy future for Europe. This is all the more so as Russian pipeline gas volumes are expected to decline in line with the EU’s determination to fully diversify away from Russian gas by 2027.
Returning to events in Bulgaria, after Gazprom’s abrupt suspension of gas supplies to Bulgaria in April 2024, it was telling that the Kremlin’s attacks on the gas front coincided with a wave of politically motivated attacks against the then-Petkov government by former Prime Minister Borisov and his associates. In particular, these attacks focused on the government’s refusal to meet Gazprom’s demands, including payment for gas in roubles. Borissov’s camp launched a media campaign accusing the government of seeking alternative sources of gas from the regional spot market and US LNG. This campaign, widely seen as Kremlin information warfare, coincided with accusations by Borisov’s own energy team of corruption in deals facilitated by the US government that helped Bulgaria get through the crisis. Remarkably, Borisov remained silent, letting his lieutenants do the dirty work, but everyone knew that he had personally authorised the information attacks.
Ukraine’s underground gas storage facilities emerge as the new VGC front.
The war in Ukraine and the gas crisis in the EU following dramatic cuts in gas supplies from Russia have brought to the fore the crucial importance of Ukraine’s underground gas storage (UGS) facilities in stabilizing the EU market, posing a fresh challenge to Russia. As Gazprom’s gas transit contract through Ukraine expires at the end of 2024, uncertainty over its renewal highlights the role of the Southern Gas and the Vertical Gas Corridors, which provide access to Ukrainian gas storage, which if used by EU gas traders could offset the potential loss of revenues from Russian gas transit.
Ukraine’s gas self-sufficiency and its potential to generate revenue by leasing UGS capacity threatens to undermine Russia’s pincer strategy. Historically, Gazprom has seen the role of balancing the EU gas market using Ukrainian UGS as its exclusive right. However, following the decline of its market share in the EU, Russia has changed tactics and aims to obstruct Ukraine’s crucial balancing role by hindering the free flow of gas northwards through the Vertical Gas Corridor.

Beyond Cold War Mediation: The Geopolitical Gas Nexus

This strategy of “targeted” capacity development by BTG, which benefits Russian gas transit to Russia’s friends in SEE, is not limited to Bulgaria. The current elites in Bulgaria, Serbia and Hungary have benefited immensely from the political and commercial brokerage of Russian gas, negotiated by their respective leaders in direct talks with Mr Putin. Orban’s grip on power rests on the cash flow generated by business with Russia for Hungarian majors such as MOL, MVM, OTP Bank and MET, which became regional players largely thanks to Russian gas brokerage after the end of the Cold War. This strategic line encompasses the future prospects of an enduring geopolitical gas alliance between the Putin’s Russia and Turkey, Bulgaria, Serbia and Hungary, whose leaders are keen to exploit their ties with the Kremlin for political and material gain.
The new BTG-Botas agreement: A mixed blessing
The recently signed interconnection agreement between Bulgartransgaz (BTG) and Botas underlines the crucial role of Bulgaria and BTG as a gateway for Russian-Turkish gas to the European gas market and the inherent asymmetry of dependencies between the two companies. However, it follows a highly controversial trilateral agreement between Bulgargas, Botas and Bulgartransgaz, which is under investigation by the EU Commission. As a result, Turk Stream’s initiators are finding it difficult to sell their continued dependence on Russian gas amid growing confrontation between the West and Russia. Thus, they all share an urgent need for extensive lobbying in the US and the EC to facilitate the transit of increased volumes of a “Turkish gas mix” in a sanctions-driven environment. Such lobbying on the Bulgarian side is already underway – coordinated by the head of BTG and funded by its main contractor.
The BTG-Botas interconnector agreement has opened up access to gas from Turkey through the reversed Trans-Balkan pipeline, with an entry capacity of 11 million cubic metres per day (over 4 billion cubic metres per year). However, concerns remain at EU level about the lack of a level playing field for gas trade through Bulgaria, as only traders authorised by the Turkish authorities, limited to Botas and Socar Enerji, are allowed to export gas.
President Putin’s vision of a dominant Turkish gas hub may have been sidelined for now, but a scaled-down version, a “Russian-Turkish gas mix”, has found favour with key regional players, with initial volumes of the “mix” agreed between Botas (Turkey) and MVM (Hungary). Trial deliveries will start in Q2 2023, with volumes expected to reach 275 million cubic metres (mcm) in 2024. Botas is also supplying OMV (Romania) with even larger volumes – 4 mcm/day (1.5 bcm/year) – starting in October 2023. Recent reports in the Russian media refer to an upcoming visit by President Putin to Turkey, expected in April, which is expected to focus on future sales of Russian gas in Turkey.

Bulgaria’s transit bottleneck favoring Turk Stream

Bulgaria’s National Gas Transmission Network (NGTN) suffers from a significant imbalance between entry, exit and transmission capacities. The newly commissioned Serbia-Bulgaria Interconnector (ISB) has added 1.8 bcm of exit capacity to the already available 14 bcm/y of active and accessible capacity to Serbia and Hungary.

However, northbound gas flows via the Vertical Gas Corridor to Romania face a major constraint – a bottleneck – a missing 63 km loop between Rupcha and Vetrino severely limits the capacity utilization rates along the whole Trans-Balkan Pipeline (TBP) Bulgarian section. Despite promises to remove this choking point, BTG has yet to meet the new completion date of 2026. The delay prevents full use of the northern route and hinders potential gas flows through the VGC to Romania and Ukraine. While the combined reverse flow capacity of the second and third lines of the TBP exceeds 20 bcm/y, the bottleneck, among other things, limits the actual utilization to less than 25%.

Greece-Bulgaria interconnectors – another bottleneck

While transit from Turkey through Bulgaria is increasing, flows from Greece have yet to match it, raising concerns about the viability of the new Greek LNG terminals and their potential connection to the Bulgarian and regional gas networks. BTG’s Malinov’s strategy of lobbying for Gazprom’s interests in the US could backfire. Delays in the commissioning of key infrastructure projects, such as the expansion of the Siderokastron-Kulata interconnector to 5 bcm/y and the Kupcha-Vetrino pipeline, are affecting the reverse transport capacity of the Trans-Balkan pipeline and holding back the full potential of the VGC.
The Greece-Bulgaria Interconnector (IGB) is also being expanded, with capacity expected to reach 5 bcm/y by the end of 2025 and up to 7 bcm/y within 3-4 years. However, even with this expansion, the IGB alone would not be able to meet the current and projected demand for transport capacity from the Greek LNG terminal unless and until BTG fulfils its own interconnection and transmission expansion commitments. Recent public statements by BTG’s CEO suggest a worrying focus on public relations rather than on creating a level playing field for all gas traders using the Bulgarian network. This approach favours rewarding non-participants and potentially penalising those actively contributing to the development of the NGTN.
The delay in the expansion of UGS capacity at Chiren due to lengthy tender and project implementation procedures has undermined Bulgaria’s ability to integrate transmission and storage services. Despite increasing demand for UGS capacity due to growing LNG imports in the region, BTG has deliberately stalled the Chiren expansion plans, favouring Russian pipeline gas over LNG. The same applies to the release of free gas flows to Ukraine’s strategically important underground gas storage (UGS) facilities, which are crucial for balancing the European gas market. In addition, Ukraine can generate alternative transit revenues by leasing its storage capacity to EU gas traders.
In conclusion, the future of gas flows in the region depends on several key factors:
• Renewal of the gas transit contract through Ukraine: If Russia or Ukraine decide not to renew it, Ukraine’s UGS facilities will become even more critical for the EU.
• Completion of bottleneck removal projects: The removal of bottlenecks on the Vertical Gas Corridor will unlock its full potential for northward gas flows.
• Expanding interconnecting capacity between Greece and Bulgaria to facilitate gas supplies from Greek LNG terminals.
• Transparency in gas trading: Clear and transparent gas trading practices in Bulgaria are essential for a well-functioning regional gas market.
The war in Ukraine has fundamentally changed the European gas landscape. Ukraine’s UGS facilities have emerged as a strategic asset, while Russia is actively seeking to maintain its influence through political alliances and targeted infrastructure projects. The future of gas flows in the region will depend on overcoming these challenges and promoting a more transparent and competitive gas market.

Ilian Vassilev

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