The Gas Turmoil

Bulgaria was one of the most unprepared countries for the consequences of the gas conflict.

Just a few days after Russia stopped gas supplies to Bulgaria, we can clearly say that people's life get worse, or at least became far more complicated.

The numbers speak for themselves – 72 enterprises stopped work, 153 plants are in restrictive regime, 87 schools were closed temporarily, a large proportion of people are experiencing problems with heating and access to hot water (all data from the media).

All this happens because of problems in one sector that is so "special" that it is in the hands of the government, not the market. Sector, where private property, self interest, and freedom of contract is just a mirage. This is a sector in which decisions are taken at the political level – South Stream was agreed between the Presidents of Bulgaria and Russia in a piano bar in Sofia (in the days around the meeting there were rumours of reduced gas supply and again problems with electricity, the government even suspended the electricity export of Bulgaria for the first time in 19 years – extremely unusual events).

The main arguments for the energy sector to be fully in the hands of the government comes down to just one thing (the excuse) – ensuring security! There is state monopoly over the gas supply not for another reason, but to ensure security. In the name of that security we are denying all the benefits – like better quality of services, more choice and lower prices, all that market mechanisms and competition would provide us, as in other sectors – some of them also claimed to be „special" not so many years ago. That security, which has been promised to us in replace of all these deprivations, is "secured" by the Government, insuring gas supply from a single source on a single track – what a pity! When this source is Russian energy monopoly (Gazprom), then problems are inevitable for Bulgaria – either in terms of unfavourable contracts for the gas supply or just the lack of such.

How the state will solve this problem?

The answer is written in the concept of the new "Bulgarian Energy Strategy till 2020" – "In terms of increasing demand and increasing competition for access to energy resources in the world is extremely important to be signed new long-term contracts for supply of natural gas from the Russian Federation to ensure the domestic consumption of natural gas and moreover the development of the economy in the long term." Somehow this just does not sound right! Government fails to provide any security in the energy sector and it fails at a very high price. Whether private ownership and competition would cope better?

Some critical issues:

• Unlike the oil business, the business of natural gas is characterized by long-term contract relations and practices clearly show that those contracts are very complicated and clumsy to be administrated. In addition, the so called gas market is completely dominated by the political decisions on the base of which the contracts are structured.
• Lack of spot market where the price (to the maximum extent) is determined by the forces of supply and demand.
• Especially for Bulgaria – there is a crucial need to develop more alternative energy sources – renewable, biofuels and others. This should be done not through government programs and strategies that provide both opportunities and restrictions. In general according to historical records the innovative solutions have been done in a free (competitive) market.
• Bulgaria is heavily depending on Russian energy policy. A diversification of sources of gas supply – such as Libya, Egypt, Nigeria, even in Norway (about 17% of supply within the EU) on different transport modes – Iran, Turkmenistan, Kazakhstan and others. All in all, we must have more transport modes, even if the supplier, de facto, would be the same.
• Development of projects related to LNG[1] – liquefied gas, which is extremely easy to transport. For example, Iran is one of the countries with the largest deposits of natural gas and there are opportunities for the development of LNG. However, thanks to international isolation and specific geopolitical issues the development of LNG in Iran currently is frozen[2].
• One became clear – Bulgaria has no sufficient gas storages. During the review of the European directives on energy policy, it is clear that the Bulgarian state is not complied with provisions of Directive 67/2004 of EU which concerning the appropriate measures to ensure security and provision of action in emergency situations in the supply and storage of gas.

The appropriate solutions of all these problems – finding alternatives, in terms of sources, suppliers, transfer modes and routes of supply are achievable only in a competitive market, based on accurate and clear rules, and in compliance with bilateral and/or multilateral contracts.

[1] Liquefied natural gas is principally used for transporting natural gas to markets, where it is degasified and distributed as pipeline natural gas

[2] In 2008 Shell, Total and other companies are frozen their projects concerning LNG in Iran