Market participants have largely welcomed a recent agreement between Bulgarian state-owned firm Bulgargaz and Turkey's Botas as a positive development for the region, but they have also raised questions about its compliance with EU rules.
The two state-owned companies struck the deal on 3 January, opening up access for Bulgargaz to LNG terminals in Turkey as well as allowing the Turkish transmission system to transfer up to 1.5bn m³/yr to Bulgaria for 13 years. Further details on the agreement are not available.
The agreement has been characterised by many as a positive development that could bolster co-operation and supply security in the region, while it is also believed to be a first step in Turkey's plan to become a gas trade centre.
But the deal has not been accompanied by an interconnection agreement between Botas and Bulgarian grid operator Bulgartransgaz for the shared interconnection point Strandzha 1-Malkoclar, casting doubt on third-party access to the point.
Bulgaria already received some supply from Turkey at the point in June and October 2022, according to the latest data by Turkish regulator EPDK.
"Although we don't know the full terms of the agreement, non-transparent capacity allocations and exclusivity given to a certain company" limits liquidity and opportunities for cross-border trading, which "is also not aligned with Turkey's hub aspirations", Glocal Group Consulting, Investment and Trade energy expert and managing director Eser Ozdil told Argus.
European energy traders association Efet also expressed its concerns about access to transmission capacity at Strandzha 1-Malkoclar. "Capacity has not been offered to the market, and preferential access appears to have been granted to Bulgargaz," Efet said in an open letter. The association called on the European Commission, together with Bulgarian and Turkish authorities, to investigate whether granting exclusive access "can be considered to have an anti-competitive effect".
Several market participants argue that the deal runs against the EU's capacity allocation mechanism rules. And one market participant stressed that the suspension of the gas release programme in Bulgaria for this year suggests that Bulgargaz will not offer any of this supply to the market through the programme.
"The deal came at a critical moment for Bulgaria, with the country encountering serious gas supply problems" after Bulgargaz was cut off by Russia's state-controlled Gazprom in April 2022, according to Ozdil. "In essence, such deals should be considered positive from a regional solidarity perspective for a short limited time and with a clear crisis management plan", he said. But the deal "will limit access of third parties to the relevant infrastructure" for 13 years, which is "obviously not compatible with liberal gas trading principles", Ozdil said.
In a similar tone, the director of the hydrocarbons and energy security at the Paris-based Mediterranean Observatory for Energy, Sohbet Karbuz, told Argus that the long-term agreement "should be interpreted as a service provided by Botas", as it does not foresee Botas buying LNG and then selling it to Bulgaria at a profit. The agreement grants third-party access to Bulgargaz, but the same "does not apply to companies in Turkey, at least in practice", Karbuz said.
"Botas' dominance in the market has been increased rather than decreased as foreseen by the law, and the Turkish market has become more and more monopolised," he said.
Botas is at present the only firm that receives LNG in Turkey. Ege Gaz, which operates the onshore Aliaga LNG terminal, has imported no LNG since June 2020.
Botas' long-term bookings at Turkish LNG terminals, the amount of days provided for the regasification period and private-sector firms' limited market share have discouraged other companies from taking seaborne supply.
The new LNG terminal in the Gulf of Saros — set to come on line soon — could increase Turkish import capacity, accommodating additional volumes for the Bulgarian market.
Turkish energy minister Fatih Donmez earlier this month said that the country will also be able to transfer gas to other countries in the region besides Bulgaria through Strandzha 1-Malkoclar.
But Turkey will need additional import capacity to be able to supply other European countries such as Hungary, some market participants suggested.
And Botas is expected to use the Saros terminal to meet demand in the Marmara region — one of the areas with the highest gas consumption levels in Turkey — which could limit available capacity for other parties in periods of high demand.
"This agreement will not endanger Turkey's gas supply security unless there is a significant increase in Turkish gas demand and at the same time gas flows from Iran are interrupted," Karbuz said.
