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06.12.2012

A Competitive Gas Market in Bulgaria? Yes, Please!

The State Operator Opens the Gas Network to Competition in 2013

AUTHOR: Lyudmila Zlateva

The Bulgarian national transmission network operator Bulgatransgaz presented last week a draft of grid access rules that would open the gas transmission network to competition in 2013. The public consultations with all concerned parties are still underway and the State Energy and Water Regulatory Commission (SEWRC) has to approve the rules, CEO of Bulgartransgaz Kiril Temelkov said.

“The aim of the new rules is to achieve a liberalized and competitive gas market that complies to the 3rd liberalization package of the EU. Bulgatransgaz wants to offer equal access to the network to all gas traders, which means that the state-owned Bulgargaz will not be favorized in any way”, Temelkov précised.

Currently only 3 companies have access to the distribution grid – the public gas supplier Bulgargaz and the private ones Overgas and Melrose, the latter exploring the natural gas field Galata in the waters of the Black Sea near Varna.

These companies subsequently sell natural gas to third parties, such as gas distribution utilities, heating utilities and factories.

Megawatthour instead of cubic meters

According to the new rules the transported and traded natural gas will be measured in MWh instead of cub. m. This is due to the different calorific value of natural gas arriving from different sources. According to Bulgartransgaz transitioning to MWh will allow to measure the actual amounts of energy transported and traded. Bulgargaz will issue calorific value certificates which will clearly state the amount of energy that can be produced from 1000 cub. m of natural gas.

A new transmission network access fee

Currently there is a fixed fee (some EUR10) per 1000 cub. m of gas transported using the Bulgartransgaz network. Kiril Temelkov described this method as “very easy and convenient but far from compliant with the 3rd liberalization package”.

Thus the new rules will establish a new tariff structure per MWh composed of four components – a network access fee, transmission fee, imbalance charge (if lesser than the initially requested quantities are claimed) and overload fee (if additional quantities are requested). The tariff would also vary depending on the access point and the destination of the natural gas.

Bulgartransgaz CEO stated that this new charging method would not cause higher gas prices for end-consumers because it would be calculated in a way that will not be discriminative for customers located farther from the access points of the transmission network.

More access points – more traders

The gradual multiplying of the access and exit points of the Bulgarian gas transmission network more gas traders and industrial consumers are expected to join the open gas market. Kiril Temelkov informed that Bulgarttransgaz has already received queries about gas transmission although no particular quantities were précised.

Temelkov stated that the construction of the gas interconnectors with Romania, Turkey, Serbia and Greece, as well as all big pipeline projects (Nabucco and South Stream) will create new entry and exit points.

Currently the access points are three – at Pleven and Provadia in Bulgaria and at Negru Voda in Romania. The exit points are 74, in which are located over 200 distribution hubs for industrial consumers and utilities. The gas storage at Chiren is a combines enter-exit point which is not listed in the system because it necessities special combined transport-and-storage contracts.

Modeling a competitive market

As soon as the regulator approves the new rules, in 2013 gas traders will be able to reserve in advance a so called “stable capacity” – a main quantity of gas that will be transported via the Bulgartransgaz network at a certain point. The quantities from the stable capacity which are not used will go to the so called “fluctuating capacity” which will be sold by Bulgartransgaz to customers which decided to make and upward adjustments to their order and request these additional quantities immediately.

Kiril Temelkov said that there is very little possibility of system overload because current gas consumption in Bulgaria is about 3 billion cub. m/year, while the capacity of the system is 8 bn cub. m.

However, should such situation arise, gas quantities will be delivered on “first come, first served” basis. If there are identical orders, priority will be given to the longer-term one. If there are identical orders in time of system overload, however unlikely it seems, Bulgartransgaz would apply proportionate gas quantity cuts to its customers.

All 200+ gas hubs must have one “guaranteeing customer”, which will be entitled to guarantee the quantities booked by all the other customers at the same hub. Bulgartransgaz informed that the regulator will approve a single “balancer” of the market that will sell additionally requested quantities of gas to guaranteeing customers.

Virtual capacity

A new capacity term was introduced by Bulgatransgaz. The so called “virtual capacity” will allow gas traders to book gas entering the system from entry/exit points (such as the interconnectors being built with neighbor-countries) even if it is not physically possible at any time. “The virtual flow of gas in one direction will always result in the actual delivery of gas to a specified end point”, Bulgatransgaz CEO explained.

Temelkov speculated that Bulgatransgaz aims to introduce day-ahead contracts in 2-3 years. This would be enabled by the introduction of an elaborate digital system for all entry/exit points through one virtual point. According toTemelkov this would ensure the quick sellout of free quantities of gas on hourly basis.