Fitch: Bulgaria facing possible gas supply interruption this winter

Gazprom’s decision to halt prepayment of natural gas transit fees to Ukrainian gas company Naftogaz until at least 2015 creates the potential for modest supply disruptions in South-Eastern Europe this winter, credit ratings agency Fitch Ratings said.

Although this is unlikely to have a significant impact on the European market, where Gazprom is one of the largest suppliers of gas, this could cause “some disruption in countries that are reliant on Russian gas via Ukraine, including Bulgaria, Greece and Turkey,” Fitch said.

In the past, gas price disputes between Moscow and Kyiv have led to interruptions of gas deliveries to Europe – in 2006 and 2009, the latter hitting Bulgaria especially hard because it coincided with a bitter cold spell and caught Bulgaria’s heating utilities unprepared to switch to other fuel sources.

Gazprom’s prepayment to Naftogaz is crucial for the Ukrainian state-owned firm to finance the purchase of gas for storage. Since the beginning of 2012, Gazprom has paid $3.5 billion to Naftogaz in advance, but the Russian monopolist said recently that the latest $1 billion payment will cover the period until the start of 2015.

Naftogaz has stored 7.5 billion cubic metres of gas as reserves, but would need another 12 billion cubic metres to satisfy domestic demand without dipping into deliveries to European customers, according to Gazprom estimates.

“We view Gazprom’s more aggressive stance on Naftogaz as a sign that negotiations between Russia and Ukraine on gas prices and the future of Ukraine’s gas transit system are proving difficult,” Fitch said.

“Gazprom has publicly criticised Ukraine’s re-purchases of Russian gas from Europe. By buying Russian gas from European countries such as Hungary or Slovakia, Naftogaz can achieve significant savings on the price it pays Gazprom.”

Ukraine has also been reducing the amount of gas it buys from Russia – a decision that has recently prompted Gazprom to hand Kyiv a $7 billion bill, saying that Ukraine failed to buy enough gas under the take-or-pay clause of its contract.

Gazprom, meanwhile, has been cutting down transit through Ukraine, leaving Kyiv without much-needed hard currency inflows, and intends to build South Stream – a pipeline that seeks to bypass Ukraine altogether by crossing the Black Sea and passing through Bulgaria, Serbia and Hungary.

According to UBS analyst Maxim Moshkov, as quoted by Russian business daily Vedomosti, Gazprom could use another round of interruptions in gas deliveries to European consumers as an additional argument in Russia’s protracted negotiations to persuade European regulators that South Stream needs to be built.

The EU, which wants to reduce its reliance on Russian gas, has so far refused Russia’s petitions for an exemption for South Stream from the EU’s Third energy package, which requires pipeline operators to offer 50 per cent of pipeline capacity to third parties.

“We believe that even though Gazprom is interested in negotiating with Ukraine about participating in its gas transit system, a high-level political decision is needed first. It appears that neither side is willing to give concessions at this time,” Fitch said.

(Photo: Jayesh Nair)



The Sofia Globe staff

The Sofia Globe - the Sofia-based fully independent English-language news and features website, covering Bulgaria, the Balkans and the EU. Sign up to subscribe to's daily bulletin through the form on our homepage.