BulgariaKey Energy

Challenges: Energy Security

Presentation at Kapital Energy Conference

Sofia, February 23, 2010

Peter Johansen and Claudia VasquezEurope and Central Asia Region, World Bank

Key Energy Challenges 1. Tightening demand-supply balance

– Economic crisis provided only temporary “relief” as demand declined while supply surplus has eroded

2. Gas supply security concerns – Ukraine-Russia gas crises demonstrated the vulnerability of the

Bulgarian gas sector to external shocks

3. High energy intensity – Bulgaria is the most energy intensive country in the EU and in the

Balkans. This hurts competitiveness

4. Underdeveloped regional energy market– Low electricity prices encourage wasteful energy use and discourage

investments. Low gas penetration. Need for regional cooperation in gas transport and power trade.

Demand-Supply Balance Will Tighten

3

• The economic crisis has slowed down demand- But this will only give a short breathing space before a post-

crisis recovery boosts demand again

• Declining Oil and gas production- European production of oil and gas will decline and import

dependency will increase- Uncertainty about increased production in the large gas

exporting countries in the region

• Deteriorating assets and inadequate addition of generation capacity- In South East Europe a net loss of generation capacity of 1

GW occurred between 1995-2005- Slack created by the break-down of centralized economies

has now disappeared

Key Energy Challenges

1. Tightening demand-supply balance

2. Gas supply security concerns – Ukraine-Russia gas crises demonstrated the vulnerability

of the Bulgarian gas sector to external shocks

3. High energy intensity

4. Underdeveloped regional energy market

Security of Supply is a Key Priority

• The 2009 gas crisis affected the Bulgarian economy severely

– Bulgargaz had to stop domestic gas supply– Major industrial consumers of natural gas had to shut down, including

240 MW gas fired power capacity– Estimated loss to the economy > €250M

• There were regional impacts– Electricity exports suspended to supply the domestic market– Gas transit to Greece, Turkey and Macedonia was interrupted

• Ordinary consumers were also hit– Household consumers encouraged to use electricity and wood for

heating and cooking – Increases in wood and fuel prices

• Loosing access to energy has dramatic consequences

High Reliance on Gas Imports• Gas demand

- Domestic consumption 3.2 bcm/y evenly divided between district heating, the chemicals industry (principally fertilisers) and households

• Gas supply- Limited domestic gas reserves (about 6 bcm*)- Limited internal production (5 percent from offshore Galata

field)- Import dependency: 95 percent of gas imported from

Russia - Limited storage capacity: Chiren 0.35 bcm (plan to increase

to 0.8 bcm)

* bcm=billion cubic meters

Gas only Flows in One Direction

• Extensive gas pipeline infrastructure:- High pressure network 1,700 km- Transit pipeline 950 km

Chiren UGS

Legend:Main gas pipelineGas pipeline branchTransit gas pipelineCompressor stationGas reduction station

CS Kardam 1CS Kardam 2

CS Lozenetz

CS Strandja

SevlievoLovech

Zlatna Panega

Roman

Botevgrad

Elin Pelin

Pleven

Sofia

Pernik

Vratza

MontanaRusse

Razgrad

IsperihKubrat

Turgoviste

BialaLevski

Varna

Dobrich

Gen. Toshevo

Burgas

DebeltIambol

Sliven

Rakovski

PlovdivPazardjik

Asenovgrad

Parvomaj

Stara Zagora

Dimitrovgrad

HaskovoCS Petrich

ROMANIA

SERBIA

GREECE

TURKEY

CS Polski Senovetz

CS IhtimanNova Zagora

CS Provadia

MACEDONIA

CS Valchi dol

Source: http://www.bulgargaz.bg/en/

Diversification of Gas Supply Sources and Routes will be Possible in the Long Term

8Source: South East Europe Regional Gasification Study

Options to Improve Security of Gas Supply in the Short to

Medium Term

• No major new supply sources within this time frame

• National solutions:– Improving efficient use of gas, e.g., in district heating on both

supply and demand side (home insulation)– Increasing underground gas storage capacity

• Regional solutions:– Construction of new or expanding of existing interconnections

(incl. reverse flow capability) with neighboring systems:• Romania • Greece • Turkey• Serbia

9

Key Energy Challenges

1. Tightening demand-supply balance

2. Gas supply security concerns

3. High energy intensity

4. Underdeveloped regional energy market– Low electricity prices encourage wasteful energy use and

discourage investments. Low gas penetration. Need for regional cooperation in gas transport and power trade.

11

Energy Shortages Could Threaten the Region

• Deteriorated energy infrastructure

• Regulated tariffs in the region are still relatively low compared to EU countries– Tariffs do not support new generation investment– Encourage wasteful energy usage

Electricity tariffs for residential consumers

The Unfinished Reform Agenda Limits Effective Regional

Cooperation

• Countries have opened their energy markets, but:

– National utilities dominate national markets

– Eligible customers prefer to stay under their (relatively low) regulated tariffs

– Effective opening and switching of suppliers is limited

12

Bulgaria in the Regional Gas Market

• Important gas transit country– 16 bcm/y (Turkey)– 2.4 bcm/y (Greece)– 0.1 bcm/y (Macedonia)

• Potential regional role in gas storage and transit: – Galata gas field can be converted into UGS of up to 1.8 bcm– Possibility of status as a regional gas hub– Facilitate creation of regional gas market – South East Europe

gas ring

Energy Community Ring Concept

14Source: South East Europe Regional Gasification Study 2008

Bulgaria: Key Electricity Exporter

in South East Europe (GWh, 2007)

Source : UCTE

Energy Community: Regional Market Approach

IPS/UPS

CWE

Nordic

UK/IE

CEE

SWE CSESEE

Baltic

17

Electricity Trade in the Energy Community

• A regional market for network energies is the objective of the Energy Community Treaty

• Bilateral trading will continue – but needs improvements and a functioning regional market should be developed

• Bulgaria could consider a decentralized approach to electricity trade:– Bulgaria and Serbia develop their national markets– Bulgaria and/or Serbia couple their markets with the already

functional Romanian market (OPCOM PX)

Thank you!

pjohansen@worldbank.orgcvasquez@worldbnk.org

www.worldbank.org