If Bulgaria proceeds with potential plans to begin importing Egyptian gas, the move will have positive effects on its small, though potentially much larger, gas market. However, given Bulgaria's role as a transit state, the benefits of increased security and diversity of supply arising from the Egyptian imports will also be felt elsewhere in the region.
Bulgaria's Ministry of Energy and Economy has indicated that the country may begin importing gas from Egypt from 2008 onwards if the proposed Egypt to Turkey pipeline link is developed. If imports from Egypt begin, there will be a number of positive impacts felt by the currently very small Bulgarian gas sector.
Current levels of gas demand in Bulgaria are extremely low at less than 3 billion cubic meters per annum. Given the country's population of less than 4.5 million people, this equates to per capita demand levels of less than 400 cubic meters per person per annum - well below the majority of markets in the EU 25 and only around a third of the average level seen across the EU as a whole. Similarly, at less than 15% of primary energy demand, the penetration of gas into the Bulgarian energy economy also lags significantly behind that seen in the majority of other markets.
Somewhat unusually, demand levels have fallen in recent years, a direct contrast to the majority of other markets in and around Europe. Demand peaked at 6.3 billion cubic meters per annum in 1989, more than twice the current level. Over the past decade demand has fallen by an average of 5% per year a situation largely driven by economic decline in the early and mid 1990s.
However, despite this historically weak demand pattern, there is significant future demand growth potential, particularly since the economy began to recover in 1997. Currently the non-residential sectors are by far the largest end users of gas, a key factor in the sensitivity of the gas market to fluctuations in the economic cycle. At just 6% of total demand, the potential for increased residential gas use is significant if investment in the distribution network can be secured.
Currently all but a minute proportion of Bulgarian gas demand is supplied under the terms of a long term take or pay contract with Russia's Gazprom. By importing Egyptian gas, the market will benefit from a much needed element of supply diversity and will give Bulgaria a stronger and much enhanced bargaining position for contract renegotiations with Russia when the current contract expires in 2010. The dangers of Bulgaria's current lack of security of supply were highlighted in January when, in the wake of the Russia-Ukraine supply dispute, Bulgaria and Russia were temporarily in dispute over gas transit pricing issues.
The final benefit of diversifying gas import supply sources is that the associated development of the gas industry will provide further impetus to Bulgaria's ambitions for accession to the EU.
Despite being a small market, Bulgaria has a key role in the wider gas sector owing to its role as a transit state for gas consumed in Macedonia, Turkey and Greece. The advancement of the Bulgarian gas sector resulting from greater security and diversity of supply, coupled with greater transit gas volumes resulting from the import of Egyptian gas, will provide Bulgaria with longer term advantages beyond the procurement of the gas itself and would be a judicious and highly advantageous development.