BULGARIAN INFORMATION-ANALYTIC & CONSULTING GROUP

POLITICS, ECONOMY, FACTS AND ANALYSES

BIACG is Division of MTTI

State and Tendencies in the Development of Oil Industry and Power Engineering
/ 1995 - 1997 /

/Analytical Survey/

I. Energy resources.

Bulgaria has limited organic fuel reserves - about 200 tons of conventional fuel /TCF/ per capita which is considerably below the average world figure - 2000 TCF.

The country also has certain oil and gas reserves - about 120 bn cubic meters of natural gas and about 30 - 35 m tons of oil.

The oil and gas potential of Bulgaria is not precisely calculated mainly with respect to deeper prospecting on dry land and the Black Sea shelf. The resources extracted from the Mesozoic rocks in Northern Bulgaria are estimated at 39 m tons of oil and gas condensate and 139 m cubic meters of gas. Until now eight deposits have been discovered which are of industrial importance and about the same number of smaller ones of local importance.

Recent prospecting has been concentrated on allegedly promising fields and the depth of drilling is 3 - 4,5 thousand meters. However geologists claim that the depth mentioned is not appropriate for the Fore - Balkan region and the passage to the Balkan Range.

According to preliminary data, the only deposit of industrial importance will be Galata /the Black Sea /. The expected extraction from one prospecting is about 1 m cubic meters of natural gas per 24 hours.

Official data show that the amount of oil and gas in Bulgaria's deposits satisfies less than 1 % of the country's consumption which means a total dependence on foreign supplies.

The analysis on fuel production and consumption in the country after 1989 reveals a tendency of decreasing production and export along with a steady level of consumption relying mainly on import.

The main reason for the increased consumption is the set of energy consuming branches in industry - metallurgy and chemical industry - which use old technical equipment. Since 1991 Bulgarian and Japanese experts have been working on a program for energy efficiency. On the basis of their survey the experts proposed in October 1997 a project for reduction of industrial energy expenditure to 35 %. At present, however, the energy used per unit of production exceeds 2,5 - 3 times the figure for the developed countries.

Thus in 1996 over 80% of Bulgaria’s energetic needs were covered by imported fuel as compared to approximately 60% - 65% in former periods. The trend is correspondent to the dynamics of the world consumption and to the registered in 1996 extremely high fuel consumption in the former USSR republics.

 

II. Major projects

Having in mind the historically predetermined relations and Bulgaria’s complete power dependence on Russia the realization of the following projects is of great importance:

    • The building of a gas-main for transmission of Russian gas through Bulgaria.
    • The building of a pipe-line for transmitting Caspian oil - the segment Bourgas - Alexandrupolis.
    • The maintaining of Kozloduy N-plant and the renewing of the building of Belene second N-plant.

1. According to the Jambourg agreement every year Bulgaria receives 3,75 bn cubic meters natural gas at prices lower than the internationally accepted because of its participation in the building of 710 km of the gas-main. At the end of 1994 a contract between Bulgaria and Russia for a mixed association for natural gas delivery was signed, and on May18,1995 Top Energy Inc. was registered. The allocation of shares is: Gasprom /Russia/ - 50%, Bulgargas - 25%, Chimimport /Bulgaria/ - 2%, Bulbank - 3,2%, First Private Bank /FPB/ - 3,2% and the private company Overgas Inc. - 8,25%.

In fact the Bulgarian - Russian gas association Top Energy is a ground for re-considering the bilateral economic interests because the project is influenced by the changing geopolitical configuration.

The first projects envisage Bulgaria to transit 28 bn cubic meters of gas annually while the existing gas-main network has annual capacity of 9 bn cubic maters.

Topenergy offered financial assistance for the construction of 1300 km gas-mains and natural gas depositories of 3,5-4 cubic meters capacity by 2010. The offer remained to be discussed by the last three Bulgarian cabinets. Topenergy’s case is to be considered again in November 1997 and it appears to be a key issue in the context of the strained Bulgarian-Russian relations.

The viewpoint, developed on the basis of chronological facts and data, is that for the time being Bulgaria does not make use of the opportunities offered by its geo-strategic position.

The intention of Gazprom is indicative - to examine the possibility of constructing a principal gas-main Russia-Turkey under the Black Sea. The project, called the Blue Stream, should be viewed as the first stage of the implementation of the agreement with Israel from the spring of 1997 for gas supply and also as an alternative to the layout crossing Bulgaria. The analysis of Russia reads that “ the political and economic crisis in Bulgaria is doing much harm to the natural gas supply” because “ there is no willingness for observing the established rules on the international gas market “.

The expected natural gas consumption in Bulgaria during 1997 is about 5,5 bn cubic meters.

2. The construction project of an oil pipe-line for Caspian oil transit from Novorosiisk through Bourgas to Alexandroupolis goes back to 1994. In September 1995 was established the joint stock company Trans-Balkan oil pipe-line - Russia, Bulgaria and Greece - whose primary target is the project implementation.

The length of the pipe-line Bourgas-Alexandroupolis is 275 km. What lies ahead is building a site for unloading the tankers and a reservoir of 3,8 m barrels capacity south of Bourgas; the reservoir of Alexandroupolis will hold 7,5 m barrels. The daily capacity of the works will be about 600 000 barrels.

The project requires USD 650/668/ m for installing the equipment. Another USD 306 m are needed for the construction of the terminals in Bourgas and Alexandroupolis. The project is expected to be financed by the European Union /EU/ - 30%-40% - and the European Investment Bank /EIB/.

According to the initial agreement Russian Gazprom should hold 50 % and Greece and Bulgaria - 25 % each. In view of the lack of agreement between the countries and the unceasing re-distribution of shares the construction of the pipe-line can hardly start earlier than 1998. After the meeting of Bulgarian and Greek experts held in Sofia in October 1997 Bulgaria is preparing detailed variants for the route of the oil conduit from Bourgas to the Greek border.

Another variant, suggested by AMBO company which was registered in 1994 by Bulgaria, Macedonia and Albania, is to build the oil conduit from Bourgas through Macedonia to the Albanian port Vlyora. According to preliminary estimations the project, which is part of the East-West corridor, will cost about USD 826 m.

Russia is expected to play a double role on the Balkans: Bourgas - Alexandroupolis and Macedonia - Albania. In order to eliminate the discontent of Turkey an oil conduit to this country will probably be built as well but it will not be of primary importance. The projects will, by no means, contradict each other because it is not of interest to Russia.

The route Bourgas - Alexandroupolis will contribute for improving the infrastructure in the southeast part of Bulgaria in terms of priority access to the Greek ports in the Aegean Sea and the route to Macedonia and Albania will provide better the relations with former Yugoslavia.

Besides, according to OPEK prognoses, in 2000 - 2005 the Caspian region will become one of the major oil suppliers for Eastern Europe. The most advantageous is considered to be the route Novorosiisk - transit along Danube -Mein -Rein canal, since it gives Bulgaria an opportunity of becoming an energy center.

In December 1995 a Black Sea Regional Energy Center was opened which would play a major role in the energy co-operation among the member-countries of the European Union /EU/ (the biggest consumer of fuels and energy in Europe), the former USSR countries and the Black Sea region. One of the most essential projects of the center is the oil conduit Bourgas - Alexandroupolis. Another priority is the possibility for joining the parallel functioning of the energy systems of the Black Sea countries.

3. Research works of West experts show that after 2010 oil and its derivatives will lose their place as basic energy carriers. During the second decade of the 21st century the main source of energy will be wirings using uranium i.e. the nuclear energy will come to the fore.

One of the prerequisites for that is the price of the nuclear energy - it is three times cheaper than the energy from other sources.

The N-plant Kozlodui produces 17 bn kw energy - almost 50 % of the country’s total energy output, which makes it an important energy unit in the country.

The potential decommissioning of the four reactors VVER 440, which is demanded by West experts, will lead to 20-25% deficit in the energy balance and will turn the country into an importer of energy due to the lack of substituting powers in the energy system. Such powers will not be available in the span of 5-7 years.

The re-construction of the N-plant will extend the term for exploitation with an average of 10 years - enough for constructing another power units. The re-construction requires two or three years and USD 300 - 500 m /corresponding to 10-12 % of the price of the energy produced by the four reactors for 5 years or 5-6% - for ten years/ whereas the other variants will lead to increasing the country’s foreign debt by USD 3-5 bn.

According to estimations made by experts, the use of Bulgarian uranium concentrate will help saving USD 40 500 000 when the N-plant Kozlodui has the maximum supply of fresh fuel. The problem, however, is directly related to the liquidation of the uranium mines.

The discontinued construction of the second N-plant Belene - estimated at USD 911,7 m, the provided equipment included, / at international prices from 1997/ - requires also USD 1,065 bn for concluding the project.

The Russians expressed their readiness to credit the project with USD 1 bn by means of which they become related to the eventual modernization of Kozloduy N-plant, the deliveries of nuclear fuel and the building of Belene N-plant.

In May,1997 - a technical council, appointed by the Energy minister, discussed the expedience of completing the second N-plant. According to the experts from economic prospective the building of Belene N-plant is not profitable because the term for its buying back will exceed the projected resources of the installations which is 30 years.

The conclusion is that Bulgaira does not need this object for covering the elecroconsumption needs till 2008 - 2010.

 

 III. State and structure of the output.

The total energy output in Bulgaria is about 50 bn KVA annually: N-plants - 20 bn KVA, thermoelectric power plants /imported coal/ - 7,5 bn and thermoelectric power plants /local coal/ - 20 bn KVA and the rest belongs to the hydroelectric power plants.

According to experts' data the electric power output structure is the following /within 2%/:

a/ N-plants - 40%

b/ Thermoelectric power plants /TPP/ of local coal - 40%

c/ Thermoelectric power plants of imported coal - 10%

d/ Hydroelectric power plants /HPP/ - 5%

 

Fuel component

N- plant - 0,6

TPP* - 2,1

TPP** - 1,9

cost

N - plant - 0,8

TPP* - 0,9

TPP** - 0,7

total

N-plant - 1,4

TPP* - 3,0

TPP** - 2,6

* - of imported coal

** - of local coal

*** -this table is in USD mien - in cents/KVA

  • The correlation of these expenditures in N-plants is 40% fuel component to 60% cost.
  • In thermoelectric power plants - 70%/30%.
  • To these expenditures should be added the current expenses in the plants for covering their own needs: for N-plants - 8%/ 0,11 cents more/, for thermoelectric power plants with imported fuel - 10% /0,3 cents/ and for thermoelectric power plants with local coal - 12% or 0,31cents.

Totally for the production and transfer of 47,5 bn KVA electricity annually are spent USD 1,52 bn which is about 3,2 cents/KVA.

Electricity consumption structure in Bulgaria is the following:

  • Population - 40%
  • Industry - 40%
  • Services and budget organizations - 20%

In 1996 there was an increased electroconsumption of 4 bn KVA more than in 1994 - 42 bn KVA. The branch entered 1996 with a deficit of BGL 21 bn. The expenditures on production, transit and distribution increased to 23,245 which puts Bulgaria in the first place in this negative indicator.

Oil products market in Bulgaria /according to unconfirmed data/ comes to BGL 50bn annually. The oil refinery Neftochim is forming the structure of Bulgaria's oil industry. It was built according to the common strategic plan of the former Concil for mutual economic assistance /CMEA/, which used to guarantee the markets and now the oil refinery finds itself with technical capacity exceeding the needs of the domestic market.

Neftochim has capacity for processing of 7 200 000 t. oil. The refinery's technological conditions are estimated as difficult not because of the need of modernization but due to the necessity for technological adaptation to definite types of oil from Russia, Iraq and Iran.

Neftochim's financial situation is also considered to be poor. In order to have a clear idea of the real situation an audit was done. The direct losses from the beginning of 1997 to August amount to BGL 87bn, liabilities to the budget are BGL 170 bn, liabilities to suppliers - BGL 120 bn, Value Added Tax /VAT/ - BGL 2,2 bn and BGL 22 bn principals - without interests - to the State Fund for Reconstruction and Development /SFRD/.

In April 1997 the interim cabinet allowed the Privatization Agency to start a privatization procedure of 75% of Neftochim - 25% of the shares were sold in the mass privatization.

According to primary data the oil refinery has an urgent need for USD 500 m investments, which - together with the technological features of the oil type - reduces the number of potential buyers. Interest was shown by the Russian Rosneft, South Korean Samsung and the US Behtel. The companies Mobil and Shevron are considered to be the potential investors which ca participate in the privatization of Neftochom together with Behtel.

Having in mind Neftochim's strategic role in Bulgaria's economy and the prospects of Bourgas - Alexandropoulis oil pipe line most of the experts support the idea of the country's necessity to retain the controlling interest of the oil refinery.

 

IV. Prospects

Bulgaria can find the right solution to its energy problem through the maximum combination of the separate energy resources. There is an urgent need for working out an integral national program with a strategy conforming to the economic and political factors as well as the rational and environment-friendly usage of resources and waste.

A final variant of the strategy for the development of power engineering till 2010 was presented in 1996. It includes:

a/ maximum utilization of local energy resources, increasing lignite coal production from Maritsa-East mines, reduction and limitation of the raw materials dependency on import.

b/ timely completion of a rehabilitation program taking into account ecological considerations and a change of the fuel basis of the existing production units.

c/ market-orientation of the branch - de-centralization, de-monopolization and commercialization.

d/ re-structuring of power engineering and establishing independent regional structures with municipal and private investments and individual shareholders, and creating conditions for privatization.

e/ replacing production units should be constructed first in Maritsa-East thermal power plant and also single power units of at least 300 megawatts.

f/ the thermal power plants in Varna and Bobovdol should be sub-maximum powers and they should make 3500 working hours annually.

g/ N-plants - Kozlodui and thermal power plant Maritsa-East will be the basic ones and will operate 600-6500 hours annually.

The necessary investments in power engineering till 2000 are estimated at BGL 2,946, 000,000.

Most probably the inertia scenario will dominate till 2003 - preserving the high energy consumption of the gross domestic product /GDP/- and after that - the scenario of energy efficiency as a result from the re-structuring of industry.

Through decision of the expert council of the ministry of power engineering the energy strategy of the country will be updated in May 1997.

The nuclear, conventional and gas energy production, connected with supply of energy carriers, should be balanced in the new energy conception.


Bulgarian Information Analytic and Consulting Group is division of MTT International and offers chronological and thematic analyses concerning the political economic aspects of the Bulgarian reality. In addition to the summary of the analyses presented in the bulletin we can provide the full size analyses if requested.

BIAC Group offers also analyses and consultations on topics connected with Bulgaria which are of interest for the client as well as translation of articles from the Bulgarian press.

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