1. Bulgaria Key Energy Challenges: Energy Security Presentation at Kapital Energy Conference Sofia, February 23, 2010 Peter Johansen and Claudia Vasquez Europe and Central Asia Region, World Bank

2. 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.

3. 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

4. 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

5. 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

6. 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

7. Gas only Flows in One Direction Extensive gas pipeline infrastructure: -High pressure network 1,700 km -Transit pipeline 950 km Source: http://www.bulgargaz.bg/en/

8. Diversification of Gas Supply Sources and Routes will be Possible in the Long Term 8Source: South East Europe Regional Gasification Study

9. 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

10. 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. 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

12. 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

13. 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

14. Energy Community Ring Concept 14 Source: South East Europe Regional Gasification Study 2008

15. Bulgaria: Key Electricity Exporter in South East Europe (GWh, 2007) Source : UCTE

16. Energy Community: Regional Market Approach IPS/UPS CWE Nordic UK/IE CEE SWE CSE SEE Baltic

17. 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)

18. Thank you! pjohansen@worldbank.org cvasquez@worldbnk.org www.worldbank.org