Kadiev: The contract with Botash was poorly made, we are paying an excessively high price for the service, it should be renegotiated

From Georgi Kadiev’s Facebook profile:

About the contract with Botash, since the topic is specific and requires a lot of explanations:

The contract is the so-called “Service Agreement”, which has two components:

a. capacity conservation and

b. the so-called time-swap, which means that at one moment you deliver the liquefied gas, but you use it at another moment when you decide (this kind of service also costs money).

There are two problems with the contract:

1. It has a fixed price for 13 years and was concluded at the highest point of gas prices, in crisis conditions. And if then the price of the Service Agreement under the contract was about 5-6% of the total final price of delivered gas, after today’s gas prices collapsed, it is already 25% of the final price, which absurdly burdened the price.

2. In this business, it is normal, when you reserve capacity for 13 years, to pay for it regardless of whether you use it. However, it is not normal to pay for time-swap if you do not have a supply of gas, simply because there is no way to make a request when you will use it. Speaking to gas traders, none of them have ever seen a time-swap contract that pays a fixed price for 13 years regardless of whether you deliver quantities.

In this business, it is normal to negotiate supplies as long as you have a market. Bulgargaz contracts it without having customers for the gas. LNG is a global commodity. As Asia, especially China, raises prices, to date the price of gas at the terminal in Turkey is 10% above the price here. Naturally, there are no customers for such transactions, therefore no gas flows through the pipe, and we pay like crazy.

Russian gas continues to flow through Ukraine in full force to the Central European hub in Austria, from there to Italy, Germany, Slovenia, etc.

President Radev says that if Russia stops supplying gas through Ukraine in 2025, there will be demand for gas and the contract with Botash will become profitable.

This is true, but there is one big “if”.

The contract between Russia and Ukraine for gas transit does expire in 2025. Naturally, we all know that they will not conclude a new contract, they are at war.

But this does not mean that the gas will stop flowing. It is entirely possible that Gazprom will conclude a contract with European companies with a delivery point on the Russian-Ukrainian border, and from there they will handle the transit through Ukraine. Of course, we do not know what the EC will decide and whether it will not ban the supply of Russian gas to the entire EU, which currently does not exist (but our quacks stopped the contract with Gazprom and now we buy at a price 20% above the market).

In short, the contract with Botash is poorly made, we are paying an excessively high price for the service, it needs to be renegotiated and I am convinced that the Turkish side will waive the time-swap fee, because this is normal. I repeat, no one anywhere pays this fee the way Bulgargaz pays it today. I suspect that when they proposed it, the Turks never dreamed that ours would accept this clause.

Of course, the Turks will pass off the treaty change as some kind of terrible gift to us, and there will be a political cost.

The bottom line?

The only thing we can do today is send the Secretary of Energy to renegotiate the contract to minimize the damage.

And let’s hope that Russian gas to Europe really stops in 2025.