Ukraine emerges a winner in the battle with Gazprom - the lessons for Sofia.

Few could foresee that the Kremlin's 'pincer' strategy of bypassing Ukraine would go bust, and instead of bending over, the Ukrainian gas transport system would find itself with increasing importance and higher revenues from the sale, storage, and trade of natural gas.

Both Nord Stream 2 and Turk Stream 2 are in what it seems an ongoing deadlock.

Some basic facts.

Throughout Ukrainian gas transit history, not once have supply disruptions to the EU been due to a lack of reliability or due to a malicious intent on the Ukrainian TSO side. All gas supply cuts and pressure reduction have followed decisions taken by the Kremlin, not by Kyiv. Regardless of what Russian government media preach, Putin's problems emerged after he decided to punish and circumvent Ukraine and hurl more than USD 60 billion (a conservative estimate) to subdue it. His gamble did not pay off.

In the end, the Russian President squandered the last remnants of control over his neighbor to the West.

Instead of the problematic transit via Ukraine, Russia gained an impossible one via Germany and Turkey. Gazprom sales in Turkey in 2020 have collapsed by 60 percent, despite the "take it or pay" clauses in the contracts.  At the moment, it is hard to conceive a specific date for completion and going online for either Nord and Turk Stream - 2.

As many have warned, it is not the delivery routes or the lack of alternative suppliers, which are critical for the natural gas markets but the declining consumption and the wild price fluctuations.

The margin between natural gas prices in the low summer season, when they fell below EUR 3 / MWh, and the current rates at almost EUR 13 / MWh have forced traders and suppliers to focus on storage capacity usage. As a result, Ukrainian gas storage facilities, which are unmatched in Europe, now hold a record of 28 billion cubic meters of cheap summer gas. European companies own more than 12 billion cubic meters of it, betting on demand outside Ukraine. Ukrainian companies, including new private players, profit from indigenous UGS importing gas from Poland, Slovakia, and Hungary.

When calculating the historic net gains from Russian gas transit for Ukraine, one must acknowledge that Gazprom enforced on Naftogaz Europe's highest gas prices. Price premiums reached USD 80-100/tcm between Gazprom's sales prices for Germany and Ukraine. Against annual gas purchases of 20 billion cubic meters (before Kyiv gave up on Gazprom's gas), typical in the past , Naftogaz overpaid almost USD 2 billion each year versus transit revenues of USD 2.5 billion.

Against all odds, the 'bypassed' Ukraine recorded the lowest EU natural gas price this July and a rare full-up of its gas storage facilities.

Meanwhile, Bulgaria, which sided with Gazprom in bypassing Ukraine as a partner, spent nearly Euro 1,5 billion of its own money to fund a gas pipeline that would guarantee Russian gas's monopoly in the region, while 'enjoying' three times higher gas prices.

The level of indebtedness confronts Bulgartransgaz with existential questions - "to be" or "not to be" as the company with less than a billion euro in asset value, before TurkStream, embarked on a EUR 1,5-billion project with a high-risk revenue profile and prohibitively high value-at-risk exposure.

The worst is yet to come as this coming winter gas prices are likely to go further up as cheap summer gas in the Chiren UGS is below 10 percent of annual consumption. The Bulgarian TSO did not consider it worthwhile to spend BGN 55 million to drill and expand the UGS capacity, yet it jumped into a debt of BGN 3 billion to build a restricted pipeline for Russian gas.

 PM Borissov chose the role of Gazprom’s junior partner over making Bulgaria an independent player, profiting from its geopolitical location. Ukrainians were forced reluctantly into acquiring their gas and energy independence through the law of the unintended consequences and now are reaping the benefits.