Here’s what’s in store: a rough winter and a gradual increase in fuel prices

 

Fuel prices on international markets are on the one hand good news for producers, and on the other hand – this is the maximum level for consumption, especially for the not yet well active business climate. Already in June, levels of USD 80 per barrel were reached. The black gold producers themselves do not want to increase yields to maintain prices. At the same time, there are enough demanders to market their product. That is why I believe that the levels of USD 74-80 per barrel are prices that we will see in the coming months. This was explained to 3eNews and Dir.bg by Zhivodar Terziev, Chairman of the Bulgarian Petrol and Gas Association.

 

According to him, the Bulgarian retail market was 25 to 30 days behind international prices in recent months.

 

“In global markets, prices have been on the rise since February until the end of June. And because of political uncertainty, pandemic expectations and other factors, the Bulgarian market has lagged behind. So at the beginning of June we had some really low levels at the pumps compared to adequate daily prices. And this was the main reason why I shared that if the prices on the international markets stay at these levels, it will be normal to see an increase of 5-6 cents in July,” Terziev explained.

 

He dismissed the statement on how millions of people travelling for seaside and holidays are victims of high prices.

 

“Last year, there was a pre-season price drop. What we are seeing now, taking away excise and VAT and looking at prices in neighbouring countries is obvious. It should be clear to everyone that prices in our country are very low and the consumer is currently benefiting,” Terziev said.

 

At the same time, the companies in the sector have good turnovers compared to last year’s levels. Back then these consumption levels were low because of the pandemic.

 

“The expectations for the market are mine as a trader in this market. They are not the result of some secret information and we want to have stable prices, with a stable market.”

 

 

The rise in electricity prices also hit fuel traders

 

The rise in electricity prices is also having a serious impact on our business, the expert explained.

 

“I am worried about what will happen in November and December because we are currently paying three times more for electricity than last year. That is, if I currently have to pay three times more for electricity, I either have to close or increase prices,” Terziev clarified.

 

The high electricity prices alone immediately increase the contingent costs, which leads to the need to look for ways to sustain the outlet. And here the options are two – one way is to process twice the amount of fuel to reduce the notional fixed costs. And the other option is to increase pump prices.

 

“It is clear to everyone that in a free fuel market you cannot suddenly sharply double turnover, not without state support. And so it remains to increase the cost of living and by raising the mark-ups,” clarified the specialist.

 

According to him, all things being equal and oil price relatively the same, in the next few months and we will have a slow rise. This will be because of high fixed costs, which will be passed on to the price of the commodity. “The situation is similar in the Modern Trade Association, the light industry. It’s just that high energy prices will lead to price increase. By how much and how exactly this will happen I cannot say. I am hoping that if we have a normal market environment and we get away without a serious lockdown, we will be able to bear the increase within 2-3 cents per litre of fuel. But these are just my hopes,” Terziev further clarified. In his words, however, there will also be an increase in natural gas and methane – everyone sees how in recent months the price of this type of alternative fuels is increasing.

 

And in winter?

 

Experts are already talking about how after 15-20 September we could fall into a fourth wave of coronavirus. These factors will have a very negative impact on the market in the autumn-winter period.

 

“With a contraction in consumption, it is clear what will happen in the market. On the one hand, the less you sell, the higher your mark-up has to be to make a living. At the same time, if turnover drops significantly, then you go into ‘self-preservation mode’, the aim of which is simply to get through the difficult period. It is very difficult at the moment – until we see the result of forming a government and the willingness or need to proceed to curtail public life restrictions.

 

And all this will happen at the beginning of the heating season in October and all these factors create a lot of unknowns. Even at the end of August it will be difficult to guess exactly what is going to happen by the start of winter in terms of prices.

 

European tax legislation and CO2

 

At the moment, at European level, everything revolves around carbon emissions, which also have a negative impact on the Bulgarian energy sector. We started talking about emissions at a price of EUR 12-13 per tonne. Now they are already at levels of over EUR 50 per tonne. And the difference in a year and a half is about five times. So the assumptions in this policy will be clear in the next few years. One thing is certain, however: Europe wants to adapt to the plan to limit carbon emissions by 55% by 2030, compared with 1990.

 

However, this neutrality will cost us money. It will be disastrous for some poor nations in the EU, even around the European Union, Terziev believes.

 

And the steps with which Europe is implementing this whole event are no longer fast, they are in a gallop. Our expectation is that the consumer should be informed that ‘as green and as beautiful as we are’, we are in danger of remaining ‘both pedestrian and unable to get around’.

 

I see the following in this plan, which will one day become enforceable through directives and measures. Firstly, I expect the way in which excise duty is set to change in our sector. It will shift to carbon pollution – calories and gigajoules. This will raise prices on the one hand, Terziev believes.

 

At the same time, there is talk of carbon emissions and their purchase by businesses related to energy consumption in transport and buildings. That is, if you are a transporter, you will first have to pay a higher excise duty and then buy allowances because of the pollution.

 

Biofuels prices increase

 

The third part is a change in the valuation of the use of renewable or alternative fuels. What we have been calling biofuels for the last 10 years is now increasingly being called the food industry. And Brussels’ aim is to make biofuels out of waste and pollution. And these prices are many times higher than normal biofuels. If we are going to produce synthetic fuels from captured carbon dioxide and green hydrogen and replace up to 15-20 or even 100% of conventional fuels in 2050, then we need to know a few things.

 

First of all, the production of hydrogen by electrolysis will cost around 6 leva per kilogram. Assuming that vegetable oils and alcohol will no longer be used for biofuels, if other sources will be sought for production from carbon dioxide and green hydrogen with a lot of surplus energy on sunny and windy days, then the prices we recently announced may even be optimistic, explains the chairman of the BPGA.

 

“I will give just one example nowadays of the production of biofuel from vegetable oil as a first-generation fuel like rapeseed, for example. The difference with second generation biofuels is about 400-500 BGN per tonne. And if we assume that in a few years we have to switch to the second generation of biofuels, the price will go up. Not to mention that there is no such production of second-generation fuels at the moment,” Terziev recalled.

 

“Here the question arises who will pay this bill? If the European consumer’s income is 4-5 times higher than our income, then for us this transition will be a serious problem. I am not convinced that these quick measures of the Commission will lead to a serious realisation. And in typical Brussels fashion, in 5-6 years we will say that these policies have created other problems,” he insisted.

 

According to the specialist, the idea of a cross-border carbon tax is great, but in our country I wonder how exactly this will happen. If in our country we raise the excise duty, put some modern renewable fuels and other new technologies. At the same time, we will have 1 000 Turkish trucks coming from the Republic of Turkey with full tanks. As non-EU countries, they can do whatever they want. And what will happen? A black market in fuel will develop. It is the same situation on the border between Romania and Moldova.

 

“Here they will literally start putting some canisters in some vans because that will be the only way to survive,” Terziev said.