Bulgarian Liquid Fuels Market – Current Outlook and Trends

General outlook of the Bulgarian liquid fuels market, prices and taxation

The liquid fuels market in Bulgaria is a highly competitive segment. There are round 3,500 gasoline stations under the ownership of large fuel station chains or mid- and small-sized retailers. The major oil chains, among which are several international chains, provide for approximately 70-80% of retail gasoline to end customers.

Lukoil Neftochim Burgas, Bulgaria's only oil refinery, is located in the Black Sea coastal city of Burgas and is the largest and most modern fuel processing facility in South East Europe. In 1999, the refinery was sold through a procedure of privatisation to the Russian oil giant Lukoil through its Bulgarian subsidiary Lukoil Neftochim Burgas.

The refinery is the flagship of the Bulgarian economy. Its annual production capacity is about 7 million tons liquid fuels, of which approximately 2.5 – 3 million tonnes are supplied to the local market and the remaining output is exported by sea (the port of Rosenets on the Black Sea is used for sea operations – both importing crude oil to the plant and exporting products). In technological terms, it is a semi-complex refinery with a high yield of light and middle distillates (91%), and accounts for 9% of the Gross National Product (GNP) and stands out as the largest Bulgarian industrial enterprise.

The domestic liquid fuels consumption in Bulgaria for 2023 totalled roughly 4,170,000 tonnes and, similarly to the majority of European Union (EU) member states, the sold volume of diesel fuels significantly exceeds gasoline sales. Diesel sales represented a 65% share of the total fuels sales whereas Super 95 gasoline provided for merely 16.7% of the total volume. Liquefied petroleum gas (LPG) consumption is typically higher, accounting for 17.6% share of the total consumption in 2023.

For years, the fuel prices in Bulgaria have, on average, been among the lowest within the EU. The same trend is reflected in fuel taxation. Bulgaria has a relatively low fuel tax rate and the taxation share of the final price for Euro Super 95 is 45%. In comparison the lowest rate, in Hungary, is 42%, and the highest applicable rate is 57% in both Greece and Italy. Respectively, the taxation share of diesel is 40% in Bulgaria. According to statistics from the European Commission (EC), the lowest share is reported in Cyprus, at 38% of the final price, and the highest rates are found in Malta (54%), Italy (52%) and France (50%).

The impact of the war in Ukraine on the Bulgarian fuel market

Following long-standing dependence on Russian oil and gas imports, Bulgaria met increasing challenges on the fuel market after the outbreak of the Russian invasion.

Until early 2024, the Lukoil Neftochim Burgas refinery was processing predominantly Russian crude oil with a few exceptions. After the Russian invasion of Ukraine and the imposed EU sanctions on Russian oil and petroleum products exports, the EC granted a derogation period to Bulgaria for importing Russian crude oil by sea until the end of 2024, allowing the refinery to continue receiving Russian crude oil. However, after intense debates and disputes in the National Assembly, the Bulgarian Parliament brought forward the end of the derogation period.

The general public and business circles expressed concerns, driven by the fact that the ban on Russian crude oil imports and the extended transport routes for non-Russian crude oil imports would delay delivery times from other sources and lead to a corresponding increase in the wholesale and retail price of the refinery’s fuel production. Irrespective of the concerns for rise of the fuel prices, the Parliament passed the draft legislation for gradual restrictions of the Russian crude oil import to 50%, effective 1 January 2024, and implemented a full ban on Russian imports, effective 1 March 2024.

Accordingly, the refinery now operates entirely with non-Russian crude oil and prices have not witnessed an increase as a result of this ban.

Legal regulations of the liquid fuel market

Liquid fuels have an enormous impact on the sustainability of the domestic market and have a resonating social effect. Fuels generate major tax revenue across the globe, leading to the oil and gas industry being highly regulated at multiple levels of European and local government.

The national oil and gas regulatory framework faces two critical issues – the fragmented and heterogeneous nature of the regulations, and the frequent amendments to the various regulatory acts – not limited to a special law on liquid fuel producers and traders, a regulation on compulsory stocks of oil and oil products, tax, excise, environmental, technological and other acts, rules and regulations.

The Law on Administrative Regulation of Economic Activities Related to Oil and Oil Products(the "Fuels Act"), was adopted in 2018 and plays an important role in the oil and gas regulatory regime. 

The Fuels Act requires the mandatory registration of all oil and oil product wholesalers and retailers in a special, publicly accessible registry. The objective of the Fuels Act is to set legal hurdles in any grey area in the oil industry by making known all companies operating in this sector. It should be noted that the Fuels Act, to a large extent, accomplished its intended purpose. The creation of an Advisory Board composed of representatives of government institutions and business entities, headed by the Minister of Economy, is a move towards reviews and discussions of the main policies and proposed amendments to oil-related legislation.

The participation (on the Advisory Board) of certain members of the Bulgarian Petroleum and Gas Association proves to be of fundamental importance, providing an expert capacity that exceeds the competence of the government administration. This said, political decisions can at times overrule expert opinions, not only in Bulgaria, but across the EU.

Business experts have proposed a key change into the compulsory fuel stocks storage system. Currently, the government agency responsible for the administration and control of oil storage should have in reserve the equivalent of 30 days worth of oil stocks, and liquid fuel importers and producers should hold in reserve 60 days worth. Such an arrangement ties up a significant portion of company funds and pushes up prices due to the need for bank involvement via loans.

Moreover, some liable parties fail to meet their obligations, challenge the imposed sanctions before court, and find a way round the prescribed law. The proposed change is in line with the model adopted by other EU states where the entire stock reserve is held by a single government body which charges fees per litre, depending on an annual budget, to every liable person. Such a measure would release substantial financial resources for the stockholding companies and would override any court proceedings opened against non-performing debtors.

Trends in the development of the bulgarian liquid fuel market

As a member of the EU, Bulgaria abides to the common EU oil market regulations. The cornerstones of the EU legislation are the Renewable Energy Directive (RED II), the Fuel Quality Directive, and the Industrial Emissions Directive. These regulations are focused on the enhanced use of renewable energy sources, improved fuel quality and reduction of the environmental impacts associated with the fuel production and consumption. Accordingly, the trends in the local oil market and the public concerns and expectations are similar to those in other EU member states.

The European Green Deal and its projections in Bulgaria

The European Green Deal, which aims to make the EU climate-neutral by 2050, is bound to have far-reaching implications for the petroleum sector, such as stricter emissions targets, increased support for renewable energy and new regulations on carbon pricing.

The motivation behind it is clear. It is undeniable that all of us wish to share a world where air is fresh, water is clean, soil is fertile and biodiversity is stable. The EU Green Deal is a landmark initiative in this direction. The EU adopted ambitious climate targets and passed legislation with the intention of a smooth implementation, however such will be politically challenging, in particular due to the too-short timeframes provided for achieving sustainable results and the reality of the technical capacity of the member states to create a sustainable renewables industry and foster the transition to a more competitive, resource-efficient and circular economy without any social pain. All these issues have been already brought into question.

Recently, Bulgarian President Rumen Radev said, at the opening of a major international forum on the Green Deal, that "The risk of high speed is the surest path to disaster". The Polish government has pledged to use its presidency of the EU Council in the first half of 2025 to review some key green policies and similar positions are being expressed by most EU member states, especially after the elections for a new European Parliament this year.

The EU Emissions Trading System (ETS) – the carbon credit market used to mitigate climate change and one of the tools to reduce greenhouse gas emissions has been strongly disputed by Poland. The Polish parliament passed a resolution denouncing the ETS and callеd for its suspension. At a summit of EU leaders, the Polish Prime Minister called the ETS a scheme that “does not work” and requiring deep reform.

Bulgarian oil and gas businesses are in agreement and are calling for adoption and adherence to a clear national strategy for energy transition that should be carried out in a reasonable timeframe and at a socially acceptable cost. Certainly, it is important that the new members of the European Parliament defend these requirements before the European institutions – the European programmes should be predictable and companies and citizens should have time to prepare and compensate for all the measures imposed by the transition to renewable sources.

Electromobility and obstacles ahead

The adherence to the principle of achieving carbon neutrality in relation to the technologies that will replace fossil fuels in the coming years should be preserved. Organisations of all types across the world and in Bulgaria seek to reach the critical solutions needed to reach net-zero emissions. It is of utmost importance to develop and scale decarbonised urban mobility solutions. The “one-size-fits-all” vehicle policy is no longer an option and fleet managers will need to adjust to this paradigm shift. Even though a significant increase in the number of electric cars in Bulgaria is noticeable, a shift to electromobility pushed only by administrative measures would be a mistake given the lack of technical experts if repairs are necessary, the scarcity of charging stations and infrastructure and grid capacity, among other disadvantages.

Electromobility is the concept of using “electric powertrain” for transporting people and goods with a view to support sustainable development. The electric vehicle revolution is here. Electric Vehicles (EVs) are sustainable in their intention, cost-effective for the consumer, good for the environment and for the general public health. However, whilst they are currently an appropriate transport tool for dense urban areas and are popular in Europe, the USA and China, they are not fit for rural areas with lack of EV charging infrastructure. Bulgaria is no exception to this trend of spread of EVs in urban zones and not on wider, national scale.

Possible solutions to tackle such shortcomings include the expansion of the charging infrastructure, including an increased number of charging stations and upgrade of the battery technology to reduce charging times. Governments can provide incentives to consumers, encouraging the purchase of EVs through tax credits or subsidies. Industry stakeholders can collaborate with governments to address these challenges and promote the adoption of EVs, which can contribute to reducing carbon emissions and air pollution.

Biofuels in Bulgaria

Driven by EU directives and national policies, there is a growing emphasis on reducing greenhouse gas emissions and increasing the share of renewable energy in the transport sector. This has led to the increased adoption of biofuels and other renewable alternatives. Technological alignment should be sought between fossil fuels and biofuels. Biofuels are gaining increasing attention as an alternative to fossil fuels as they have the potential to reduce the greenhouse gas emissions from the transportation sector.

The Bulgarian government has implemented several measures to promote the use of renewable energy in the transport sector. These include incentives for biofuel production, subsidies for renewable energy projects and requirements for blending biofuels with conventional fuels. As a result, the share of biofuels in the market has been steadily increasing.

Conclusion

The transition to green energy should be articulated fairly and honestly to citizens and businesses. The approach of overcoming problems in the green transition with even greater investment in green policies is the right path, but it has its risks. Therefore, it is crucial to elaborate national energy strategies that would take into account the individual specifics of a given country, integrate them in the common policies, and set clear timeframes for the implementation of a fair and socially tolerable green transition.