Turkish Forum

Tag: BOTAS

  • Rising Gas Consumption Reveals Structural Problems in Turkey’s Energy Policies

    Rising Gas Consumption Reveals Structural Problems in Turkey’s Energy Policies

    Rising Gas Consumption Reveals Structural Problems in Turkey’s Energy Policies

    Publication: Eurasia Daily Monitor Volume: 9 Issue: 32
    February 15, 2012
    By: Saban Kardas
    Heavy winter conditions have strained natural gas supplies in Turkey, shedding critical light on the country’s over reliance on hydrocarbons. Due to the record increases in household consumption and electricity demand, which coincided with interruptions in gas imports from Iran and Azerbaijan, concerns were raised as to whether Ankara’s current contracts meet its actual demand, and how this will affect its future energy policies.In early February, some media reports speculated that Russian gas shipments through the Western line declined by 30 percent. However, it was later explained that the declining shipment was due to Ukraine’s tapping the gas from the same route beyond normal levels, and Russia did not officially cut its exports to Turkey (Aksam, February 4). As Turkey’s largest gas supplier, Russia has been reliable so far. In the past, Russia even stepped in to make up for deficient quantities of gas when Turkey encountered shortages with other suppliers, especially Iran. Last December, Turkey agreed to renew a supply contract with Russia, which also foresaw a partial reduction in price in return for Ankara’s support for the South Stream project. In hindsight, it appears that Ankara’s decision to renew that contract, despite its initial objections, was motivated in part by the anticipated increased demand.

    The imports from Iran, the second largest supplier, have been problematic. Upon failure to bridge the differences in negotiations that were in progress, the Energy Minister Taner Yildiz announced that Turkey had decided to take Iran to the International Court of Arbitration. The negotiations pertained to two interrelated issues. While Turkey is contracted to import 10 billion cubic meters (bcm) annually gas from Iran, it maintains that Tehran fell short of meeting that target and it imported around 7 bcm to 8 bcm per annum. Ankara wanted to import the excess amount accumulated in the last two years. Also, Turkey was demanding a discount, as it paid the highest price for Iranian gas. The law suit was lodged on the first issue, and if no agreement is reached in the price discount dispute, Turkey will also take it to arbitration in March (Radikal, February 1).

    A few days later, gas supplies from Iran fell dramatically, due to technical problems. Reportedly, the compressor stations were experiencing technical failures. As a similar problem was also encountered with gas supplies from Azerbaijan, Turkey’s third largest provider, the gas flow from the eastern pipeline declined by around 85 percent. While on average the flow was around 40 million cubic meters (mcm) per day, it fell to 6 mcm per day. Turkey’s average daily consumption also reached as high as 192 mcm per day, while last year it was around 171 mcm per day (Anadolu Ajansi, February 7).

    The technical problems were solved within a few days and the gas flow returned to normal levels, but this development underscored the fragile nature of the country’s gas supplies. To alleviate growing public concerns, Yildiz announced that there was no immediate risk to shipments from Russia, and consumers will not experience any shortages. Turkey undertook several precautions. The power stations that convert natural gas to electricity either stopped production or shifted to secondary fuels. Also, Turkey made greater utilization of LNG conversion stations and tapped the reserves in underground storage facility in Silivri. Periodically, electricity supplies were also interrupted in some areas (Zaman, February 4).

    Despite the minister’s efforts to reassure consumers, experts highlight several problems in Turkey’s natural gas supplies. Electricity producers complained that the secondary fuels are more expensive and increase the price by around 10 percent (Milliyet, February 5). Due to rising demand and declining production at natural gas-based power plants, electricity prices skyrocketed in the free market where producers and distributors meet (Zaman, February 13). Producers and distributors are concerned that electricity generation costs have exceeded the price guarantees in the contracts, forcing them into net losses. Yildiz contradicted those claims, arguing that such seasonal fluctuations need to be seen as normal developments (Anadolu Ajansi, February 14).

    Moreover, shortcomings in reserves were also revealed during this crisis. Turkey’s underground storage facilities in Silivri have a capacity of 2.6 bcm and BOTAS is expected to keep 2.1 bcm in reserves, which will be enough to meet Turkey’s needs for around two weeks. As Turkey tapped these reserves in response to declining deliveries, it has been argued that BOTAS’ failure to fill it to full capacity before the winter was a major mistake. However, BOTAS issued a statement, maintaining that it stored quantities above the minimum levels required by existing legal provisions (Zaman, February 9). Granted, this development underscores Turkey’s poor capacity in managing its strategic reserves. It also demonstrates that despite its claims to be emerging as a major energy hub Turkey’s current capacity to manage that hub still remains unsatisfactory.

    To enhance that capacity Turkey finalized a protracted tender last fall with a Chinese company that will construct storage facilities in Tuz Golu (Salt Lake) near Ankara, which will have a capacity of 1 bcm. More importantly, the electricity producers’ association painted a very grim picture of the balance between demand and contracted gas supplies. While Turkey’s current contracts enable it to import around 170 mcm daily, its average daily consumption is around 180 mcm per day.

    They maintain that the problem is not just conjectural and cannot be explained by seasonal conditions. Rather, Turkey’s excessive reliance on natural gas for electricity generation appears to be a source of the problem (www.haberturk.com, February 13). According to Energy Market Regulatory Agency, Turkey imported 40 bcm gas and consumed 43.5 bcm in 2012, its consumption is expected to reach 48.5 bcm. While around half of Turkey’s electricity is produced from natural gas, slightly over half of its gas imports are used in power plants.

    Electricity producers argue that Turkey urgently needs to reduce the share of gas in electricity generation to around 30 percent through greater use of renewables, domestic resources and nuclear power. This is a problem emphasized a long time ago and energy strategy documents have stated it as their objective to undercut dependence on gas. Yildiz also reiterated it recently. There is a broad consensus inside Turkey on the need to significantly revise its energy policies, but it seems there is less consensus on “how” and “how soon” Turkey should achieve a more balanced energy mix.

    https://jamestown.org/program/rising-gas-consumption-reveals-structural-problems-in-turkeys-energy-policies/
  • Turkey Has to Develop Large Firms in Order to Become an Active Player in Energy Sector

    Turkey Has to Develop Large Firms in Order to Become an Active Player in Energy Sector

    Turkey Has to Develop Large Firms in Order to Become an Active Player in Energy Sector

    Tuesday, 24 January 2012

    Journal of Turkish Weekly (JTW) conducted an exclusive interview with Saban Kardas. Saban Kardas is assistant professor at TOBB University of Economics and Tecnology in Ankara. He is also assistant editor of Insight Turkey, a quarterly journal in circulation since 1999, which is published by SETA Foundation. 

    Q: Would Turkey not be successful if it pursued its energy policy through TPAO, equipped with specific power and well-designed by the state, rather than extending state aid? In this context, is the Azerbaijan SOCAR (State Oil Company of Azerbaijan Republic) a successful model? Is it possible for Turkey’s energy policy to be changed substantially?

    A: To start with, Turkey and Azerbaijan’s energy policies are different, and will be misleading to start analysis of Turkey’s energy policies with a comparison between them. While as an energy rich producing country Azerbaijan envisions a different set of priorities in its energy policies, Turkey’s energy policy is driven by first and foremost a concern to meet its own needs. Beyond that, Turkey works to assume a role in energy policies as a transit country. The shaping of energy policies in the countries of origin on the one hand and transit countries, i.e., countries that host the transportation routes, on the other, as well as specific institutional structures they devise take place in different settings.

    Going back to the core issue raised in your question: whether Turkey should develop its energy policies by moving to a private-sector driven model or a model based on some form of state control or intervention in the market. Alongside TPAO, BOTAS needs to be mentioned in the context of transit projects. There are market pressures on BOTAS to reduce its market share. There is also a similar expectation from external players, especially the EU. Turkey is responding to these expectations and reducing state involvement but it is difficult to say that it has progressed to an extent that it can satisfy the demands coming from outside. There are different arguments made in support of the opposing models, referring back to your question. As it is sometimes underlined in the ongoing discussions in Turkey, it makes sense to reduce the element of state intervention to the extent possible. From a liberal logic, one can make the argument that a more effective and efficient system can be developed by this approach.

    However, as a counter line of thought argues, in markets regulating strategic commodities, energy being one of them, there are some reasons to adopt some degree of state-control. The key concern in Turkey is that if such a strategic commodity is left to market forces alone, it is hard to develop competitive national players. Such concerns on Turkey’s part have been underlined in the debate taking place in the energy markets. It is widely believed that as it seeks to assert its importance in energy geopolitics, Turkey has to develop large firms in order to become an active player in this field. Firms with big capital need to emerge for global competition. It is not unlikely to occur in free market conditions, but it will be difficult. The best way to do so would be to develop an energy giant with state support. For this reason, Turkey, as in the case of BOTAS, was for some time resisting the pressures to move to a free market-oriented model and retain it as a major player, despite the pressures coming from outside. Recently, as it has been brought to the public’s attention in the context of gas purchase contracts from Russia, Turkey in fact has started to reduce the monopoly over natural gas imports. Similarly, the domestic distribution grid has been privatized to a large extent. Granted, overall, Turkey is heading to a more market-oriented model. Yet, as stated by Energy Minister Taner Yıldız on several occasions, despite a market-oriented model, Turkey wants to retain a decisive capacity for the state to make critical interventions in the operation of market. This appears to be the official prognosis for the future of the state in energy market.

    Going back to the question on the SOCAR (State Oil Company of Azerbaijan Republic) model, it is early to answer this question, in the sense that the process of SOCAR’s consolidation in the market has yet to be finalized. In this context, what SOCAR is trying to do is in essence to replicate GAZPROM model of Russia, i.e., using its position as a major producer to develop projects aiming to penetrate into downstream markets and gain control over transportation and distribution networks, so that it can maximize profits. The Trans-Anatolia agreement is the most obvious example for SOCAR’s quest to play such a prominent role. Seen from that perspective, this model is not applicable to Turkey, given that Turkey does not stand a chance to become a player in the chain running from the source or producing nations to the distribution networks. So, it is hard to compare Turkey’s energy sector to SOCAR model, given the structural differences.

    Since the SOCAR model is still in the making, one has to wait and see how it will come into full fruition and whether it will accomplish its objectives. It is early to make a realistic assessment. But so far, Azerbaijan is exporting oil and gas and in addition to that it has undertaken major investments in Turkey’s energy sector. So, one can safely say that it has accomplished some progress in downstream markets as well. To sum up, in Azerbaijan, one might expect the emergence of a structure similar to the one in Russia and it has recorded some progress in that regards.

    At this point, one has to note some problems with the GAZPROM model, assuming that SOCAR also pursues a similar approach. In this model, there are debates as to the fusion of the state and business interests; i.e., political authorities shaping the economic decisions or economics dominating political decisions, all the while GAZPROM and other energy giants being at the center of these intermingling relations. If SOCAR follows a similar route to the Russian model, in the mid- to long-term, how the relationship between politics and economics will be forged and whether interest groups formed around energy industry may eventually hinder democratization and good governance are issues that beg closer inspection. If Azerbaijan might be opting for this model, such questions also need to be discussed more candidly.

    Finally, Turkey will unlikely to follow these models. As underlined, while moving toward a market-oriented model, Turkey will develop a structure that enables effective state interventions into the market, through the control of a critical share by the state.

    Q: The signing of the agreement regarding the Trans-Anatolian pipeline, which included Azerbaijan and Turkey, can be considered a blow to Nabucco on the one hand, and giving permission to South Stream might make Europe more dependent on Russia on the other. Was it a reaction against France because of the political air in recent months?

    A: Personally, I do not think the recent developments regarding pipeline projects are directly related to the Armenian allegations. For instance, France has not been particularly supportive of Nabucco. On the contrary, the French are somehow involved in South Stream, having overtaken some of the shares in the project. So, it is difficult to argue that Turkey wanted to hurt France by thwarting Nabucco. There is no such direct connection, and Turkey’s decision(s) are not intended to convey a message to Europe. Both the Trans-Anatolian and the South Stream pipelines should be assessed based on their particular conditions, as well as from Turkey’s own perspective, and how Turkey sees them in line with its priorities in energy policies.

    I don’t think Trans-Anatolia is a blow to Nabucco. Turkey is a country that has always supported the Nabucco as a strategic project and clearly has expressed its commitment. Nabucco continues to play a key role in Turkey’s objectives to become an energy hub. But there are certain structural problems in the Nabucco project itself, and unfortunately, they have not been clearly resolved so far. As is well known, uncertainty over dedicated supplies, lack of financing and lack of unequivocal purchase commitments are other major hurdles. Previously, there used to be uncertainty over the transit regime which occasionally led to crises between Turkey and the EU. Through an understanding Turkey reached with the Europeans earlier, it eliminated those problems.

    One of the drivers of the Trans-Anatolian pipeline is Azerbaijan’s quest for an independent role in energy markets, which I underlined earlier. Turkey has taken a step in support of Azerbaijan’s role. But while providing this support, Turkey also reiterated the fundamental rationale of the Nabucco, i.e., giving approval to a direct corridor from the Caspian basin to European markets traversing Turkey. Turkey hereby sent a signal and reiterated its earlier position that it will not be an obstacle to the so-called Southern corridor. There were some uncertainties regarding the future of the Nabucco project as originally envisaged, which obviously delayed its realization. There had been concerns that the original design might be overambitious and aim at unrealistically high capacity. The joint Azerbaijani-Turkish initiative now enables a reconfiguration of Nabucco in more manageable scales. It is difficult to say that this route is altogether dead, as the rationale underpinning it also is at the core of the Trans-Anatolia.

    Turkey’s support for South Stream is a separate debate, because there is a direct competition with Nabucco there. Turkey has taken similar complementary steps in the past as well. After supporting Nabucco, Turkey demonstrated that it would not be the country that prevents South Stream. In that regards, we can say Turkey has not adopted a new position. The recent moves towards Trans-Anatolia and South Stream is a continuation of the previous position in the recent context.

    Q: The energy agreement signed by Turkey in recent weeks further brought Azerbaijan and Turkey together. In the coming years, will Ankara develop an Azerbaijan-oriented policy despite Yerevan, or create its own policy regarding energy?

    A: Based on the previous discussions, it is worth emphasizing a few points. Firstly, it is difficult for Turkey to develop independent energy policies under the current conditions. If we are talking about supply security in this context, it has different implications. If we are discussing this question in the context of Turkey’s goal of becoming an energy transit corridor, it needs to be handled differently.

    If we try to answer your question in this second dimension, i.e., energy transportation, it is difficult for Turkey to develop energy policies independent of Azerbaijan in the short to medium term. For Turkey to emerge a transit corridor and develop major transit routes, the producers of oil and gas have to give their approval. Azerbaijan is the first and only viable option at this point. In this sense, the Trans-Anatolian agreement signed with Azerbaijan, and the earlier agreements signed at the High Level Strategic Cooperation Council summit between Prime Minister Recep Tayyip Erdogan and President Ilham Aliyev, finalized Turkey’s first real transit agreement in natural gas markets. Although we have been proud of becoming a hub country, so far it remained at the rhetorical level and has yet to be realized. The compromise reached subsequent to the treaty signed with Azerbaijan allows Turkey to become a natural gas transit route for the first time. In this context, it is difficult for Turkey to develop a policy completely independent of Azerbaijan.

    Apart from this, which alternative players are there? Exporting natural gas reserves in northern Iraq through Turkey has been on the agenda of the northern Iraqi leaders. However, there are problems between Baghdad and provinces as to how to use the natural resources of Iraq. The other option is obviously Iran. Tehran’s strained relations with America, among other factors, limit the ability of Iran to emerge as a major alternative for Turkey’s ambitious to become a transit hub. On the other hand, Russia does not want to market its natural gas through Turkey.

    However, it can be said that Turkey has a growing role at present regarding the oil transportation. The Yumurtalik–Kirkuk pipeline, the Baku–Tbilisi–Ceyhan pipelines or tankers through the sea lanes play an important role in the transportation corridors controlled by Turkey. Beyond these developments, Turkey also has achieved limited progress in terms of reaching its ambitions. Especially, concerning the transport of Kazakh and Russian oil through Turkey, major issues remain. In short, as of now, talking about a role independent of Azerbaijan is difficult.

    Going back to the other issues raised in the question, yes, there has been a rapprochement between Turkey and Azerbaijan. Particularly, the current government’s policy is in favor of close relations with Azerbaijan and we might expect the continuation of this policy. There is no reason for Turkey to give up its Azerbaijan-oriented policy in the upcoming years, especially if the economic partnership continues to deepen between them, as is the case currently. These ties between Turkey and Azerbaijan, in a sense, create disincentives for a possible rapprochement between Armenia and Turkey. For Turkey to be drawn into normalization process, the Armenian side, in its approach towards Turkey, has to understand that there is not only an emotional dimension in the Turkish-Azerbaijani relationship, or a strategic dimension, but there is also a very strong economic dimension. It would be advisable for Armenia to consider its position on Turkey by taking into account these various angles.

    Tuesday, 24 January 2012

    Journal of Turkish Weekly

  • Analysis: Turkey helps pull the rug from under Nabucco

    Analysis: Turkey helps pull the rug from under Nabucco

    By Ferruh Demirmen, Ph.D.
    Houston, Texas

    Judging from the press reports, one would not know it, but Turkey, the presumed supporter of the Nabucco gas project, recently helped kill the project.

    It was not to be so. After all, the Nabucco project was designed not only to supply natural gas to the EU from the Caspian region and the Middle East, but also help Turkey meet its domestic needs. The intergovernmental agreement signed in Ankara amid media publicity in July 2009, followed by parliamentary seal of approval in March 2010, gave all the indications that Turkey would stand by the project.

    Turkey’s BOTAS was one of the 6 partners that developed the project. The Vienna-based NIC (Nabucco International Company) represented the consortium formed by the partners. The 3,900 km-long pipeline’s planned destination was Baumgarten in Austria.

    Not that the project was ideal for Turkey (). But compared to its rivals ITGI (Italy-Greece Interconnector) and TAP (Trans-Adriatic Pipeline), not to mention a host of “exotic” Black Sea options flagged by Azerbaijan, it was the most mature and most comprehensive gas pipeline project to connect Turkey and the EU to the supply sources to the east. Strategically it deserved Turkey’s support. It was the only project among its rivals that aimed to transport Azeri as well as non-Azeri gas. Turkmen gas was a high-priority objective.

    Surely, with its ambitious design capacity of 31 billion m3 (bcm)/year, Nabucco was under stress. What was holding the project from implementation was the lack of feed (throughput) gas. The feed gas problem caused delays in the project, and the capital costs soared (up to EUR 14-15 billion by most recent estimates). The Azeri Shah Deniz-II gas was identified as the initial start-up gas as from 2017-2018.

    But Azerbaijan, that owned the gas, and the Shah Deniz consortium that would share and produce it, were non-committal about supplying gas. That meant major headache for Nabucco. Turkmen gas input required the cooperation of Azerbaijan, and would be added to the gas stream at a later date.

    In the meantime, the rival projects ITGI and TAP emerged. Like Nabucco, these also counted on Shah Deniz-II gas for throughput. A winner-take-all pipeline contest was in the works.

    Still, Nabucco had a good fighting chance. On October 1, 2011, NIC submitted its proposal to the Shah Deniz consortium tabling transport terms. The rival projects ITGI and TAP did the same. A high-stakes waiting game would then start, during which the Shah Deniz consortium would pick the winner.

    The spoiler project

    All that changed when BP (British Petroleum), at the last minute before the October 1 deadline, came up with a new, “in-house” project: SEEP (South-East Europe Pipeline). It was a shrewd move, and immediately caught the attention of the Shah Deniz consortium – where BP is the operator and a major (25.5%) stake holder. The Azeri partner SOCAR, in particular, quickly warmed up to BP’s proposal.

    Instead of building a new pipeline across the Turkish territory, SEEP envisioned the use of BOTAS’ existing network (with upgrades) in Turkey and construction of new pipelines and their integration with existing interconnectors past Turkey. Azeri gas would be the feed gas. The destination would still be Austria, but the cost would be much less than that of Nabucco.

    Nabucco had come under threat.

    Behind the scenes

    Events behind the scenes further undermined Nabucco. On October 25 Ankara and Baku signed an intergovernmental agreement in Izmir in western Turkey. Details released to the press were sketchy, but one of the accords reached was to use initially BOTAS’ existing network in Turkey, and later build a new pipeline when needed, to ship Shah Deniz II gas to Turkey and the EU. Starting in 2017 or 2018, of the total 16 bcm gas to be produced annually from the Shah Deniz-II phase, Turkey would receive 6 bcm, and the rest 10 bcm would be shipped to the EU.

    Azerbaijan would be the direct seller of gas to the EU, with Turkey being a mere bridge or transit route.

    No mention was made of Nabucco, ITGI, TAP, or SEEP in the press release, but the footprints of SEEP were unmistakable.

    Demise of Nabucco

    Still worse news followed. On November 17, during the Third Black Sea Energy and Economic Forum held in Istanbul, SOCAR chief Rovnag Abdullayev announced that a new gas pipeline, which he named “Trans-Anatolia,” would be built in Turkey from east to west under the leadership of SOCAR. The new pipeline would deliver Shah Deniz II gas to Turkey and Europe.

    Azerbaijan and Turkey had already started working on the pipeline project, he said, and others could possibly join later. The planned capacity was at least 16 bcm/year –large enough to absorb all future Azeri exports after depletion of Shah Deniz II.

    While not stated so, the announcement made Nabucco effectively redundant. The announcement was an offtake from the Izmir agreement, and signaled a surprising, 180-degree turn on the part of Turkey on Nabucco.

    Turkey’s energy minister Yildiz Taner tried to put the best face in the press by claiming that Trans-Anatolian would “supplement” Nabucco, while the NIC chief Reinhard Mitschek expressed his “confidence” in Nabucco.

    More recently SOCAR’s Abdullayev maintained that Nabucco was still “in the race,” and NIC started the pre-qualification process for procurement contractors.

    For all these business-as-usual pronouncements, however, there was little doubt that Nabucco had received a fatal blow. If Trans-Anatolia, dedicated to Shah Deniz II gas, is built, Nabucco will lose its start-up gas, and with it the justification for a new infrastructure across Turkey.

    Without synergy from the Azeri gas, a full-fledged Nabucco project dedicated solely to Turkmen gas will also have a virtually zero chance of implementation.

    Nabucco, in its present form, was dead. (See also . A much-modified, “truncated” version of Nabucco, starting at the Turkey-Bulgaria border, may well emerge, however.

    Conclusion

    With Nabucco frozen in its tracks, the geopolitics of energy in Turkey and its neighborhood has changed dramatically ). What is surprising is that Turkey assisted in undermining a project that it had long supported. It was a project that encompassed both Azeri and Turkmen gas. To reduce its dependence on Russia for its gas exports, Turkmenistan has been eager to ship its gas to the West.

    Azerbaijan, apparently viewing Turkmen gas exports to the West a threat to its own gas exports, has been reluctant to cooperate with Ashgabat on this issue.

    Turkey acceded to the aspirations of the Azeri brethren, while ignoring those of the Turkmen brethren. Over the past year, as the EU delegates approached repeatedly Ashgabat for Turkmen gas (vis-à-vis a TCGP or Trans-Caspian Gas Pipeline), Turkey chose to stay on the sidelines. This was a strategic mistake.

    Both Baku and Ashgabat could benefit from a synergy between the Azeri and Turkmen gaz exports, and Turkey could use gas from both sources to enhance its energy security. Being pro-active on TGCP and nudging Azerbaijan in that direction would have been a wise move for Turkey. On balance, there is little doubt that on the gas issue Azerbaijan has played its cards well – perhaps too well!

    ferruh@demirmen.com

  • Turkey Pursues Mixed Aims Over Supply Contract Cancellation With Russia

    Turkey Pursues Mixed Aims Over Supply Contract Cancellation With Russia

    Turkey Pursues Mixed Aims Over Supply Contract Cancellation With Russia

    Publication: Eurasia Daily Monitor Volume: 8 Issue: 182
    October 4, 2011
    By: Saban Kardas
    After the failure of Turkey’s apparently last-ditch effort to renegotiate the price for Russian gas, Turkish Energy Minister Taner Yildiz announced Turkey would not renew the supply contract through the “Western pipeline,” scheduled to expire at the end of the year. The contract was originally signed in 1986, which was a major turning point for Turkish-Russian relations, as Turkey went ahead with this deal in Cold War conditions. Since then, Turkey’s energy ties with Russia have flourished, in parallel with the overall improvement of bilateral relations.

    Under the contract, Turkey imports 6 billion cubic meters (bcm) of gas through the Balkans, which is distributed in Istanbul and the surrounding areas. Turkey also has other supply agreements with Gazprom through the same pipeline and the Blue Stream pipeline, and additional supply agreements with Azerbaijan and Iran, as well as importing LNG from Algeria and Nigeria. Granted, Turkey’s imports from Russia account for almost two-thirds of its total gas consumption.

    In addition to its concerns over the strategic liability generated by this overdependence, Turkey has raised several demands vis-à-vis Gazprom for some time. Ankara has confronted the problem of over-contracting, which emerged as a major issue following the contraction of its energy consumption in the wake of the global financial crisis. As Turkey had to incur penalties resulting from take-or-pay provisions, it has been demanding an easing of the supply terms. Moreover, given the calculation indexes linking gas and oil prices, Turkey, along with other importers, has been complaining about the hike in its energy bills. Again, Turkey’s demand for price revision has largely fallen on deaf ears, which became an issue during Turkish Prime Minister Recep Tayyip Erdogan’s trip to Moscow earlier this year. His Russian counterparts only deferred the issue for further discussion (EDM, March 18).

    The parties were expected to notify their decision for the cancellation of the 1986 agreement six months prior to the expiration date, or it would be renewed automatically. Gazprom responded positively to Ankara’s request for the postponement of the date for notification to the end of September. Gazprom’s concession to Italy’s ENI in a similar plea partly encouraged BOTAS to expect a similar outcome (Sabah, July 25). Yet, Gazprom, instead, raised the price in its quarterly revision (Radikal, August 10).

    While an agreement was not forthcoming in the lingering talks and the deadline was approaching, Yildiz threatened not to renew the contract, citing a 39 percent increase in prices over the last 29 months. In a swift reaction, Gazprom officials downplayed the minister’s remarks, arguing that they received no confirmation to that effect from BOTAS, which was their partner in Turkey (Hurriyet, September 29; EDM, September 30). However, Gazprom officials apparently undervalued some nuances: after all BOTAS was a public corporation and the Turkish government was very sensitive to energy issues, not to mention the fact that Turkey’s concerns were long on the agenda.

    With the Russian side’s failure to meet the expectation for discounts, Yildiz announced that BOTAS conveyed to its partners the decision to end the contract (Anadolu Ajansi, October 1). While the decision seems to halt about 15 percent of Turkey’s supplies, Yildiz sought to allay concern that it might lead to gas shortages, citing the ongoing supply contracts with Russia and other countries, as well as the import contracts signed by the private sector. Alexander Medvedev, the Director-General of Gazprom Export, also confirmed this development, noting that Gazprom will continue to supply the same volume to Turkish end-users through existing and new customers, including those from the private sector (www.cnnturk.com, October 3).

    This development was possibly sparked by various interrelated considerations, which is hidden in Yildiz’s remarks. First, there seems to be strategic reasoning. Through this move, Turkey wants to send a signal that it is determined to break its over-reliance on natural gas (especially for electricity generation) on the one hand and Russian gas on the other. It is instructive that Yildiz explained in detail how Russia was unresponsive to Turkey’s demands for price revision for a long time, and added that with this move Turkey demonstrated that it was not devoid of options for supply diversification. Granted, for Turkey, Gazprom has been a reliable supplier and will likely remain a major supplier in the years to come. Given that Yildiz also acknowledged that point and added that the private sector would likely sign new contracts with Russia, it seems that this move largely seeks to enhance Turkey’s bargaining position in the future.

    A second and related point suggests that this development is driven by Turkey’s ongoing project of liberalizing its energy markets. In particular, the Turkish government has been criticized for its slow pace in decoupling BOTAS’s transportation grid and its monopoly on imports. Private companies have already secured supply contracts in some instances, and it was reported that Gazprom did not concede to the transfer of contracts to private importers. With this decision, the government hopes private companies will take over the contracts with Gazprom, hopefully on more favorable terms, while simultaneously reducing BOTAS’s market share, which is also a requirement the EU has put before Turkey. It remains to be seen, however, if this move will enhance Turkey’s bargaining leverage vis-à-vis Russia and other suppliers. There is reason to doubt whether private companies bidding for smaller volumes of gas will be able to gain a better bargaining power than what BOTAS has accomplished so far vis-à-vis Gazprom.

    Third, the decision seeks to contain BOTAS’s losses, which has been selling gas to domestic consumers below its actual costs. On the same day that Yildiz announced the termination of the contract, BOTAS issued new prices for residential and industrial consumers, which implied price hikes of over 10 percent. While BOTAS cited the declining value of the Turkish Lira and increases in gas prices in international markets, this major price adjustment came as a shock to consumers. Instead of paying for unused gas, BOTAS had kept the prices constant in order not to curb consumption. The latest price hike, accompanied by efforts to reduce BOTAS’s market share and its take-or-pay obligations, seeks to improve the company’s financial standing, which has been running huge losses due to such practices in gas sales. But Turkish consumers – who became accustomed to this indirect subsidy – are unlikely to welcome the development.

    https://jamestown.org/program/turkey-pursues-mixed-aims-over-supply-contract-cancellation-with-russia/
  • Bulgaria Gives Up on Trying to Make Gas Pipe to Turkey Part of Nabucco

    Bulgaria Gives Up on Trying to Make Gas Pipe to Turkey Part of Nabucco

    The Bulgarian government is no longer trying to make the future gas interconnection between Bulgaria and Turkey a section of the EU-sponsored gas transit pipeline Nabucco, Economy Minister Traikov announced.

    photo verybig 129614

    The gas pipeline connecting the natural gas networks of Bulgaria and Turkey could be ready by 2014, and through which Bulgaria could be receiving up to 5 billion cubic meters of natural gas per year, Bulgaria’s Minister of Economy, Energy, and Tourism Traicho Traikov told the Members of Parliament on Friday.

    Back in 2010, Traikov was convinced that the future Bulgaria-Turkey gas interconnection would become “the first operational section” of the Nabucco pipeline. The idea was endorsed in the fall of 2010 by the Prime Ministers of Bulgaria and Turkey Boyko Borisov and Recep Tayyip Erdogan, the rationale being that the two countries could thus be entitled to use EU funds for the missing gas network link.

    On Friday, however, Traikov admitted that the Bulgarian Economy Ministry is no longer pursuing this project – which means that the Bulgaria-Turkey gas interconnection will not coincide with Nabucco’s pipe – because this would make the launching of the Bulgaria-Turkey pipe “expensive and slow.”

    Bulgaria’s decision to give up on merging of Nabucco and the Bulgaria-Turkey pipeline comes after in May 2011, Nabucco Gas Pipeline International GmbH pushed back the start of construction of its EUR 7.9 B pipeline to carry Caspian natural gas to Europe to 2013; thus, Nabucco is now expected to start operations in 2017 instead of 2015, as previously expected.

    Traikov’s announcement about the gas interconnection with Turkey comes a day after his meeting with his counterpart from Azerbaijan Natiq Aliyev, who confirmed that Azerbaijan can start shipping to Bulgaria about 1 billion cubic meters of natural gas per year as soon as the gas links between Bulgaria and Turkey, and Bulgaria and Greece are completed.

    On Thursday, Bulgaria’s state-owned gas company Bulgargaz replaced the CEO of its subsidiary Bulgartransgaz, one of the major arguments for the change being the need to speed up the construction of the Bulgaria-Turkey gas pipe.

    The working group of the Bulgarian government has concluded that the best option for the Bulgaria-Turkey gas interconnection would be if it is built by Bulgartransgaz and Turkey’s state company Botas.

    via Bulgaria: Bulgaria Gives Up on Trying to Make Gas Pipe to Turkey Part of Nabucco – Novinite.com – Sofia News Agency.