The new natural gas discovery coincided with the time when Turkey was making the necessary market preparations for the impending renegotiation of long-term gas sales contracts with its current suppliers. The measures have been directed to structural changes in the market and its long-awaited liberalisation through freeing it from long-term contracts (LTCs), oil-linked prices, Take or Pay (ToP) obligations and destination clauses. The current market situation created by the pandemic, with the gas price falling below US$2/mmBtu in the major European liquid hubs and a surplus of both LNG and pipeline gas elsewhere in the world, will only accelerate this transition to a free, open, and transparent market. Turkey has long been unhappy with the relatively high prices it pays for gas, compared to the rest of Europe, and wants to move away from the linkeage to oil and oil products. It has traditionally purchased gas on long-term, oil-price-related contracts and the government has taken all the price-related risk by subsidizing the BOTAŞ gas price for the population, justifying it with security of supply.
Turkey’s new, present natural gas strategy is timely and coincides with the situation that all LTCs with the current pipeline suppliers will expire in the 2020s. In 2021 alone, 16 bcm/year of LTCs will expire, of which 8 bcm/year is Gazprom gas, half imported by BOTAŞ, and the other half by seven private sector importers. Consequently, the year 2021 is expected to be crucial in terms of market restructuring, with the new contracts expected to have more flexible and competitive terms, as has long been anticipated. Gazprom has already suffered from the situation of low spot gas prices and decreasing sales volumes as a result of demand stagnation; it has already lost 30% Turkish market share since 2017.
Current long-term contracts with its pipeline and LNG suppliers have prevented such changes, although it has made some spot LNG purchases, and so far Turkey has failed to achieve better contractual conditions, as most European countries and companies did. Oil indexation, which still exists in Turkey’s natural gas pricing, destination clauses, and ToP, have hindered the ability of BOTAŞ and private sector importers to re-export unwanted volumes to neighbouring markets when faced with falling demand, high stocks and limited gas storage. ToP and oil indexation have made supply less responsive to demand shocks and falling prices, but have also long delayed liberalisation in this, Europe’s second biggest natural gas market.
For Turkey having its own gas will give it more flexibility in import volumes; it will straighten its hands in the negotiations. Turkey feels confident in adopting an assertive position in negotiations with Gazprom and other suppliers because it has significantly strengthened its position thanks to the strategy of doubling the daily entry-point gas send out capacity. This has included increasing LNG import capacity but also decreasing import demand by significantly increasing the share of domestically produced energy such as coal, lignite, wind, solar, and hydro. This policy has borne fruit; the country produced 66% of its electricity from local and renewable resources in the first five months of 2020, and 62.08% from January through July this year, according to the data from the Energy and Natural Resources Ministry. Turkey is approaching its goal of producing almost 66% of its electricity from local and renewable sources annually
, thereby reaping the fruits of long-term investments in renewable energy deployment
. May 20th was a historic day, because 94% of the country’s electricity was generated from domestic sources.
Turkey wants to become self-sufficient in energy, and domestically produced energy can help to wean the country from natural gas import dependence.