With TANAP and TurkStream, Turkey will gain spare capacity for extra gas imports from new sources and for future re-exports
Turkey's new supply sources with new TANAP and TurkStream natural gas pipelines will help supply security and help meet demand surges in line with the Turkish government's energy policy to diversify sources, according to the latest report of the Oxford Institute for Energy Studies (OIES) on Thursday.
The Gas Supply Changes in Turkey report written by Gulmira Rzayeva, a fellow in the OIES discerned that the Turkish government is in the process of making significant structural changes to the country’s energy sector and the country expects two natural gas pipeline projects to be operational in the near future.
The report said that with the development of TANAP and TurkStream, Turkey for the first time ever would effectively become a key transit route for the southeast European gas market.
"On the other hand, it appears that Turkey, with its close collaboration with Moscow, is conducting a policy of 'the enemy of my enemy is my friend' vis-a-vis the EU, given the existing tensions between Ankara and Brussels," it claimed.
The report said that with TANAP, Turkey would gain from its important transit role for the EU and its weight will only increase if and when TANAP is operating at full capacity given the strong political support of the EU and also the U.S. In contrast, Ankara may face U.S. sanctions if it continues to support the Russian TurkStream project, along with strong opposition from Brussels and impaired relations with Ukraine.
The report said that Turkey is investing billions of dollars in the expansion of its gas infrastructure capacity to balance demand fluctuations, diversify supply sources, lessen its dependence on Russia, and become an important natural gas exporter in the next ten years, with the aim of increasing its political weight in the region.
As of today, the country’s maximum daily entry point send-out capacity during the peak season is 260 million cubic meters per day, whereas the infrastructure capacity is almost doubling to more than 473 million cubic meters per day.
"Given that the country’s gas demand is projected to be around 55–56 billion cubic meters by 2025, around 300 million cubic meters per day of spare capacity will remain for export," it explained.
The OIES report also noted that with the construction of the two new international pipelines - TANAP and TurkStream - Turkey will have spare capacity to import extra gas from various new sources and re-export gas in the future.
- The government's energy policy
The report said that in particular, the government is planning to reduce its reliance on gas in the share of the energy mix for power generation mainly due to commercial and strategic concerns on over-reliance on natural gas imports. However, the report noted that Turkey aims to have more control over its gas market by freeing the market away from oil-indexed gas price contracts to a more fluid daily gas-to-gas indexation and to place more emphasis on expanding the required infrastructure for the storage of gas, namely LNG, through the application of more floating storage and regasification units (FSRUs).
"Because of previous rapid growth in gas consumption for electricity production - the biggest natural gas consumption sector in the country, gas demand growth projections have, in the past, been high," the report said.
"Thus, gas demand growth is not determined by BOTAS [Turkey's state-owned crude oil and natural gas pipeline and trading company] but by the power production sector, and for this reason the government has been implementing a successful policy of reducing the share of natural gas in the power generation sector and substituting it through a scheme to support locally produced energy resources."
The report read that the first stage of Turkey's energy strategy involves a policy of decreasing Turkey’s absolute dependence on the major single gas supplier – Russia - that provides 53 percent of total gas imports.
The OIES said that Turkey also intends to lessen its dependence on current import and transmission infrastructure capacity, which is constrained and cannot meet gas demand in peak periods. Turkey will diversify supply sources and the type of gas imports to ensure imports are available from a wider range of available sources on competitive terms, and at the same time storing more gas in the country once downstream infrastructure capacity allows.
"Stage two is to shift from an energy sector based mainly on imported natural gas to an integrated energy industry based on local resources such as coal and renewables, a move strongly supported by the government. This will lessen dependence on external suppliers, and help develop the industrial sector, employment, and the economy," it said.
The third stage is to become a natural gas trading center, trading the excess gas that Turkey will have access to as a result of the implementation of stages 1 and 2.
The report explained that BOTAS expects its maximum daily gas supply capacity to almost double by 2023, from the current 252 million cubic meters per day to 473 per day as new projects come on stream, adding that this will extend the country's ability to import gas from various sources by eliminating technical constraints.
It said that by doing so, Turkey intends to ensure supply security during the peak demand seasons and to reduce its dependence on existing suppliers, allowing it room to maneuver between them and other new options.
"Turkey is also expanding capacity at its existing LNG receiving terminals and building new FSRUs, taking advantage of the fact that this method of importing natural gas is available in a flexible and near immediate manner. This will give BOTAS and private companies an advantage in meeting the growing demand in winter time, instead of having to increase annual pipeline contract quantities due to the application of “take or pay” clauses," it stressed.
The report also said that Turkey is creating a wholesale spot market within its electricity sale platform – EPIAS that will enable shippers to trade gas on a daily basis.
"The biggest contribution of this new market design could be pricing – the ability of EPIAS to price gas in international gas contracts with gas-to-gas indexation rather than fixed to oil and oil product prices leaves it vulnerable to international oil price fluctuations. Obviously, in order to incorporate the EPIAS price in long-term contracts there must be transparency, trust, liquidity, and a free market and it will take time to reach that point," it said.
"Whether this initiative will be successful remains to be seen but clearly it is one of the targets the government wants to achieve," the report said.