Turkey’s year started with an increase in market share by private importers following a second contract release for 6 billion cubic metres (bcm)/year initiated by the incumbent BOTAS a few months earlier.
A total of 10bcm of Russian gas was being imported by seven private companies through the Western Pipeline. Meanwhile, the Turkish arm of the Azerbaijani oil and gas incumbent SOCAR was allowed to import 1.2bcm/year as part of a volume transfer from BOTAS’s own 6.6bcm/year long-term contract with Azerbaijan.
Some sources expected contract and volume transfers would help to increase liquidity on the spot market, as private importers would set aside some free volume after selling larger portions under long-term contracts.
But demand was rather muted as the weather proved surprisingly mild during the cold season. Even so, BOTAS entered the spot market, purchasing large volumes from private shippers throughout the winter season.
By June, BOTAS returned as a buyer to the spot market and sources said the incumbent may have bought as much as 1.5bcm throughout the summer.
Moving on and in sharp contrast to the previous months which saw above-average temperatures in winter and relatively cool weather in the summer, keeping a lid on demand, December took the market by surprise.
A cold front in the first half of the month put a strain on the gas system. Consumption soared to record levels above 200 million cubic metres (mcm)/day, although the physical capacity of the system hovers around 195mcm/day.
The ministry of energy reportedly instructed BOTAS not to turn off the supply of gas to households, but instead asked power plants either to switch to fuel oil if they had that option or to halve their gas consumption. This led to 22-month high electricity prices on the exchange PMUM and record spot gas prices.
Lira woes, but OTC progress
While subdued demand throughout the greatest part of the year kept a lid on liquidity, the ongoing depreciation of the Turkish lira pushed up spot prices late in 2013 with the expectation of further gains in the New Year if the devaluation continues.
The Turkish currency had lost around 18% against the US dollar over the last 12 months hitting private shippers particularly badly. This is largely because of a widening gap between the purchase price and a reference value set by BOTAS at which they sell domestically.
Despite the challenges posed by the devaluation of the currency, the Turkish gas market saw some progress particularly on the OTC front.
In January 2013 ICIS became the first company to start assessing spot and balancing gas prices, helping to bring transparency and standardisation to the market. Eleven months later, Istanbul-based brokers VOLT also entered the market, announcing the first ever brokered gas deal for a total of 100,000 cubic metres at a price of TL776.00 (€264)/thousand cubic metres (kcm).
Amendments to the gas market law
On the legal front progress was rather slow as far as amending the Natural Gas Market Law was concerned. A series of proposals were mooted in 2012 including the unbundling of the incumbent BOTAS into at least two outfits and the phasing out of the subsidies system, but the recommendations have not progressed beyond that stage. This is largely because the parliament which was due to debate the law gave priority to the Electricity and Petrol Market Laws, postponing discussions on the gas market to an undefined date.
As the year draws to a close, shippers are preparing for the launch of a much-needed balancing market. Simulations are to start on 1 January and will continue for an indefinite period of time.
Gas pipeline operator BOTAS will be expected to introduce by March new software on its electronic bulletin board, a platform that companies say will host the settlement of the balancing price.
The regulator, which spearheads the balancing market project, could not confirm how exactly the tests would be carried out, but shippers said they were likely to be asked to submit bids and offers in excel sheets on a daily basis.
A source from a private company said the price was likely to be calculated as a straightforward average of the daily price quotations, although the regulator could not confirm the details.
More sources of supply
With annual demand expected to reach 48bcm in 2013, the need for gas remained a constant preoccupation of the government. Even as the year made its debut ministers started their courtship of gas producing countries.
Algeria, Qatar, Yemen were approached for LNG while northern Iraq remained a favourite, as Turkey expects to import some 10bcm/year by 2016 from its neighbour. At the end of the year it emerged that the newly-named state-owned Turkish Energy Company would be working with US ExxonMobil to develop oil and gas block in northern Iraq which include Arbat, Choman, Hindren, Pulkhana and Jabal Kand.
There were also hints of a warming up in the relationship with Israel following a political spat in 2010 as one of Turkey’s largest energy companies, Turcas, applied for a licence to build a $2.5bn, 470km pipeline for gas from Israel to Turkey.
Finally, towards the end of the year it was revealed that Bosphorus Gaz, one of Turkey’s largest private importers of Russian gas was expecting to increase its portfolio by adding some 0.9bcm/year of Kazakh-sourced gas from 2014.
The application by the company owned by Gazprom Germania had caused concern among other shippers who feared that the importer would purchase the volumes at prices between $290.00-310.00/kcm and sell on the volumes which can be scaled up to 3bcm/year by 2016 to BOTAS at prices reportedly between $350.00-370.00/kcm for a period of three years.
Sources interviewed by ICIS said the imports would undercut everyone else in the market, particularly at a time when the depreciation of the Turkish lira is putting the market under severe strain. The regulator EPDK was thought to have expressed concerns related to competition issues as well as concerns linked to capacity constraints on the Western line which is expected to carry the volumes at least in a first phase. However, the watchdog could not make any comments.
The government was equally concerned about new infrastructure projects ranging from building compressor stations to help remove bottlenecks, particularly in eastern Turkey, expanding or building new storage facilities and introducing a much-needed SCADA software to handle real-time flow data and ensure the balancing of the system.
A much-expected event was the completion of the Erzincan compressor station in northeastern Turkey. The station has a capacity of 2mcm/day and is a key feature of the Turkish system because it allows BOTAS to pump gas from Azerbaijan and Iran westwards to the country’s high-consumption areas. Although it was completed towards the end of the summer, it was still idle by the onset of the cold season in December following a payment dispute between BOTAS and the contractors. Two units were put in operation in the second half of December and were expected to be functional throughout the peak winter season.
The final investment announcement for the export of Caspian gas from the second phase of Azerbaijan’s Shah Deniz project included news that Turkey was expected to increase its share in the Trans-Anatolian pipeline that will carry the volumes to Turkey and Europe once they become available in 2018. Turkey’s stake is 20% but it can increase as Shah Deniz partners Statoil and Total may offer some shares. Aura Sabadus