Turkey’s independents consider LNG consortium

Turkey’s independent gas companies are considering forming an LNG buying consortium to procure cargoes via the EgeGaz-operated Aliaga LNG terminal, sources in the country said.

The consortium could include as many as four companies. The main issue facing independent buyers is the ability to absorb an entire LNG cargo within 10 days as the operator of the terminal requires. No single independent buyer is capable of moving such large volumes at present into the downstream market, but the potential consortium could include companies that deliver gas by pipeline and truck.

The move largely comes on the back of the Turkish governmental directive that forces the incumbent gas importer BOTAS to purchase no more than 80% of take-or-pay volumes on the gas it imports from Russia. Russia’s state-owned producer Gazprom is the largest supplier of gas to the Turkish market.

This directive follows a political and commercial dispute whereby Gazprom on unilateral basis cancelled a discount embedded into long-term contract. The new price, which is understood to be an increase of slightly more than 10%, is not being paid by the Turkish importers, so Gazprom, in turn, reduced the volume of gas exported to Turkey. This has resulted in unprecedented levels of spot LNG buying by BOTAS.

Given the bearish price environment on the global LNG markets, it could make commercial sense for the Turkish independents to source LNG rather than buy gas on the wholesale market or from BOTAS.

The lowest gas contracts available for the upcoming summer range between US$190-200 per thousand cubic meters ($5.27-5.55/MMBtu). A summer cargo for delivery to Turkey can be secured in low-$4.00s/MMBtu, a seller active in Turkey said. The potential importers would need to lock in their margins after regasification and transmission.

“At the moment, importing spot LNG cargo works out with a slight profit margin,” the market source in Turkey said.

Summer, however, offers a better opportunity window as LNG prices are expected to drop further, while pipeline gas import prices in Turkey are linked to crude oil and products and undergo quarterly adjustments. However, the source in Turkey also said that BOTAS could reduce its wholesale gas price.

There is also significant risk of importing US-dollar denominated volumes and selling them on Turkish-lira basis. While there is currently no deep derivative market now to control currency risk exposure in Turkey, traders said, some downstream contracts have been denominated in US dollars as well.

ICIS currently assesses Turkey’s LNG prices at a $0.60/MMBtu premium to UK’s NBP market for delivery in April and $0.30/MMBtu premium for delivery in May.

While BOTAS typically bids for a cargo either on fixed-price or Brent-linked basis, the sellers view the Turkish market as an opportunity cost of theoretically diverting Atlantic Basin-sourced cargo away from a hub. With exception of volumes sourced from Qatar’s RasGas, Turkey has been sourcing spot volumes from the Atlantic basin, including Trinidad, US Gulf, Nigeria and Norway, ICIS analytical platform LNG Edge shows. roman.kazmin@icis.com