Year in review: Turkish power and gas

Source: Heren


Turkish energy companies struggled with uncertainty throughout 2017 as a combination of bullish fundamentals and the record depreciation of the Turkish lira left the gas and power markets in disarray.

This meant that by the end of the year some electricity trading outfits, particularly those with end-consumers in their portfolios closed down their activities, while others in the gas sector were facing similar threats.

Gas supply crisis

The year started off with a gas supply shortage as demand spiked over an extensive period of cold weather.

The arrival of Turkey’s first floating storage and regasification unit (FSRU) in the Aegean Sea at the beginning of January did little to alleviate the soaring consumption. To plug the pipeline supply shortfall, the incumbent BOTAS purchased 24 spot LNG cargoes which were delivered in addition to its contractual LNG volumes between November 2016 and March 2017, as opposed to only 18 spot LNG cargoes delivered between November 2015 and March 2016.

To guarantee the supply of gas to households, the gas and power grid operators, BOTAS and TEIAS, ordered power plants to reduce their consumption or switch to secondary fuel by as much as 50%.

The curtailment lasted for the greatest part of January and February, forcing power prices well above Turksih lira (TL) 200.00/MWh (€43.50/MWh) for 10 days at the end of January. To compare, the January ’17 Baseload price was last assessed by ICIS at TL167.50/MWh.

Electricity prices

The Turkish electricity market continued to remain bullish even at the end of winter, amid ongoing high consumption and generally dry weather conditions, which lifted values throughout the year.

Demand spiked to an all-time-high of 970GWh at the end of July, although hydro generation, which could have softened the impact of high consumption on prices remained reduced compared to the previous year.

Average daily hydro generation stood at 157GWh in 2017, compared to 182GWh in 2016.

To compensate for the shortfall in hydro output, gas-fired generation had been ramped up to a daily average of 312GWh, 68GWh higher than in 2016.

The bullish factors pushed up electricity delivery prices to an average TL164.00/MWh, an 18% increase on the last assessed ICIS Cal ’17 Baseload price.

The increase squeezed retailers who typically buy electricity from the free market and sell to end consumers as the price of power on the exchange or on the over-the-counter market started to exceed the price of regulated tariffs that companies could sell at.

As a result, some companies either decided to downsize their operations, or to wind them down altogether, causing trading activity to slow down on the OTC market.

Currency woes

Market difficulties were further compounded by the record depreciation of the Turkish lira which lost more than a tenth of its value against the US dollar over a year, squeezing both electricity companies which had taken out US dollar or euro-denominated debt and gas companies which were buying natural gas in US dollars but had to sell volumes at regulated tariffs in Turkish lira.

As the gap between gas costs and retail tariffs widened, gas companies were contemplating in the final weeks of the year the possibility of returning their long-term contracts with customers to the incumbent BOTAS in a bid to avoid multi-million dollar losses and widespread bankruptcies in 2018.

However, BOTAS refused to mop up the volumes held by private gas companies at a price that would have reflected their import costs and possibly operational expenses.

It proposed instead to cover half of gas-fired generators’ needs at the regulated tariff of TL763.62/kscm, while the remaining half would be supplied at a higher tariff.

Private gas companies could in theory cover the upper half of generators’ demand, but risks related to further currency depreciation as well as imbalance costs were deterring the latter from purchasing the gas.

As a result it was expected that private gas companies would either reduce their imports in 2018, or sell the gas to BOTAS on a spot basis.