LONDON (ICIS)--The Turkish gas incumbent BOTAS is negotiating a mid-term contract with Russia’s Gazprom amid expectations of record gas demand this year, a source close to the discussions told ICIS.
The state company is asking for a three-year contract and annual volumes may be at least 4 billion cubic metres, the source said.
Turkey’s energy minister and Gazprom’s chair of the management committee Alexey Miller met on 20 September to discuss the issue, but the parties are yet to reach an agreement.
There are expectations that negotiations would resume when the Turkish president Recep Tayyip Erdogan travels to the Russian Black Sea resort, Sochi on 29 September.
It is unclear what prices are being discussed, but it is possible that Turkey may be asking for a discount on the existing oil-indexed price amid expectations that Russia may have already amortised its investments on the TurkStream pipeline, which transports gas to Turkey via the Black Sea.
Russia may be expected to propose a hub-indexation element as European hub prices are now reaching record levels and Turkey has recently negotiated a contract with Azerbaijan at a price linked to the Italian PSV hub.
Neither Gazprom nor BOTAS replied to questions from ICIS.
Turkey’s 4 billion cubic metres (bcm)/year contract with Gazprom for gas delivered on the 15.75bcm/year TurkStream1 pipeline expires this year.
However, by June BOTAS had already off-taken the 4bcm/year as demand soared and is expected to reach a record 60bcm/year this year.
Turkey has been ramping up its gas-fired production to compensate for falling hydro levels caused by drought.
The volume that it is currently still receiving via TurkStream1 are thought to be make-up gas for volumes that were not off-taken last year.
Turkish-Russian discussions are also thought to relate to private importers. Four independent companies hold import contracts which amount to a total of 4bcm/year. The contracts are due to expire this year.
Three sources told ICIS discussions were complicated by the fact that some of the independent importers have an outstanding debt of $2.5bn which they owe to Gazprom in an arbitration award, as well as volume which they did not off-take in recent years.
As a result, some of the existing independent companies may no longer enter negotiations for contract renewals and could be replaced by new Turkey-based companies such as Demiroren, Gama, Kalyon, Ronesans.
Gazprom is reportedly asking to receive treasury or BOTAS guarantees for these companies before signing a new deal.
It is unclear whether such a request may be fulfilled under existing Turkish legislation.
The need to secure natural gas is becoming more pressing as winter approaches.
BOTAS has reportedly launched a buy tender for 20 LNG cargoes for delivery between October ’21-April 2022, after securing between 20-25 cargoes in August and nine in July for delivery over the winter months.