GLM COMMENT: Will Turkey’s gas projects bring more certainty to its market?

ICIS’ Sinan Ozcan, who started his career at BOTAS in 2005, describes Turkey’s gas market development and questions its next steps

LONDON (ICIS)–Turkey is preparing for a number of landmark energy achievements, which include the start of Black Sea gas commercial operations and the opening up its market for gas exports to Europe.

However, the experience of the past two decades should show a need for caution.

Some 20 years ago, Turkey and its gas incumbent BOTAS were working along with European partners to commission the Nabucco pipeline, a gas corridor designed to bring alternative Caspian gas to eastern and central Europe.

Although the project promised to bring real diversification to the region, including to Turkey, the excitement of a handful of young professionals working on Nabucco at the time sharply contrasted with the lacklustre interest of some of the higher-ranking managers and policy makers.

Over the years, it became clear that the lack of appetite for a project that could have established Turkey as a genuine regional gas market, offering diversification of resources and routes for Turkish and European partners was likely to lead to its shelving.

Another eye-opening experience was the launch of a contract release programme which incumbent BOTAS was expected to initiate to help create more competition in a budding liberal market.

The programme involved releasing some of the long-term agreements held by BOTAS with Russia, Azerbaijan, Iran and some LNG producers to the private sector, with a view to reduce its market share from a dominant position to 20% of the market.

Such a step was in keeping with Turkey’s professed aspirations to align with the EU’s free market rules and ultimately to join the bloc as a fully-fledged member.

Although BOTAS held two contract releases, allowing private companies to import a total of 10 bcm/year among themselves, the transfer did not fully reach its stated objectives. BOTAS continued to retain an 80% market share, while the two contract releases were framed in such a way that private importers were never fully free to set their own prices and contribute to the real liberalisation of the Turkish gas sector.

Plans for liberalising the market were again thwarted by ambiguity and indecision although Brussels’ failure to offer real guarantees for EU membership may have partly contributed to Turkey’s muted appetite for reform.

Since 2010, Turkey has boosted LNG regasification capacity to cover over 90% of Turkey’s total annual gas demand. But no Turkish private company has been able to benefit from this expansion to import LNG and contribute to increasing competition.

In theory, rules adopted by the regulator EPDK should guarantee third-party access. In practice, no one except the terminal owners has been able to import cargoes via Turkey’s five terminals.

The market distortions caused by sustained price intervention has meant that in recent years private companies have not been able to sell to end consumers, being forced to offload any imported volumes back to BOTAS at prices set by the incumbent.

As a result, the Turkish gas market has barely operated according to the principles of free markets, which western European traders would be familiar with.

Earlier this month, the Turkish gas market may have been dealt a final blow after parliament voted a series of amendments which will no longer oblige BOTAS to reduce its market share or to unbundle its transmission operations. At least, the latest regulatory decisions bring some certainty, although a very different one from what was contemplated 20 years ago when Turkey pledged to deregulate its gas market. Sinan Oczan