Turkey may tap spot LNG volumes if hit by Russian gas supply disruptions

16 June 2014  |  By: Aura Sabadus and Ludovic Aldersley

Turkey could take advantage of currently available spot LNG volumes to cover potential shortages that may occur after Russia cut natural gas supplies specifically for Ukraine on Monday morning, sources said.

Transit flows through the Western Line that is used by both private shippers and the Turkish incumbent BOTAS to import Russian gas were unaffected on Monday, a Gazprom source told ICIS. Turkish private importers said they had not received any notifications of supply disruptions from Gazprom.

However, if Ukraine’s gas storage supplies – currently estimated at 13.5 billion cubic metres – were to fall, the country could tap into transit volumes, leading to disruptions both to Turkey and Europe.

Under such a scenario, Turkey could turn to Algeria’s Sonatrach, which is understood to be offering LNG volumes on a free-on-board basis. Petrochina, which purchased forward Algerian volumes last year is understood to have recently been shedding these cargoes as they are now surplus to requirements.

BOTAS could take advantage of the currently low LNG prices in East Asia. East Asian prices dropped to $12.175/MMBTu for July ’14, from the last assessed $19.18/MMBTu in January ’14, according to ICIS data.

Meanwhile, the last assessed Turkish LNG spot price for January ‘14 fell to $11.70/MMBTu over the same period, down from $16.269/MMBTu.

However, even under these circumstances, Turkey’s 39 spot LNG licence holders cannot snap up volumes as they would have to sell at a regulated domestic price that would be lower than the purchasing price.

A source active on the Turkish gas market said the state company was considering ramping up gas volumes from Iran in order to recover quantities signed up under a long-term take-or-pay agreement. The source said BOTAS was expecting to recover all quantities under its take-or-pay contract with Iran.

“BOTAS also mentioned in a previous meeting they had with private shippers that they may increase volumes from Azerbaijan which sells comparatively cheaper gas [than Russia and Iran],” the source said.

BOTAS was unavailable for comment on Monday afternoon.

Britain’s BP, the operator of the Caspian platform that supplies gas into Turkey via Georgia, could not comment.

Even if Turkey was to increase volumes from Iran and Azerbaijan, BOTAS would have difficulties pumping it westwards given some constraints in the system.

Another source from a private company said BOTAS had also been approached by shippers with a request to increase Russian volumes through Blue Stream, which carries Russia gas into Turkey across the Black Sea. 

“Given that it’s summer [and demand is reduced] and no pipeline is full, this is technically possible,” the Gazprom source said.

However, the source conceded that the volumes would have to be imported by BOTAS which holds the import contract on the pipeline.

“BOTAS could arrange for swaps with the private importers [if supplies on the Western Line are cut],” the source added.

Flows through the Western Line into Turkey are currently reduced because of maintenance work. They hover around 28.4 million cubic metres/day, compared to May’s average 41.3mcm/day, according to Bulgarian system operator Bulgartransgaz.

Russian producer Gazprom halted supplies of natural gas to Ukraine as of 10:00 Moscow time on Monday, Gazprom said, after the supplier switched Ukrainian incumbent Naftogaz to a pre-payment system for gas.

The supply halt comes after weeks of negotiations between the EU, Ukraine and Russia failed to result in an agreed price that Ukraine would pay for Russian gas. The embattled country owes a debt of $4.5bn (€3.3bn) to Gazprom for gas supply but refuses to pay because Ukrainian leaders say Russia is over-charging Naftogaz for gas.

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