Gökhan Taymaz, Managing Partner at QU4TRO Strategies said in Turkey Energy Forum that Russia intends to put an end to Ukraine’s key role as a natural gas transit hub to deprive the embattled country of transit fees, thus most likely to choose not to renew the existing contract and this will bring a sea change in regional natural gas market, as Turkey and Germany will be the new key transit routes for Russian gas for Europe’s ever easing appetite for this transitional energy source.
World natural gas consumption will likely to increase more than 40% from 2018 to 2050. With the recent exploration of new gas fields in the world, including Aegean and East Mediterranean seas, natural gas market is a hot topic.
Supply, demand, transmission and infrastructures are all changing in today’s world with great pace.
Demand for natural gas has tendency to shift against current major exporters due to increase in renewable energy, political tensions, and importers’ incline towards diversifying their supply portfolios.
Due to energy’s vital importance, energy trade is more than a commercial activity for most exporters. Exporters plan their investments and projections in compliance with their country’s foreign policy.
Foreign policy is an important driver and risk in the natural gas markets.
Therefore, the countries seek to secure their supplies through building ;
The natural gas was traditionally transmitted through pipelines. However, over the years the trend shifted towards LNG production (LNG into the European Union more than doubled in the first five months of 2019).
Turkey also follows the global trend, and increases LNG’s share in import, and prepares infrastructure for LNG.
Infrastructure is crucial for this new global natural gas market model. 2019 will likely to see the highest volume ever in new LNG projects approvals. Accordingly, LNG terminals and FSRU vessels are being built everywhere in accordance with new approvals and projections.
TURKEY’S NEW ENERGY POLICY
Gökhan Taymaz explained during his speech that Turkey aims to reduce its dependency on natural gas for conversion use.
“In order to understand Turkey’s LNG policy and LNG’s potential role in the future” he said, “We need to understand the new energy policy that the Turkish government has been implementing…which can be divided into three stages” :
1. The first stage involves a policy of decreasing Turkey’s absolute dependence on the single gas supplier – Russia. And the government has been successful in this regard so far. According to numbers we have, Turkey imported 8.1 bcm from Gazprom in the first half of this year, down from 12.7 bcm a year earlier. Its reliance on Russian supplies fell to 35% of its needs from 49%.
The government also wants to diversify supply sources and gas import types (both pipeline gas and LNG/FSRU) to ensure imports are available from a wider range of available sources on competitive terms, at the same time storing more gas in the country once downstream infrastructure capacity allows.
2. Stage two is to shift from an energy sector based mainly on imported natural gas to an integrated energy industry based on local resources such as coal and renewables, a move strongly supported by the government.
The critical question here is why?
This is the point where domestic politics jump in…Electricity production based on gas imports means a high percent of dollarization in electricity prices. And that’s an issue currently hurting the government due to a voter backlash in ever rising electricity bill of average voter in the street.
Please keep in mind that the most important success in politicians mind is to get re-elected and re-elected again.
Once energy companies understand what’s important and what’s urgent in both domestic and foreign politics, they can hit the target more efficiently.
3. The third stage is to become a natural gas trading center, trading the excess gas that Turkey will have access to as a result of the implementation of stages 1 and 2.
In order to do that, Turkey intends to increase the storage capacity. As we all know, the storage capacity in Turkey is limited for LNG.
To fix that problem, new FSRU’s are being built while current storage facilities are being expanded in Marmara and Tuz gölü.
As a result, by 2021 total Turkish storage capacity will almost double from the current 258 mcm/d to 473 mcm/d.
And that is the point where we can talk about Turkey becoming a natural gas trading center.
OPPORTUNITIES LIE AHEAD OF TURKEY
In energy business the most dreadful word is “volatility”…Yet, it seems like it will become the new normal in the industry.
The main reason for this constant threat of volatility is an inevitable shift in political alliances, especially when it comes to Turkey.
Turkey and Russia become more aligned in foreign policy, energy and defense, which makes both countries also inter-dependent.
Russia will most likely by-pass Ukraine as a transit country and make Turkey its southern transit hub via TurkStream.
In case Russia doesn’t renew the gas contract with Ukraine, Turkey will have a significant leverage on Gazprom for a price cut in the new contracts to be signed in coming months.
Russia’s plan to deprive Ukraine of transit fees will make it more dependent to Turkey and Germany.
But, Russia might bring other bargaining chips to table like Syria and defense equipment purchases on which Turkey might yield to Gazprom’s conditions.
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