Turkey seeks better terms for gas contracts

Turkey expects gas suppliers to offer more competitive pricing and flexibility if they want to renew long-term contracts totalling 16-billion cubic metres a year, a senior energy ministry official said.

More than a quarter of Turkey’s long-term gas contracts expire in 2021, including imports via pipeline from Russia’s Gazprom and Azerbaijan’s SOCAR and a liquefied natural gas (LNG) deal with Nigeria.

Competition from cheap US LNG and the potential for Turkey to start its own production in the Black Sea have changed market dynamics, the Turkish ministry official said.

“Old-fashioned” gas contracts, which are often indexed to oil prices and commit buyers to penalties if they do not buy their full quota, no longer match market realities, he said, and prices should be set against those at major gas hubs.

“We started to discuss whether we are going to renew [or] whether we are going to find an alternative supply,” the officialsaid on condition of anonymity.

The decision would depend on whether suppliers “approach with same old habits — no flexibility, not very competitive price offers”.

In that case, “I don’t think we will see the existing contracts continue,” he said.

Turkey relies on imports for nearly all its oil and gas. In the first half of 2020, imports from Russia and Iran fell back, while supplies from Azerbaijan increased and purchases of US gas rose sharply.

“The US all of a sudden became the second largest [LNG] supplier to the Turkish market in the first part of 2020,” the official said. “The main reason was they were very competitive.”

A discovery in August of a major gas field in the Black Sea opens the way for domestic production in Turkey.

The field is said to contain 320-billion cubic metres of recoverable gas, and energy minister Fatih Donmez said in August that data suggested more would be found drilling deeper under the sea bed.

“The timeline will be most likely in October, because we are trying to analyse two additional potential reserve areas under the current level,” the official said.

President Tayyip Erdogan said in August that Turkey would start pumping gas from the Black Sea discovery by 2023, but the official said full production would take longer.

“The timeline we announced is for the first gas delivery,” he said. “It’s not going to be the plateau production, which will take at least an additional two or three years.”