Turkeys' gas market: No alternative to Europe, but a fall back

While Europe, tired of the crisis and torn by the contradictions between the interests of the EU as a whole and the self-interests of member countries, is trying not to miscalculate in choosing new routes for its hydrocarbons' supply. While this is showing a significant hesitancy, Russia, driven by its own interests is trying to 'remove' its potential competitors, that is gas suppliers for the Southern Gas Corridor, by promoting its mega South Stream project aimed at the same customers in Europe as the Southern Corridor.

Azerbaijan also pursues national interests. It will bring its gas to European markets, but if for some reason the conditions including commercial ones are unacceptable, it's necessary to have an alternative plan of action. That means an alternative market for the sale of at least 10 billion cubic meters additionally to the already approved supplies.

The Turkish gas market today is one of the most promising in Europe. According to international energy agencies its share of gas in the total energy balance of the country for the last 20 years increased from 5.5 to 32 per cent. In the forecast of gas consumption among all European countries, growth in gas demand in Turkey between 2010 and 2035 years is the highest (Outlook for Economy and Energy of the world and Russia until 2035, Moscow, 2012).

The latest statistical data also confirms this. According to the Turkish state pipeline company Botas, in 2011 Turkey imported 39.7 bcm compared to 32.5 billion in 2010. In 2011, Turkey sold on its domestic market about 39.4 bcm of gas compared to 31.5 billion cubic meters in 2010. Among the gas exporters to Turkey, Russia ranks first. It supplied nearly half of all the imported volume and is followed by Iran and Azerbaijan. Import growth continues this year. In the first quarter, Botas imported from various sources about 12.74 billion cubic meters of gas compared to 10.88 billion in the first quarter of 2011.

The main factor of growth in gas demand in Turkey is a sharp increase in recent years in energy consumption (half of the gas is used for electricity). According to the Turkish state-owned electricity transmission corporation (TEIAS), electricity consumption in Turkey in 2011 increased by nine per cent, compared with 2010, amounting to 229.3 billion kW / h. Electricity consumption in the first quarter of 2012 increased by 9.4 per cent to 62.4 billion kW / h.

The rapid development of industry in Turkey, the transition of industrial enterprises and thermal power plants from fuel oil to natural gas and several other factors also contribute to the growth in gas demand and this trend is projected to continue.

It is also worth noting the relatively high domestic gas prices which also confirms the attractiveness of the Turkish market. In April-May, the price to the public amounted to $381 per 1000 cubic meters of gas and for industrial enterprises - $355.

This means the picture of the Turkish gas market albeit superficially described, gives reason to say that this market for Azerbaijan is the ideal fall-back option to export additional volumes of gas. The essential argument in this scenario will be the price. Turkey imports gas from Russia for $450 per 1000 cubic meters, from Iran - for $420. Azerbaijani gas is supplied to Turkey at the lowest price at $330. In this case not even a strategic relationship between the two countries, but the commercial benefits will prompt Turkey to replace some volume, let's say, of the Russian gas by Azerbaijani.

Maybe such a possible scenario would motivate Europe to be more decisive and Russia becomes less rigid in the matter of Caspian gas access to European markets.

'The Southern Gas Corridor' is one of priority energy projects for the EU. It is intended to diversify the routes and sources of supply, thereby increasing its energy security.

Gas which will be produced in the second stage of development at the Azerbaijani Shah Deniz gas condensate field is currently regarded as the main source of supply.

Total reserves of the Shah Deniz field are estimated at 1.2 trillion cubic meters of gas. Under the contract and in the second stage, Turkey will receive six billion cubic meters of gas. In total, it's planned to produce 16 billion cubic meters during the second stage of development.


Azer Ahmedbeyli /Trend/