Latest Developments in the Turkish Gas Market

6 m.   |  2020-08-25

I n recent months, the Russian media field warns that “Gazprom”, Russian largest gas exporter, is losing its dominance in the Turkish energy (gas) market for years. According to the Russian Media, gas supply to Turkey through “Blue Stream” has been suspended since May, this year. According to official data, it was suspended due to restoration work, which should have taken two weeks, whereas the gas pipeline was empty at the end of July [1]. On July 27, the supply of Russian gas through “Turkish Stream” was also suspended again for the same reason. According to Turkish state oil and gas company “BOTAŞ”, repairs should have been completed by August 10 [2]. As a result, Russian gas supplies to Turkey was severely reduced from 2.254 billion cubic meters of natural gas (January 2020) reaching 2 million (June 2020). Currently, the number one partner of Turkey’s gas supply is Azerbaijan, which according to Turkish official sources, supplied Turkey with 881,58 million cubic meters of gas from the Shah Deniz gas field in May. It should be noted, that between April-May, Iran also didn’t supply Turkey with gas, at least according to official Turkish statistics [3]. It should be noted that in parallel with the increase in gas supply volumes, Turkey sharply increased the import of liquefied natural gas from different countries. 

Although the suspension of Russian gas supply was related with technical works, however, the declining trends were seen since the beginning of last year, about which the experts were voicing by noting several factors: the devaluation of Turkish lira, Russian gas’ high price and so on [4].

As the chief analyst of the Russian “Alor Group”, A. Antonov mentions, the current situation is not a surprise for Gazprom. In his opinion, the company has long assessed all the possible risks of “expansion” of liquefied natural gas to Turkish market. Epidemic and factors related with declining domestic demand also became the reason, why the “Blue Stream” does not work after the renovation work is completed. Meanwhile, according to him, Turkey cannot fully switch to liquefied natural gas, as there aren’t sufficient infrastructures. Second, Russian gas supplies to Turkey are fixed in the contracts of Gazprom and BOTAŞ based on the principle of “take or pay”, which gives the Russian side a certain “carte blanche” in further negotiations. Therefore, according to A. Antonov, it is too early to say that the Turkish market is fully lost for Russia [5].

Expert of the Financial University under the Government of the Russian Federation I. Yushkov, finds, that the situation may have arisen as a result of a political order. It’s not excluded that Turkish leadership instructed to reduce dependence on Gazprom, as Moscow and Ankara have disagreements over Syria and Libya. On the other hand, according to him, the price for the liquefied natural gas has also played its role since 2019: it is quite cheap now, hence the Turks actively buy it.

According to him, the main factor in reducing Russia’s share in Turkish market is Azerbaijani gas. Turkey started buying gas from Azerbaijan within the framework of a tough agreement, which he must fulfill. Such harsh conditions also apply in case of Russia. The principle “take or pay” is enshrined in the contract signed with Gazprom, according to which the Turks are obliged to pay for the 80% of the amount specified in the contract even if they didn’t take that much gas. As a result of it, the debt of the 7 Turkish private companies to Gazprom is $2 bil., which, according to the expert, will probably be solved at the state level [6].

To settle the problem and avoid litigation, Turkish private companies started negotiations with Gazprom in July [7].

Gazprom has signed a number of gas supply agreements with Turkey: two agreements with the state-owned BOTAŞ company, according to which, it must supply 20 bil. cubic meters natural gas annually (the first contract expires at the end of 2021 and the second at the end of 2025), as well as a number of agreements with Turkish private investors. Moreover, among the main buyers of Gazprom, Turkey pays the highest price for gas ($228 for 1000 cubic meters of gas), whereas Europe pays $82. That’s why, Turkey prefers to buy cheaper gas from Azerbaijan, as well as liquefied natural gas from Qatar, the USA, Algeria and Nigeria, which costs $53-70 [8].

At the same time, Gazprom continues to lose its position in the European market. European countries increase the import of liquefied natural gas, particularly from Qatar and the USA. According to the report of Gazprom, the share of the Russian gas in the European market fell by 27,8% in the second quarter of 2020 [9].

Nevertheless, Gazprom still hopes to resume its previous gas exports to Turkey by the end of the year [10], however according to Russian analysts, Gazprom has yet to calculate its multibillion losses [11].

[1] Россия фактически потеряла газовый рынок Турции


[3] See Statistics on gas exporting countries to Turkey between April-May

[4] «Газпром» Турции не по карману

[5] «Турецкий поток» поставили на паузу

[6] Азербайджан угрожает российскому газу в Европе

[7] WSJ узнала о задолженности Турции перед «Газпромом» на $2 млрд

[8] Азербайджан и еще три страны обошли Россию по поставкам газа в Турцию«Турецкий поток— памятник бездарности высшей российской знати»: Анкара отказалась от российского газа

[9] Турция распрощалась с «Газпромом» и переходит на азербайджанский газ

[10]Катар потеснил Россию со 2-го места по поставкам газа в Турцию,

[11] Эрдоган перехитрил «Газпром»: «Турецкий поток» постигла судьба «Северного потока-2»