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Legacy Azeri gas flows to Turkey halted on contract expiry: source


Supplies under 2001 deal for 6.6 Bcm/year halted

Contract between Botas, Shah Deniz consortium expired April 16

Talks continue over possible contract renewal: source

  • Author
  • David O'Byrne
  • Editor
  • Alisdair Bowles
  • Commodity
  • Natural Gas Oil

Istanbul — The flow of gas from Azerbaijan's offshore Shah Deniz gas field to Turkey -- supplied under a contract for 6.6 Bcm/year agreed in 2001 -- has been halted since the contract expired earlier this month, a source with knowledge of the matter told S&P Global Platts on April 26.

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The source said talks were continuing between Turkey's state gas importer Botas and the Azerbaijan Gas Supply Company (AGSC), the company representing the Shah Deniz consortium, over a possible renewal, but that flows had been halted because they could not continue past the contract's end-date on April 16.

However, the source pointed out that with the arrival of milder spring weather, gas demand in Turkey is falling, which -- coupled with the availability of other import options such as spot LNG -- means the halt of supply was unlikely to cause any issues.

Therefore, the source said, there is currently no pressing need for the contract to be renewed immediately.

Azerbaijan's Socar declined to comment on the issue citing commercial considerations, while officials from Turkey's energy ministry and BP -- which is operator at Shah Deniz -- were unavailable to comment.

Two other sources with knowledge of the matter pointed out that given the close relations between Turkey and Azerbaijan, it was likely that the contract would be renewed, but that the terms may be different from the contract that recently ended.

Relations between Ankara and Baku are extremely close with the respective presidents often referring to the two countries as "one nation, two states".

TANAP flow normal

Meanwhile, a spokesman for the operator of the TANAP pipeline, which transits Azeri gas from the second phase of Shah Deniz to Turkey under a separate contract for 6 Bcm/year that became active in June 2018, said the TANAP line was operating normally.

The spokesman said that no increase in transit volume had been requested for April and no future increases were currently scheduled.

Botas began importing Azeri gas from the first phase of development of the Shah Deniz gas field under the 2001 contract in July 2007 following the completion of the Baku-Tbilisi-Erzurum pipeline.

Gas sold to Botas under the contract is supplied by AGSC, ownership of which is identical to that of the consortium operating the Shah Deniz gas field. That is: BP (28.8%), Turkey's state upstream operator TPAO (19%), Socar (16.7%), Malaysia's Petronas (15.5%), Russia's Lukoil (10%) and Iran's NIOC (10%).

The past two years have seen Ankara make efforts to move away from a reliance on importing gas by pipeline under long-term contracts indexed to the crude oil price, both reducing dependence on imported gas for power generation, and increasingly importing cheap spot LNG in place of more expensive piped gas.

Turkey's deputy energy minister Alparslan Bayraktar said in February last year that Turkey planned to use the availability of cheap spot LNG to persuade its long-term gas suppliers to lower their prices and be more flexible in their terms and conditions.

Contract expiries

As well as the contract for 6.6 Bcm/year of Azeri gas, this year also sees the ending of Botas' contract for 1.3 Bcm/year of Nigerian LNG in October, followed by the ending of its contract in December with Gazprom Export for 4 Bcm/year of Russian gas, which since the start of 2020 has been delivered via the TurkStream pipeline. No official statements have been issued as to whether these contracts will be renewed.

2022 sees the end of four contracts between private imports and Gazprom Export for the import of Russian gas into Turkey; with Avrasya Gaz for 0.5 Bcm/year in February 2022, with Shell for 0.25 Bcm in July, with Bosphorus Gaz for 0.75 Bcm in October and with Enerco for 2.5 Bcm in December.

All the privately imported volumes are delivered via the TurkStream pipeline.

Botas last week took delivery of its first owned FSRU vessel, the Ertugrul Gazi, which will operate initially at Botas' Dortyol terminal on the country's east Mediterranean coast.

The vessel, which replaces a previous FSRU which had been leased, is being tested prior to being commissioned to import LNG.