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London — Turkish gas demand -- which five years ago was expected to almost double to 81 Bcm/year by 2030 -- is unlikely to even reach 60 Bcm/year in the near future as a result of a deliberate effort by Ankara to reduce the country's dependence on imported gas, a paper published Monday by the Oxford Institute for Energy Studies concludes.

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Turkish gas demand fell last year for the first time since 2009 to 46 Bcm and is expected to be stagnant this year as Turkey looks to depend more on domestic resources for power generation, particularly hydro, coal, lignite, and wind and solar energy, the OIES said in the report.

The OIES said it expects a fall in gas consumption in the power sector in 2017 to be balanced by moderate growth in the residential and industry sectors.

In 2012, Turkish state gas company Botas forecast gas demand -- driven by the growing power sector -- would reach 81 Bcm/year by 2030.



But given its almost entire dependence on gas imports -- from Russia, Iran, Azerbaijan and in the form of LNG -- the government opted to lessen the share of gas in the power mix, by far the largest gas-consuming industry.

"The government decided to take solid measures to prevent such growth in demand, which might even more than double by 2030 without intervention," the OIES said.

"Growing dependence on external supply sources would also affect Turkey's economic and political security," it said.

The measures resulted in a reduction in the share of gas in this sector -- to 33% in 2016 from 60% in 2007.

COAL, RENEWABLES

Coal has been one of the main beneficiaries of the stagnation in gas, the OIES said, with its coal plant developments among the largest in the world outside China and India.

The share of coal in the energy mix rose by 22% in 2016, causing gas-fired output to fall 9%.

"This is likely to continue due to large investments in coal developments [and] as a result, gas will continue to lose in competition with coal due to the high dark spread and the absence of carbon tariffs and environmental restrictions in Turkey," it said.

The Turkish government also gives coal an advantage over gas use in power generation because it does not have any binding obligations to restrict greenhouse gas emissions, the OIES said.

On the renewable front, the picture is more mixed -- there has been a slowdown in investment in renewables following a first round of rapid spending.

This is due to amendments made to the support scheme in the Regulation on Renewable Energy Resources, the institute said.

"The amendments toughen competition between companies and make the feed-in tariff in some cases below the cost of gas, putting renewable companies in revenue difficulties," it said.

"Unless the government makes changes to the amendments and clarifies the ranking methods for equipment, which must originate in Turkey, investment in renewable energy is likely to be further subdued, at least in 2017."

GAS INFRASTRUCTURE

Turkey has also been plagued by issues with the capacity of its gas grid -- Ankara has been forced to limit gas flows to power plants in many recent winters at times of peak demand to prioritize households.

"The Botas gas system has a low capacity margin and has difficulty coping with demand peaks and exceptional levels of transmission system usage," the OIES said.

To solve the capacity restrictions, Botas is planning to more than double its maximum daily gas supply capacity from the current 200 million cu m/d to 428 million cu m/d by 2024.

It is expanding the capacity of pipelines, LNG receiving terminals and storage facilities.

It will also be boosted by the start up of supplies from Azerbaijan's Shah Deniz 2 project from 2018 and a new source of Russian gas via TurkStream from 2019.

Overall, the OIES forecasts Turkish gas demand to grow to no more than 55-56 Bcm/year by 2025 and 60-62 Bcm/year by 2030.

--Stuart Elliott, stuart.elliott@spglobal.com

--Edited by Dan Lalor, daniel.lalor@spglobal.com