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Analysis: Turkey balances on brink of gas supply crisis

Istanbul — * Existing entry point capacity is 193 million cu m/d
* Peak Turkish demand could reach 215 million cu m/d
* More cuts of supply to CCGT plants expected

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All eyes in the Turkish gas market have been focused on the possibility of a cut in supplies from Russia in the wake of the November downing of a Russian fighter jet.

But even if all Turkey's gas suppliers fulfil their contracts, the country still faces serious problems.

Turkey's gas consumption last year reached 48.72 Bcm, 7.74% up on the 45.2 Bcm reported in 2013.



This year it was expected to exceed 50 Bcm, perilously close to Turkey's total import portfolio of 52.05 Bcm/year.

While that portfolio was last month boosted by a deal with Qatar for an unspecified number of spot LNG cargoes, that extra supply would only help cover any shortage caused if any of Turkey's other suppliers fail to deliver necessary volumes.

It could not overcome the limitations of Turkey's gas infrastructure, mostly operated by state gas importer and transit operator Botas.

Such is the fine balance between Turkey's potential daily maximum gas demand and the technical limitations of the country's gas infrastructure that all it would take to trigger a shortage is a particularly cold period.

Given the unpredictability of Turkish winters, that could happen any time between now and the end of February, or not all.

And given that any new pipeline gas will only arrive in Turkey at the end of 2018 at the earliest when first Shah Deniz gas arrives via the TANAP link, the tight supply/demand balance is likely to be an issue for the next three, possibly four, winters.

DAILY CAPACITY

In August 2014, Platts reported daily demand for gas could reach 215 million cu m/day, while Turkey's existing gas delivery infrastructure could supply a maximum of 193 million cu m/d.

The problem was confirmed the following month by then energy minister Taner Yildiz who said gas demand could exceed the system's ability to supply during the following winter if the country experienced extremely cold weather. Since then little has changed and therein lies the problem.

The capacity of the entry points to Botas grid remain unchanged: Four major pipeline entry points, two of which carry gas from Russia, one from Iran and one from Azerbaijan; two LNG terminals one on the Sea of Marmara operated by Botas and a privately operated facility at Aliaga on Turkey's Aegean coast; and one underground storage facility under the Marmara and some limited local production, itself in decline.

The only new addition to Botas's system is a new loop line across the Sea of Marmara that will not increase entry capacity but will allow flexibility transferring gas arriving from the south and east, northwest to Turkey's main demand center Istanbul.

As it happened, last winter proved mild by Turkish standards though the country still suffered a limited shortage when plummeting January temperatures caused gas demand to rise above supply.

'CURTAILMENT PROCEDURE'

A major crisis was avoided when the ministry implemented its 'curtailment procedure', a process of consultation involving state and private sector bodies.

The first stage sees state gas-fired power plants switching to fuel oil from gas.

A second stage sees major private CCGT plant ordered to cut gas burn by 50%, and a third sees those same plants being forced to burn fuel oil alone.

The procedure was implemented to stage three twice during January and February this year with nine major CCGT plants totaling 10 GW told to switch fuel.

That procedure has already been implemented to stage two once this winter, with operators of CCGT plant of over 500 MW instructed to cut gas burn by 50% from December 10-14.

That cut was made in the wake of a 50% cut in supply from Iran for 36 hours on December 8-10.

While private plants were given the go ahead to return to normal consumption, and private generators have told Platts that Botas has assured them that all of Turkey's gas suppliers are supplying at normal volumes, it was unclear whether the four state-owned gas fired plant totaling 3.78 GW have also been cleared to burn gas again.

CUT RISK

With Turkey's gas infrastructure unable to meet peak demand in cold weather, further cuts in supply and requests for fuel substitution were inevitable, an official from one private generator told Platts.

And that is not taking into account possible cuts from suppliers such as Iran and Russia.

These, he said, were a real possibility with Russia and Turkey still at loggerheads over the downed plane. If Gazprom were to supply only the minimum contracted gas volumes needed to meet its legal commitments, that would leave Turkey suffering a major shortage.

Although clearly a risk, such fears were not universally held.

Another official from Turkey's private power sector said that because Russia was facing financial difficulties, it would be wary of cutting existing revenue streams.

Any reduction, however limited, could prove serious.

While only 29% of Turkey's 72.5 GW installed capacity is gas-fired, this capacity generates anything up to 51% of the power consumed in a given month.

The variation depends on water levels in Turkey's hydro dams, which account for 35% of capacity.

With most of Turkey having experienced a particularly dry period at the end of November, state grid operator TEIAS said the dams held a total 2.528 trillion cubic meters (tcm) of water, down 20% on the volume anticipated in Turkey's 2015 generating program and 16% below the long-term average for November.

More worryingly, it was also down 13% on levels reported at the end of December 2014, only days prior to Turkey implementing its curtailment procedure and forcing private CCGT plant to switch to fuel oil.

So, while the winter remains mild, Turkey may escape without suffering any real hardship.

But it still seems under-prepared for significant shortages until TANAP begins pumping gas.

--David O'Byrne, newsdesk@platts.com
--Edited by Dan Lalor, daniel.lalor@platts.com