Istanbul — There were two long-awaited events in the Turkish gas sector this year that pointed to a more liquid market -- the start of deliveries of up to 6 Bcm/year of Azeri gas through the newly commissioned TANAP pipeline and the beginning of gas trading on Turkey's EPIAS exchange.
But while both had been expected to herald the further liberalization of the Turkish gas market, market players are warning that 2019 could in fact mean its effective "de-liberalization."
This backward move is the result of a heady combination of political expediency, the volatility of the Turkish lira and growing disquiet on the part of Turkey's main gas supplier, Gazprom.
While the lira dropped by 20% against the dollar over the first half of the year, the fall was not reflected in the wholesale prices charged by Turkey's state gas importer Botas -- responsible for 81% of imports.
While this effective price freeze appears to have benefited the government in elections in June, it left the seven private importers who collectively hold contracts with Gazprom to import 10 Bcm/year of gas via the Trans Balkan pipeline unable to compete.
Imports by the seven private buyers fell sharply and, over the first three quarters of the year, were down 17% against a fall of only 9.7% in overall imports.
Industry sources suggest that six of the seven may have failed to meet their take-or-pay commitments with Gazprom and may have been left obliged to pay for gas they have been unable to import.
Although the problem has not been officially acknowledged, senior sector officials have confirmed to S&P Global Platts that Botas has attempted to alleviate the problem by buying gas from some of the importers.
But this has failed to satisfy Gazprom, which is said to be unhappy with what it sees as the failure of market liberalization. They say Gazprom wants all 10 Bcm/year transferred back to Botas, which imported these volumes prior to liberalization.
To that end they say Gazprom is trying to persuade the seven to "merge" under one of the seven, Bosphorus Gas -- formerly a majority owned Gazprom subsidiary -- and still believed to be controlled by the Russian company.
Merger under a single entity would greatly ease the process of transferring responsibility for the 10 Bcm/year to Botas ahead of planned commissioning at the end of next year of the 15.75 Bcm/year TurkStream pipeline, through which these volumes will be delivered in place of the existing Transbalkan line.
Bosphorus Gaz officials were unavailable for comment when contacted by Platts.
If successful, the merger and subsequent transfer would effectively spell the end of Turkey's nascent liberalized gas market. "There won't be a market, just the state," one senior sector official said on condition of anonymity.
GAS FOR POWER WOES
De-liberalization also threatens to create further problems for operators of Turkey's 22.43GW of gas-fired power plant, which will lose what little gas market competition currently exists and be left dependent on Botas for supplies.
Operators have already been hard hit by the same combination of events as the private importers, coupled with overcapacity in the power sector.
Gas plant capacity usage over the first 10 months of 2018 fell to around 30%, from between 50-60% in 2017, while power generation from gas fell 13% over the same period despite power consumption rising by around 2%. Problems were exacerbated in August when, faced with a plummeting lira, Ankara moved to address its booming trade deficit by hiking gas-for-power prices by almost 50% on August 1, causing gas burn that month to fall 25% on July, and August gas imports to fall 24% year on year.
As a result, many gas plant operators are believed to be suffering serious financial problems.
According to one operator, CCGT operators are praying for a cold winter to boost baseload demand and hoping they can survive to 2020 when the offtake guarantees for a number of large CCGT plant built in the late 1990s time out, freeing up baseload demand.
However, this market adjustment will not boost gas demand, which Turkey's gas distributors association GAZBIR estimates will this year fall 3.7% to around 52 Bcm.
While this may help Ankara's efforts to reduce its trade deficit, it presents a problem for Botas, which has contracted to take a further 6 Bcm/year of Azeri gas through the new TANAP pipeline, plus a further 1.75 Bcm through the soon-to-be-completed TurkStream line.
If the transfer of 10 Bcm of private contracts goes ahead by mid-2020 Botas will have a contracted commitment of up to 61.2 Bcm, not including the spot LNG cargoes it imports for peak shaving, and may well be facing take-or-pay problems of its own.
--David O'Byrne, firstname.lastname@example.org
--Edited by James Leech, email@example.com