Crunch time is fast approaching for Turkey as it decides whether to extend long-term gas import contracts. Deals for around 18 billion cubic meters per year (1.7 billion cubic feet per day) are due to expire by the end of 2021, including piped volumes from Russia and Azerbaijan, and LNG from Qatar and Nigeria. Turkish companies believe that access to spot LNG imports will give them more leverage in negotiations. LNG imports topped piped flows for the first time in March, and Turkey became the fifth-largest importer of US cargoes in the first half of 2020. The outcome of these talks could set the tone for a second wave of contract expiries starting in 2024. Totaling 30 Bcm/yr, these include an Algerian LNG deal, Russian piped gas through Blue Stream, and Iranian gas.
Turkish gas consumption totaled 45.3 Bcm last year, all but a fraction met by imports. Talks are currently stalled with Russia's Gazprom, traditionally the top supplier, over deals for 8 Bcm/yr, half with state-owned Botas and half with private importers. Turkish buyers want similar terms to their European neighbors, but Gazprom hasn’t budged, even though its Turkish sales crashed 30% year-on-year in the first four months of 2020 as the US made inroads (
WGI Jun.10'20). “Turkey is asking for more flexible, shorter-term contracts and Gazprom is trying to push old historical contracts with 10-20 years and rigid conditions. This is a major dealbreaker,” a Turkish market player says. Sources don’t expect a breakthrough until the last minute. Gazprom hopes offtake will recover to 2019 levels as Botas imports more to meet take-or-pay obligations, Gazprom Export head Andrei Zotov said recently. Botas reportedly owes around $600 million.
The situation is more complex with private importers. Gazprom is seeking retroactive payment to cover a 10.25% discount on the import price applied in 2017 and 2018 after winning an arbitration case in 2019 against Akfel Gaz, Enerco Enerji, Avrasya Gaz, Kibar Enerji and Bati Hatti Dogalgaz. The companies say the contract formula does not reflect current market conditions. Private importers, which also include Bosphorus Gaz and Shell Enerji, have at the same time been offtaking minimal Russian volumes since last year, saying they cannot sell the gas domestically as the Russian price is higher than the Botas-set tariff for power generators and industry. Some put the take-or-pay bill at $2 billion. This needs to be resolved before renegotiations progress. Russian prices are expected to fall in the second half reflecting lower oil prices, which could allow some deliveries to resume. But the situation is “not sustainable or reliable” as it depends on Botas tariffs, Emre Erturk from Istanbul-based consultancy EnerjiIQ tells Energy Intelligence. “It is the perfect definition of chaos. The Russians are behaving irrationally, and they are losing the market [to the US],” the market player says.
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