Monday, December 5, 2011

Turkey Diversifying Natural Gas Suppliers

Turkey has begun taking steps to diversity its natural gas sources. Currently, 65% of natural gas in the country comes from Russia, and it is expensive. The state energy company Botas has been the partner in a number of "take or pay" delivery contracts, in which Turkey agrees to pay for the gas whether it is used or not. As a result, it is paying $2.64 billion dollars for 3.6 billion cubic meters (bcm) of gas that it has not used from Russa, and 55 million cubic meters (mcm) it has not used from Azerbaijan over the past three years, according to the Turkish newspapr Haberturk as reported by Bloomberg.

To reduce the payments, Turkey demanded a price reduction of 15-20% from the Russian gas giant, Gazprom. The Russians did not take the Turkish demand seriously, and Botas terminated the contract that brings 6 bcm of natural gas to Istanbul via the Balkans. This placed in play the delivery of 15% of Turkey's energy needs.

To compensate, Gazprom has offered to sell private companies the gas that was originally destined for Botas. Gazprom Chairman Alexander Medvedev said, "We expect that demand from our customers in the industry and trade sectors will continue...We are ready to supply the same amount of gas to private companies, which then supply the final consumers in the Turkish market," according to Today's Zaman. This is a reversal of Gazprom's previous position that Gazprom deliveries were governed by intergovernmental agreements and could not be expanded to include private buyers, according to Today's Zaman.

The price dispute between Turkey and Russia has put other projects in jeopardy. Konstantin Simonov, from the General Directorate of the National Energy Foundation, charges that the Samsun-Ceyhan oil pipeline and the South Stream projects are interrelated with the natural gas deliveries, according to the Turkish Weekly.

Siminov may be correct. When discussing the cancellation of the Botas contract, Turkish Minister of Energy and Natural Resources Taner Yildiz discussed South Stream, which still lacks permission to transit Turkish waters in the Black Sea. The minister said that Turkish permission would be granted when Russia delivers documents Ankara has requested. "There are no problems in this respect," he said. Turkey's strategic relationship with Russia would not be affected "by a few contracts," according to

According to Siminov, Russia has frozen the Samsun-Ceyhan oil pipeline until it receives the South Stream approval. This oil pipeline is of great importance to Turkey, as an effort to divert oil shipments away from the congested Bosphorus Straits. But the pipeline would be costly. Russian estimates are that it would cost three times as much to ship oil via the pipeline than to send the oil through the straits, according to Hurriyet Daily News. To compensate, the Russian oil pipeline Transneft has demanded tax exemptions for Russian companies that work on the line. Transneft President Nilolai Tokarev said "It is necessary to set up tax privileges to guarantee that the oil transportation tariff on the route is competitive on the tariffs in the Black Sea straits."

New developments are anticipated, as Prime Ministers Erdogan and Putin held telephone discussions in October to discuss the resumption of the Russian gas supply to Istanbul, according to ITAR-TASS. The discussions also covered the Samsun-Ceyhan oil pipline, and plans to build a nuclear power plant in Turkey. So: South Stream appears dependent on resolving the natural gas dispute, and Samsun-Ceyhan appears dependent on South Stream.