Cheap LNG Gives Turkey Edge in Gas Price Talks: Gov
The availability of cheap spot LNG has strengthened Turkey's hand in talks with its long-term gas suppliers and should enable it to secure lower prices, the country's deputy energy minister Alpaslan Bayraktar said at a conference in Istanbul on February 13.
Turkey has three import contracts due to run out within the next two years. Its ability to purchase low-cost LNG on a spot basis, as well as falling gas demand, has helped the government in negotiations to renew these agreements.
"This is a signal to suppliers that they have to be flexible," he said.
Turkey has a contract for 6.6bn m3/yr of piped gas from Azerbaijan that is due to run out in April 2021 and a contract with Nigeria for 1.3bn m3 of LNG expiring in October that year. It also has an agreement for 8bn m3/yr of Russian gas that will reach its close at the end of 2021.
The Russian contract was signed in 1998 by Gazprom and Turkey's state gas importer Botas, which initially agreed to purchase the full 8bn m3/yr of gas itself. However, contracts for 4bn m3/yr of supply were later transferred to four private companies, all of which will also expire by the end of 2021.
These private importers have faced serious problems in the past two years marketing their supplies, as the fall in the value of the lira has driven up the cost of gas, leaving gas-fired power plants unable to compete with cheaper sources of electricity. Some plants have lowered their output while others have closed altogether, reducing demand.
While neither Ankara nor Moscow have commented publicly on the issue, several private importers are rumoured to be functionally bankrupt, having failed to meet their take or pay commitments to Gazprom. Russian piped gas supplies were down 35.3% last year to 15.51bn m3, according to Gazprom data published on February 14.
Bayraktar confirmed that discussions with Moscow covered the private import contracts but did not comment further.
Turkey has succeeded in reducing the percentage of power generated from gas from close to 50% less than a decade ago to around 18% last year, the minister went on to say. The reduction in gas burn was helped in part by high water levels at Turkey's main hydroelectric dams, which offer the country's cheapest power. Gas will continue to play an important role in Turkey's energy mix, however, and gas burn could increase again if prices fall, he said.
"In future gas will have to play a more flexible role," he said, pointing out that spot LNG prices are currently lower even than European hub prices.
Botas has been scaling up imports of spot LNG recently, reportedly opening tenders late last year for the supply of 70 cargos over the next three years, and 30 between December 2019 and March 2020. The results have not been published.
Turkey also loosened import restrictions last year, allowing companies with import licences to import spot cargoes via pipeline. Previously their licences covered spot LNG only.