Ukraine War Complicates Turkey's Gas Challenge

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The Ukraine crisis has erupted at a time when Turkey needs to figure out what to do about supply contracts for some 21.75 billion cubic meters per year of Russian gas that expire at the end of 2025.

Russia is a major source of energy supplies to Turkey, with market shares of 35%-50% for oil, gas and coal.

Ankara is well aware of the dangers of becoming too dependent on any one supplier and had in fact been making progress on reducing its purchases of Russian gas in recent years.

But it has not been talking about cutting back on energy supplies from Russia in response to the war in Ukraine.

And nor has Moscow made any mention of cutting supplies to Turkey, which has sold drones to Ukraine that have helped slow down the Russian invasion.

In addition to imports of fossil fuels, Russia’s Rosatom is building Turkey’s first nuclear power plant, the 4.8 gigawatt Akkuyu facility, with a first phase of 1.2 GW scheduled for start-up in 2023.

Tough Market for Buyers

While Turkey had made good progress in reducing Russia’s share of its gas imports in recent years, sky-high spot LNG prices led to a reversal of that trend last year as Ankara took more pipeline gas from Russia (see table).

In normal times, Ankara would have plenty of time to line up its supply options and negotiate favorable deals. But these are far from normal times.

Ankara will want to minimize exposure to the spot LNG market, given the outlook for a sustained period of high prices as buyers compete to secure cargoes.

But consumers will also be chasing a limited number of suppliers — other than Russia — that can supply more gas under long-term contracts.

Furthermore, a drought over the past two years has underlined the dangers of relying on hydropower.

Turkey imported 14.1 Bcm of LNG last year and Emre Erturk of consultancy EnerjiIQ says the country’s rising demand for gas — which should hit 61 Bcm this year — means it will have to step up its LNG purchases.

But Ankara will want to minimize any increase in spot imports, given that European LNG prices hit $72 per million Btu this week, up from $5.30/MMBtu a year ago.

“So, Turkey will have to decide on quick steps to secure its demand,” says Erturk.

The Israel Option

Supplies of pipeline gas from Iran have proved unreliable in recent years, especially during periods of peak winter demand. And imports from Iraq seem an unlikely prospect.

That probably leaves gas from the East Mediterranean region as Turkey’s best hope.

“There is a push for Israeli gas to Turkey. President [Isaac] Herzog is visiting next week,” says Turkey analyst Mustafa Oguz.

Relations between Turkey and Israel have been awful for the past decade, but there has been a marked improvement in recent months, with Turkish President Recep Tayyip Erdogan specifically talking up the prospects of importing gas from Israeli offshore fields.

Meanwhile, Erturk argues that delays at the Akkuyu nuclear plant project have put Ankara in an even more difficult position as some of the Russian banks financing the project have been hit by sanctions, with a European subsidiary of Russia’s Sberbank recently filing for bankruptcy.

Turkey's Dependence on Russian Gas
YearTotal Imports (Bcm)Russian Share (%)

Military Conflict, Sanctions, Gas Supply, LNG Supply, Gas Demand, Ukraine Crisis
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