Today, Turkey is one of the most problematic destinations for Russian gas exports. Until recently, Ankara was the second-largest buyer after Berlin, now Gazprom has abruptly surrendered its positions, giving way to other suppliers. In the next six years, the terms of the contracts for Turkish Stream and Blue Stream will expire, but will new ones be signed and already on what terms?
Turkey became the second-largest export market for Russian gas in 2007, and in 2013 Alexei Miller boasted that it could be number one at all. At that time, Ankara was critically dependent on gas imports, and Gazprom accounted for a very impressive 60%. The Blue Stream gas pipeline was already operational, and after the crisis in Ukraine in 2014 and the “sabotage” by Bulgaria, bypassing the two countries began to pull two strands of the “Turkish Stream”, which cost the budget 7 billion dollars. But then everything went wrong, as planned by the management of the state corporation.
First, the incident with the downed Russian Su-24 bomber played a negative role. Ankara got rid of the “tomatoes” but made far-reaching conclusions. Additional gas supplies from Azerbaijan have been established, and pipeline gas is also coming from Iran.
Secondly, Turkey has accelerated the commissioning of two floating LNG terminals (FSRU) with a capacity of 20 million cubic meters per day in the provinces of Izmir and Hatay. This played an important role when global LNG prices plummeted. For comparison, in the first quarter of 2020 Gazprom’s production cost the Turks $257 per 1,000 cubic meters, LNG – 98.2 dollars for the same volume. The Turks are already capable of receiving up to 24 billion cubic meters per year in the form of LNG and intend to build new terminals.
Finally, buying Russian gas in the previous volumes for currency for Ankara became very unprofitable because of the devaluation of the Turkish lira by 30%. The contract for deliveries on Turkish Stream expires next year, and in 2026 the contract for Blue Stream expires. Considering that President Erdogan recently reported on the discovery of his own gas fields, estimated at 320 billion cubic meters, Gazprom’s prospects are ach. In the most negative scenario, Russia can become the owner of two empty pipelines running along the bottom of the Black Sea.
However, there are slightly more optimistic estimates. Economists point out that the abnormally low price of LNG cannot be kept indefinitely. For example, LNG production is largely a by-product of shale oil development for the country. When its quotations fell due to a six-week “oil war” between Russia and Saudi Arabia, Riyadh was forced to throw its surplus into the world market, which sharply collapsed the price of LNG. Those who invested in the construction of reception terminals in time, on this have risen well. But now the situation is gradually changing: the market is steadily digesting excess gas, on the nose of the winter heating season, so the price of LNG is noticeably upwards.
Most likely, Ankara will not completely refuse to import Russian gas. It will continue to diversify supplies through the construction of LNG terminals and the development of its own fields. This will be a serious bargaining chip in negotiations with Gazprom, which will have to make very serious concessions on the price. In the end, the domestic monopolist will lose most of the market, but it will be allowed to remain as a reserve supplier with two pipelines for Turkey.