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Russia Showing Interest in Natural Gas Investment in Turkey

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Energy giant Gazprom needs to take Ankara's concerns seriously so it doesn't take business elsewhere.

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The Russian-Ukrainian dispute over Crimea has had repercussions in the European energy sector, and as talk grows of more economic sanctions, nations dependent on Russian energy imports are nervously contemplating the potential consequences and reviewing their options for alternative sources. In Moscow, state-owned firm Gazprom is doing the same, seeking out alternative future markets should its relations with the EU worsen even further.

Turkey is caught in the middle of this geopolitical tussle.

Russian energy imports play a key role in the Turkish economy. In 2013, Turkey imported 26.61 billion cubic meters of Russian gas via the Western and Blue Stream pipelines. Last year, Turkey imported 98% of its natural gas and 93% of its oil, using the natural gas to generate 46% of its electricity and running up an energy bill of up to $60 billion a year -- a major drain on the country's foreign currency reserves. After Germany, Turkey is the second-largest European importer of Russian gas.

Turkey's electricity market over the past three decades has more than tripled to its current generating capacity of 64.612 megawatts of electricity.

According to Russia's Federal Customs Service, the country's foreign trade surplus increased 1.6% year-on-year in the first quarter of 2014 to $56.1 billion, but Turkey's trade with Russia, the bulk of which was energy imports, actually declined to $7.9 billion, down 0.9%.
Seeing a silver lining in Russia's rising confrontation with the West, Turkish Energy Minister Taner Yildiz told reporters that Ankara has decided to take advantage of the political crisis in Ukraine to reduce the price of Russian natural gas imports and will ask Gazprom to consider offering discounts for its exports of natural gas to Turkey.

Yildiz added that he didn't expect political tensions in Ukraine to affect the flow of gas to Turkey through the Western pipeline, which delivers 16 billion cubic meters (bcm) annually of Russia fuel to Turkey.

Turkish Foreign Minister Ahmet Davutoglu has expressed similar views. Speaking about energy cooperation between Moscow and Ankara, Davutoglu said, "Relations between Turkey and Russia in the energy sector are not limited to the supply of natural gas, but extend to developing nuclear energy. We are making significant efforts to ensure that all these events (in Ukraine) do not have an adverse impact on our cooperation with Russia."

Moscow is apparently taking such concerns in stride, as Yildiz later said that Russia has expressed interest in acquiring or building Turkish gas-fired power plants and intends to propose building a natural gas storage facility in Turkey, with Russian energy officials scouting out possible sites for the facility. Turkey currently has natural gas storage capacities of about 2 bcm and is building an additional 5 bcm of capacity.
Underlining the importance of the Turkish market for Russian natural gas exports is Gazprom Deputy Chairman Alexander Medvedev's upcoming visit to Turkey. Geographic pragmatism and a long-standing business relationship mean that Turkey will sit on the sidelines of any future sanctions talk, and that Gazprom will seek to retain its prominence in Turkey's domestic natural gas market.

As rivals Azerbaijan and Iran are already supplying natural gas to the Turkish market and hoping to expand their presence there, expect to see Gazprom listen carefully to Turkish concerns and proposals lest Ankara take its business elsewhere.

This article was written by John Daly of Oilprice.com.
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