"The Turkish prospects for Russian gas exports are unstable and short-lived"

The the Russian Gas Society journal (No.1-2. 2024. pp. 50-59) published an article by Alexey Belogoryev, Research and Development Director of the Institute for Energy and Finance, titled "The Turkish prospects for Russian gas exports are unstable and short-lived."

Turkey, along with China, has become in 2024 and, obviously, will remain for a long time the main market for Russian pipeline gas. In 2023, its share in total pipeline gas exports reached an unprecedented 20.4%, although in 2019 it barely reached 6-7%.

Turkey's role as a transit country for Russian gas has also increased significantly: half of all Russian supplies to the EU and former Yugoslavia now pass through the Turkish Stream. From 2025, taking into account the expected reduction, and in an unfavorable scenario, the termination of Ukrainian transit, Turkey's importance will increase even more. Especially if the initially high expectations from the formation of the Turkish gas hub are at least partially justified.

Russia is also interested in the Turkish LNG market, especially against the background of the expected introduction of an embargo on it from the EU in the future. Turkey has already become a significant export market for the Portovaya LNG plant.

At the same time, the long-term gas balance in Turkey is developing in an unfavorable direction for Russia: at some point, Turkey may simply not need Russian gas.

Demand dynamics

In recent years, Turkey has been implementing a large-scale program for the development of hydropower, wind and solar power generation. In 2023, the share of renewable energy in total electricity generation, taking into account large hydrogenation, was supposed to reach 50% according to government plans, but actually rose to only 34%. However, this did not prevent a progressive reduction in the share of gas – from 27.6% in 2021 to 17.0% in 2023. The production of gas generation fell by 38% in 2023 comparing to the indicator of 2021, while it increased in coal by 13.3%, hydropower by 14.8%, wind by 9.4%, solar by 38.7%.

Demand prospects

Despite the likely further increase in gas consumption in industry and households (provided that strong price subsidies are maintained), the expected gradual decrease in gas use in the electric power industry will, according to our assessment, lead to long-term stabilization of domestic gas consumption in Turkey in the range of 54-68 billion cubic meters, which means its recovery growth to the current low level.

The role of UGS

The development of UGS dramatically reduces Turkey's dependence on Russian gas supplies in winter: previously, Russian pipeline gas was most often used to cover gas shortages during peak days. We can also expect a noticeable reduction in the seasonal volatility of gas imports due to a significant increase in gas injection into UGS in summer and its withdrawal in winter.

Prospects for own production

In August 2020, the large Sakarya natural gas field was discovered on the shelf of the Black Sea (the Tuna-1 ultra-deep well). Initially, its proven reserves were estimated at 320 billion m3, as of the beginning of 2022, the official estimate has been increased to 540 billion m3. Production at Sakarya began in the autumn of 2023, and total gas production in Turkey is expected to go up sharply. At the first stage, production at Sakarya is planned to increase to 10 million cubic meters per day (about 3.6 billion per year), in the future – to the design level of 40 million cubic meters per day (about 14.6 billion per year).

Gas imports

So far, according to the results of January-May 2024, domestic gas production covers only slightly more than 3% of total gas consumption in the country, and even against the background of production growth, imports will remain the main source of gas supply for decades.

The Turkish Gas Hub

Speaking about the gas hub, it is necessary to separate its two different natures: physical (reception and distribution of gas) and commercial (implementation of trade transactions and pricing). Turkey has the potential to develop both, but at the moment we can mainly talk about the physical hub formation.

As the experience of developing gas hubs in the EU shows, creating an attractive and liquid trading hub for a wide range of suppliers is a long and difficult task. Turkey will not be able to solve it before 2030.

The need for Russian gas

Starting from 2027-2028 (depending on the dynamics of domestic consumption and production), Turkey will be able to completely do without imports from Russia in case of price uncompetitiveness of Russian gas.