Rising Gas Consumption Reveals Structural Problems in Turkey’s Energy Policies

Publication: Eurasia Daily Monitor Volume: 9 Issue: 32

(Source: Atlantic Council)

Heavy winter conditions have strained natural gas supplies in Turkey, shedding critical light on the country’s over reliance on hydrocarbons. Due to the record increases in household consumption and electricity demand, which coincided with interruptions in gas imports from Iran and Azerbaijan, concerns were raised as to whether Ankara’s current contracts meet its actual demand, and how this will affect its future energy policies.

In early February, some media reports speculated that Russian gas shipments through the Western line declined by 30 percent. However, it was later explained that the declining shipment was due to Ukraine’s tapping the gas from the same route beyond normal levels, and Russia did not officially cut its exports to Turkey (Aksam, February 4). As Turkey’s largest gas supplier, Russia has been reliable so far. In the past, Russia even stepped in to make up for deficient quantities of gas when Turkey encountered shortages with other suppliers, especially Iran. Last December, Turkey agreed to renew a supply contract with Russia, which also foresaw a partial reduction in price in return for Ankara’s support for the South Stream project. In hindsight, it appears that Ankara’s decision to renew that contract, despite its initial objections, was motivated in part by the anticipated increased demand.

The imports from Iran, the second largest supplier, have been problematic. Upon failure to bridge the differences in negotiations that were in progress, the Energy Minister Taner Yildiz announced that Turkey had decided to take Iran to the International Court of Arbitration. The negotiations pertained to two interrelated issues. While Turkey is contracted to import 10 billion cubic meters (bcm) annually gas from Iran, it maintains that Tehran fell short of meeting that target and it imported around 7 bcm to 8 bcm per annum. Ankara wanted to import the excess amount accumulated in the last two years. Also, Turkey was demanding a discount, as it paid the highest price for Iranian gas. The law suit was lodged on the first issue, and if no agreement is reached in the price discount dispute, Turkey will also take it to arbitration in March (Radikal, February 1).

A few days later, gas supplies from Iran fell dramatically, due to technical problems. Reportedly, the compressor stations were experiencing technical failures. As a similar problem was also encountered with gas supplies from Azerbaijan, Turkey’s third largest provider, the gas flow from the eastern pipeline declined by around 85 percent. While on average the flow was around 40 million cubic meters (mcm) per day, it fell to 6 mcm per day. Turkey’s average daily consumption also reached as high as 192 mcm per day, while last year it was around 171 mcm per day (Anadolu Ajansi, February 7).

The technical problems were solved within a few days and the gas flow returned to normal levels, but this development underscored the fragile nature of the country’s gas supplies. To alleviate growing public concerns, Yildiz announced that there was no immediate risk to shipments from Russia, and consumers will not experience any shortages. Turkey undertook several precautions. The power stations that convert natural gas to electricity either stopped production or shifted to secondary fuels. Also, Turkey made greater utilization of LNG conversion stations and tapped the reserves in underground storage facility in Silivri. Periodically, electricity supplies were also interrupted in some areas (Zaman, February 4).

Despite the minister’s efforts to reassure consumers, experts highlight several problems in Turkey’s natural gas supplies. Electricity producers complained that the secondary fuels are more expensive and increase the price by around 10 percent (Milliyet, February 5). Due to rising demand and declining production at natural gas-based power plants, electricity prices skyrocketed in the free market where producers and distributors meet (Zaman, February 13). Producers and distributors are concerned that electricity generation costs have exceeded the price guarantees in the contracts, forcing them into net losses. Yildiz contradicted those claims, arguing that such seasonal fluctuations need to be seen as normal developments (Anadolu Ajansi, February 14).

Moreover, shortcomings in reserves were also revealed during this crisis. Turkey’s underground storage facilities in Silivri have a capacity of 2.6 bcm and BOTAS is expected to keep 2.1 bcm in reserves, which will be enough to meet Turkey’s needs for around two weeks. As Turkey tapped these reserves in response to declining deliveries, it has been argued that BOTAS’ failure to fill it to full capacity before the winter was a major mistake. However, BOTAS issued a statement, maintaining that it stored quantities above the minimum levels required by existing legal provisions (Zaman, February 9). Granted, this development underscores Turkey’s poor capacity in managing its strategic reserves. It also demonstrates that despite its claims to be emerging as a major energy hub Turkey’s current capacity to manage that hub still remains unsatisfactory.

To enhance that capacity Turkey finalized a protracted tender last fall with a Chinese company that will construct storage facilities in Tuz Golu (Salt Lake) near Ankara, which will have a capacity of 1 bcm. More importantly, the electricity producers’ association painted a very grim picture of the balance between demand and contracted gas supplies. While Turkey’s current contracts enable it to import around 170 mcm daily, its average daily consumption is around 180 mcm per day.

They maintain that the problem is not just conjectural and cannot be explained by seasonal conditions. Rather, Turkey’s excessive reliance on natural gas for electricity generation appears to be a source of the problem (www.haberturk.com, February 13). According to Energy Market Regulatory Agency, Turkey imported 40 bcm gas and consumed 43.5 bcm in 2012, its consumption is expected to reach 48.5 bcm. While around half of Turkey’s electricity is produced from natural gas, slightly over half of its gas imports are used in power plants.

Electricity producers argue that Turkey urgently needs to reduce the share of gas in electricity generation to around 30 percent through greater use of renewables, domestic resources and nuclear power. This is a problem emphasized a long time ago and energy strategy documents have stated it as their objective to undercut dependence on gas. Yildiz also reiterated it recently. There is a broad consensus inside Turkey on the need to significantly revise its energy policies, but it seems there is less consensus on “how” and “how soon” Turkey should achieve a more balanced energy mix.