Erdogan�s gas maneuvers

April 8 talks in Moscow between Russian President Vladimir Putin and Turkish President Erdogan failed to resolve an issue of optimization of prices for gas being sold to Turkey by the Russian Federation. For lack of appropriate agreements Turkey has for several months (since 2018) been reducing gas purchases from Russia and instead increasing them from Azerbaijan together with enhanced purchases of liquefied gas (LNG) from Mediterranean markets.

According to the earlier April data of the Energy Market Regulation Council of Turkey (EMRC), in January 2019 the import of the Russian gas dropped by 989 mln cubic meters (by 35%) and the import from Azerbaijan rose by 36,1% - to 808,36 mln cubic meters (13,91% of total volume of gas deliveries to Turkey). Also, Turkey received the Iranian gas by pipeline.

It should be added that the import of the American liquefied gas to Turkey rose by 460 mln cubic meters and reached 2, 34 bln cubic meters with due regard for LNG and deliveries from the south of Africa which is up just 1,13 bln cubic meters from volumes of pipeline gas from the Russian Federation, Azerbaijan and Iran.

Noteworthy is the fact that in February 2019 deliveries of the Russian gas to Turkey by a pipeline via Bulgaria dropped by 84%, in March by 75% (according to the European gas portal eegas.com).

Account has to be taken of Erdogan"s statement dated April 8 in Moscow (according to Kremlin"s official site): "I"d like to note that the trade turnover between our countries is developing in favor of Russia, because all of you are aware that we largely consume natural gas from Russia. Such an imbalance in trade is due to the import of natural gas from Russia. In course of time the situation may change ".

"It"d be wrong to insist that this imbalance will sharply change, for it is well known what kinds of products we buy and sell in/from Russia. The natural gas is topical for our country. We consume it in living quarters, industrial enterprises, and it is obvious that we are in need of it (81 provinces consume the gas). In so doing, this demand is 50% satisfied by the Russian Federation. Note that a pipeline has been laid via the Black Sea, and the marine section of the Turkish Stream has been over, while the laying of the land section is still underway, We"ll do our utmost to complete the land section till the end of the year," Erdogan held.

Putin"s answer was not late in arriving: "I"d like to add a few words. If it is talked about the trade balance with Turkey, this does not mean that all trade relations are developing in Russia"s favor. This is quite wrong. True, we are seeking to get trade relations balance. Your (President of Turkey) question is very urgent, that"s why I"ll say more on the subject. As for energy carriers Mr. Erdogan mentioned, appropriate prices are not formed at Gazprom"s will, they are formed on a market basis. Our Turkish friends insist on some decisions, while Gazprom, guided by commercial reasons, offers others. At any rate, we are sure to find appropriate decisions, for we appreciate the advantages of the Turkish market and our impetuously developing relations with Turkish partners and friends.

But I"d like to put foot down. The point is not in prices; it is in the stability of Russian gas deliveries. Note that Turkey has scores of gas delivery contracts; however, not all of them meet their commitments while Russia performs its obligations by volumes and prices on the basis of long-term contracts. Even better, Russia creates basic conditions for the development of the Turkish economy.

More to the point, at the Turkish government"s request Russia is raising volumes of our energy carriers to the Turkish market, since other partners of Turkey fail to cope with their liabilities while we are meeting our commitments irrevocably. In doing so, we realize that the trade should be more balanced, and we have talked about it today ".

To judge by Russian President"s statement, he is strongly concerned about rise of LNG purchases by Turkey from the US: the question is that the American liquefied gas is delivered to European markets in great volumes and at lower prices. Suffice it to say that more than 2 bln cubic meters of the American liquefied gas had been delivered to Europe in January-February. Also, Turkey has been purchasing LNG from Qatar for several years.

According to the GIIGNL international group of importers, in 2018, Turkey became the second biggest LNG importer in Europe after it increased gas purchase by 13.2% up to 8.3 million tons. Worthy of a note is the fact that in 2018, Turkey reduced purchase of Russian gas from 29 bln to 24 bln cubic meters per year, which is the lowest figure since 2012.

In conversation with ASTNA, a head of independent consulting firm "East European Gas Analysis," Michael Korchenkin pointed out that "Turkish stream" will be loaded under current circumstances by 30% of its capacity and when adjusted for Turkey"s threat to reduce purchases of the Russian pipeline gas, its transportation will prove very costly for "Gazprom".

It has to be kept in mind that "the competition at the gas market of Turkey tends to grow, while the Turkish stream severely restricts the competition capacities of Gazprom that has already expended over $20 billion for the Northern Stream-2 for Europe and is unwilling to lose money. For this reasons, the Russian Federation dislikes Turkey"s gas-related maneuvers," said M. Korchemkin.

As for Turkey"s purchases of pipeline gas from Azerbaijan in line with long-term contracts, the Shah Deniz-1 gas (it has been delivered for more than 10 years) has been added by gas delivered from Shah Deniz-2 since 2018.

Note that in 2018, Azerbaijan delivered 7 bln 521.15 mln cubic meters of gas to Turkey, including 1 bln cubic meters from Shah Deniz-2 through the new gas pipeline TANAP..

In 2019, Turkey will receive 4 bln cub m from "Shahdeniz-2" by TANAP while a total volume of gas purchases from Azerbaijan may reach 10 bln cub m and more.

Gas expert Gulmira Rzayeva told ASTNA that gas prices in Turkey are traditionally higher than that in Europe, thus they exceeded $220-250 and above per 1,000 cubic meters in 2018.

The essential point to remember is that "gas value from Shahdeniz for Turkey is far low than these prices, so Turkey will guaranteedly purchase the Azerbaijani gas ", G. Rzayeva emphasized.

As viewed by deputy director of information-analytical center "Alpari" Nataliya Milchakova, "the Azerbaijani gas is up 20% from the Russian gas, and the Russian Federation won"t lose a status of main gas supplier for Turkey".

"World gas prices are linked to oil prices that rose by 22,4% in the 1st quarter of 2019. It is not surprising that Turkey"s gas prices increased. In 2016, the Gazprom disclosed information about gas prices for Turkey: it supplied 1000 cubic meters at a price of $200-230. At present, with due regard for possible gas deduction the gas for Turkey is valued at $180 per 1000 cubic meters. To my thinking, an issue of gas price agreements may be settled not later than 2019. It should be understood that Turkey and Russia are jointly engaged in laying "Turkish stream." Note that in terms of high oil prices the Gazprom is far easier to provide discounts at contractual prices to permanent partners than in terms of drop in prices", N. Milchakova noted.

In the words of deputy director of the Fund of National Energy Security, Alexey Grivach, at present long-term contract prices of "Gazprom" are higher than whole sale gas prices at the unfettered market.

It has to be kept in mind that Turkey is "a risk zone for "Gazprom". The point is that there are structural problems at the Turkish gas market. It was the price formation at domestic market of Turkey that led to financial problems of private importers of the Republic that largely purchased the Russian gas. More importantly, last and this year marked Turkey"s increased LNG import, and full-scale start-up of "Southern gas corridor " (SGC from Azerbaijan). Note that the increase in gas supply from various sources is an additional factor of demand lessening on import of the Russian gas ", according to FNES deputy director.

Thus, the struggle for the Turkish gas market is intensified, so the equity participation of gas suppliers, including Azerbaijan, is likely to undergo changes in the nearest years.