Operating since 1984, the Palmet Companies Group entered the energy sector with natural gas lines starting in the 1990s across Turkey. Palmet’s subsidiaries, Palgaz and Palen, won the tenders for Natural gas Distribution Licenses in the Gebze and Erzurum provinces after the Energy Market Regulatory Authority was founded in 2001. Palmet Enerji currently operates in four main business lines, including intra-city natural gas distribution, Liquified Natural Gas (LNG) import and sales, power generation and electricity trade. The group also generates electricity from natural gas and has updated its investment plans to include a chain hydroelectric power station in Erzincan.
Palment’s distribution chain currently delivers natural to 820,000 customers, according to Doganay Samuray, the company’s CEO. “The gas produced and transported by the company and used at its power plants totals 6.6 billion cubic meters (BCM). This corresponds to around 12% of Turkey’s total consumption,” he said. Palmet’s total turnover amounts to around USD 500m. The company has an installed capacity of about 1,000 megawatts (MW) of electricity which is completely fired by natural gas. “We plan to generate 4.5-billion-kilowatt hours of electricity this year and next year,” Samuray noted.
Turkey is about to enter a period of high demand for energy as it gradually opens following the lockdown, Samuray noted. “Tourism and other services sectors were severely affected due to the pandemic last year. Now, resorts and hotels are starting to operate in the Southern and Aegean regions. Both tourism and the manufacturing industries consume energy.”
Samuray expects high electricity consumption and low hydroelectric potential as dams this year lack power potential. Moreover, electricity and natural gas prices will also increase, he adds.
Gas prices are basically indexed to Brent crude prices and traded in USD. In terms of the current outlook, Brent crude is above USD 70 per barrel while USD is on the rise relative to the TRY. On the other hand, natural gas fired power generation will play the main role due to consumption increases and decreases in hydroelectricity resources.
“New LNG production capacities have filled the gap for many regions around the world, including Australia, especially in the last three years,” Samuray said. “That’s why there is a considerable surplus in LNG production.”
Unlike production increases, LNG prices are not decreasing. “Prices declined in the U.S. market only last year and didn’t affect our Mediterranean market that much,” Samuray noted. In this sense, LNG seems to not put a downward pressure on natural gas and electricity prices in Turkey.
However, LNG price projections for Palmet are changing over the long run. Both LNG and pipeline gas will decrease in the long term, its CEO expects.
Palmet also aims to replace the import contracts of BOTAS Petroleum Pipeline Corporation. The company is looking for an opportunity for convenient gas purchases in terms of price and flexibility of contracts. “We want contracts offering the ability to change gas pulling amounts if required as well as contracts that allow for taking global and Turkish prices as the reference,” Samuray said.
TURKEY SHOULD HAVE RIGHT TO RE-EXPORT
There hasn’t been any contract enabling re-exports from Turkey so far, Samuray said. . In other words, there is no right to sell purchased natural gas to third countries, for now. “Sellers always sign contracts that specify the gas will be used in Turkey. But it will be an important achievement if we can make a contract recognizing the right to sell gas to specific countries with a special deal,” he added, noting that re-sale rights will obviously have to be limited.
“If a company gives its customer the right to sell to another market, it will then create a rival for that country.”
Suppliers manage contracts with different commercial terms for each country. For example, the price of natural gas purchased by Palmet from Iran is different from the price given to other countries. Similarly for Russian gas.
On the other hand, Turkey has gas infrastructure through which natural gas can exit the country through Bulgaria or Greece. The Malkoclar station located on the northwest edge of Turkey also allows bi-directional flow. That’s why natural gas in the country’s network can be transported abroad through this station.
Transaction volumes at ‘VEP’ to increase
Manufacturers complain about unpredictable electricity prices but Doganay Samuray, Palmet Company Group CEO, points to Turkey’s Energy Exchange Istanbul (EPIAS) and the recently launched EPIAS Power Future Markets (VEP). “Hesitant manufacturers can carry out transactions at VEP and purchase electricity at fixed and forward prices if they have a certain production plan and production contracts,” he said, stressing that a similar implementation can be carried out for natural gas. “This is a new instrument but I think that transaction volumes will increase in this market in the future.”