Natural gas, subject to the whims of the oil market, is the dominant product in Turkey’s energy mix, playing a key role in electricity generation. Natural gas combined cycle power plants (CCPPs) with more than a quarter share in the country’s installed electricity power, are central to the management of electricity supply and demand as they are the easiest plants to switch on and off.
Natural gas-generated electricity has also experienced the fastest pace of growth in terms of coverage area in the 21st century. It is still a preferred energy type, along with renewable resources, because of its relatively lighter touch on the environment compared to other fossil fuels such as coal and oil. Under these circumstances, it is inevitable that Turkey, which is heavily dependent on foreign resources in energy, is affected by developments in this field. In fact, Turkey has a critical position in natural gas because of its high consumption, pipelines and newly discovered reserves.
LOW PRICES BENEFITTED TURKEY
The spot liquified natural gas (LNG) market has grown and expanded due to the impact of new technology and infrastructure over the last five to six years, according to Ali Arif Akturk, Energy Markets Specialist and Former Head of Natural Gas Purchasing Department of Petroleum Pipeline Company (B•TAS). “As economies contracted in 2020 across the world with the impact of the pandemic, oil and natural gas prices decreased,” said Akturk. Turkey benefitted from this and made proportionately its highest-ever LNG imports in 2020.
GAS PRICES HIT RECORD HIGH
However, natural gas prices started to increase in the last quarter of 2020 with the onset of postponed demand induced by the pandemic and have now hit record highs at both the National Balancing Point (NBP) in the UK and the Title Transfer Facility (TFF) in the Netherlands, currently the largest natural gas markets in Europe. Prices per metric million British Thermal Units (MMBTU) has increased from USD 5 to USD 14 in the Mediterranean basin. “A large part of this price hike happened in the last four to five years. This increase concerns Turkey as well as other natural gas importers in the region,” Akturk added.
RISE IN OIL PRICES AFFECTS GAS PRICES
Turkey’s long-term natural gas import contracts are still indexed heavily to oil, according to Akturk. The price that Turkey pays for natural gas imported within the scope of the long-term contracts is recalculated quarterly taking into account the last 6-month period. “The country purchases natural gas at a price set in line with this. That’s why increases in oil prices will affect prices included in the country’s long-term contracts,” Akturk noted.
‘NEW GAS SUPPLY SOURCES MUST BE FOUND’
Spot natural gas supply demand and natural gas use of CCPPs rise in the winter season, especially due to residential demand increases. As Akturk says, Turkey should import gas from new resources in order to meet the increasing demand. The country’s contractual supply opportunity amounts to 42 billion cubic meters. “However, there are also those who say the demand will reach 60 billion cubic meters. 57-58 billion cubic meters will be reached for sure,” Akturk noted.
‘GAS BILL JUMPS USD 2BN’
Gas demand for heating purposes will increase although it is changing in line with air temperatures after October. “Assuming an additional consumption of 6-8 billion cubic meters, this part will have to be supplied at new prices, i.e., higher unit prices. I think that this will have an additional impact of USD 1-2bn on our import bill,” said Ali Arif Akturk.