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Turkey to seek more flexible terms on new gas contracts after Black Sea find

Turkey to seek more flexible terms on new gas contracts after Black Sea find

Ankara, September 11 - Neftegaz.RU. Gas contracts that expire next year are unlikely to be renewed if suppliers approach the deals with 'the same old habits, no flexibility and not very competitive price offers,' a senior Turkish official said following the Black Sea gas discovery, Turkish Daily Sabah reported.

Starting in April, almost a 3rd of Turkey’s existing contracts, totaling 16 billion m3 a year, will expire over the next year, including those with Russia’s Gazprom, Azerbaijan’s SOCAR and the LNG deal with Nigeria. Those contracts are indexed to oil prices and include take-or-pay clauses.

“We started to discuss whether we are going to renew them or whether we are going to find alternative supply," the Turkish energy ministry official told reporters. “It depends on the suppliers and it depends on the market players what kind of terms and conditions they are going to give us.”

If the suppliers approach the agreements with the “same old habits, no flexibility, not very competitive price offers, ... I don’t think we will see the existing contracts continue," said the official, who spoke on condition of anonymity.

Turkey heavily relies on imported resources to meet its energy demand. It imports 92% of its crude oil needs and almost the entire gas demand and gas consumption. The country has been paying around $44 billion per year for energy imports over the last decade, the official said.

The country has seen a noteworthy drop in imports from its major markets such as Russia and Iran in the 1st half of 2020, while imports from Azerbaijan and LNG imports from the U.S. surged.

Natural gas imports from Iran and Russia declined by 44.8% and 41.5%, respectively, from January through June, according to data by the Energy Market Regulatory Authority (EPDK).

“Every year, we were paying $44 billion on average to import energy, and this is the main reason that the Turkish economy creates a current account deficit,” he noted, stressing that the main reason behind Turkey’s comprehensive long-term offshore and onshore upstream activities has been to reduce external dependency on oil and gas.

The country has also been boosting its energy infrastructure investments, including increasing its regasification capacity, citing the advantage of cheaper LNG prices.

“The last couple of months, the LNG supply to the Turkish gas market was very significant, and the U.S. all of a sudden became the 2nd-largest supplier in the 1st part of 2020,” said the official. “But again, the main reason was that they were very competitive. And I believe that the other suppliers will understand this development and will provide what the market needs.”

“And that’s why when you look at today’s share of, let’s say, Russian supply to Turkey, it has very significantly decreased, but it is not related to our contracts or it is not related to changing supply portfolio. It is related to basically the competitiveness of gas, and when you have a very old fashioned, oil-indexed take-or-pay contract, it does not fit today’s realities,” the official explained.

Turkey expects the field discovered last month, the largest in the country’s history, to meet 30% of its domestic gas demand when plateau production is reached, which is currently planned for 2025. The country said the field in the Tuna-1 location of the Sakarya Gas Field in the Black Sea contains 320 bcm of recoverable gas.