петък, 1 януари 2016 г.

The fallout from the crisis between Russia and Turkey on the regional energy market - excerpts

Although it is highly unlikely that President Putin will risk cutting off gas supplies to Turkey rising tensions between the two countries leave little room for analysts not to perceive a major change in the energy security map in the region with reflections on ongoing projects.
There are bluffs on both sides.
President Erdogan is bluffing that he could replace short term Russian gas with LNG contracts or alternate gas deliveries from Azerbaijan, Iran or Iraq. Suffice to look at the gas system network, the regasification and storage capacities at the two acting terminals - at Marmara Ereglisi and Aliaga near Izmir. At their maximum they could allow imports of less than 14 billion cubic meters, but only 3 billion cubic meters of storage, whereas Russian imports already top 27 billion cubic meters in 2014 with plenty of options for base and peak delivery.
Some of the gas Turkey needs to meet peak demand is simply not there adding to the uncertainties in covering winter demand in extremely low temperatures, should Russia decide to cut off gas supplies.
Observers note that Iran's credibility as potential swing gas supplier invites more than reasons for doubt. The record of Iranian gas supplies to Turkey is ambiguous at best with many instances of gas cutoffs in extremely low winter periods, when consumption in Iran rises dramatically. In all instances it has been Gazprom stepping in to cover emergencies - hence Russian gas supplies are indispensable for now. None of the other suppliers - neither Azerbaijan, Iraq or the LNG could match the role Russian gas plays at the moment.
Even if per chance Ankara is able to identify alternative stand by suppliers capable of substituting Gazprom - the Turkish gas network is not ready to dramatically increase its transport capacity from the existing levels at entry points to the largest consumption area - the Marmara area.
Turkey does not have major storage facilities and the existing system line pack is also inadequate to mitigate short term cut offs, which makes internal gas system balancing a challenge in itself.
The likely gap is estimated at almost 20+ billion cubic meters (Turkey is one of the few markets with growing demand). Only Gazprom is capable to play the role of swing producer in the next 2-3 years with more that 200 billion cubic meters of dormant gas production and at least 10 billion cubic meters in free capacity to deliver gas to Turkey both via the Transbalkan and the Blue Stream routes. Recent data from Ukrtransgaz refer to an increase of gas flows destined to Turkey in 2015 by almost a billion cubic meters in the 4Q of 2015 to 7,5 bcm.
The planned new gas pipeline from Kurdistan that could potential solve the problem and bring some 20 billion cubic meters after 2020 (the capacity has been upscaled in recent talks at highest level from 10 bcm/y) is at least three years away and many more well drilling work before it makes a credible alternative.
Turkey's energy ministry and the government in general have been hastily reviewing an upgrade to the emergency gas supply plans and options. A strategic decision has been taken to lower the level of dependency on Russian gas from approximately 60% to around 30% in the next three years.
In light of the volumes implied and the uncertainties in availability of alternative gas from Iraq or LNG the Turkish authorities might be tempted to use greater volumes of Azeri gas flowing through the TANAP, thus restricting gas flows leaving Turkey - either in the direction of TAP or the IGB. Whereas the scale of the IGB could allow it potentially to source out gas from existing or new LNG facilities in Greece - such a development could compromise the economics of the TAP and force last minute search for additional guarantees and back up supplies.
As 50% of imported gas in Turkey is used to generate electricity the Turkish power sector will inevitably experience a risk spill over from the gas sector.
Although it is premature to consider any final judgement on the future of the Nuclear Power Plant in Akkuyu, any delay will dramatically impact power balancing in Turkey after 2020, forcing it to import more power and speed up alternative power generation. NPP's are incredibly difficult to stop or restart hence any perception of uncertainty and political risks that are impossible to mitigate would instantly reflect on plans to start construction works next year.
In short - Ankara choice to ignore President Putin's harsh rhetoric makes sense - Turkey has more to loose if it engages in a tit for tat. But mid term - Turkey will be inevitably rerouting its energy sector away from business with Russia.

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