Turkey moves to diversify gas supply after Russia row

Moscow has established a reputation as a reliable supplier to Ankara by increasing gas supplies to Turkey when Iran cuts its exports to meet domestic demand, a near annual occurrence. But fears about Russia’s reliability as a partner have risen since a recent trade row that began when Russian customs officials curbed Turkish exports. Moscow has offered no explanation and Turkey  has since responded in turn. “Turkey is in a sort of a bind, because it is vulnerable to Russia for more than 60% of its natural gas and 50% of its oil. And it is vulnerable because we see there are no alternatives,” said Wolfango Piccoli, analyst at Eurasiagroup.

NATO-member Turkey has been in a difficult situation since Russia’s intervention in Georgia last month, trying to maintain good relations with its biggest trade partner and energy supplier while upholding its NATO obligations. Russia supplies more than 60% of Turkey’s natural gas needs through two pipelines, but raises its exports significantly when Turkey’s second largest gas supplier Iran turns off its exports. Turkey regularly experiences problems with Iran, where poor infrastructure leads to cuts during wintertime.

Most recently Iran had to stop exports this year to meet domestic demand after Turkmenistan halted supplies during a pricing disagreement. Turkish energy firms, including state-owned pipeline company Botas, have applied to Turkey’s energy markets regulator for licenses to buy liquefied natural gas from the spot market in case Ankara finds itself in a tight spot during the winter months. “Turkey makes up for deficits in natural gas supply from Iran by importing more from Russia. We are aiming at meeting demand by importing from the spot LNG market in case there are any problems experienced with Russia,” said a senior level official at Botas.

Analysts have said increased tensions between Turkey and Russia and the ensuing trade row looks to be punishment for Ankara’s decision to allow two US ships to pass through the Bosphorus Strait to provide aid to Georgia after Moscow’s military action there. Tensions have made some analysts ponder the possibility of Russia making similar moves in its energy relations.

 
GEOPOLITICS AND ENERGY

Turkey has also asked Azerbaijan to increase is natural gas imports to Turkey after the second phase of the Azeri Shakh-Deniz project begins, and Hilmi Guler is flying on Monday to Baku, where he is expected to repeat his request. “When looking at accidents, force majeures, we notice that geopolitics and energy supplies are more tightly interwoven. In the short term it is important that Turkey has a flexible gas source network as possible,” said the International Energy Agency’s chief economist Fatih Birol. Turkey also exports to Greece gas supplies, which are seen growing to 3 billion cubic meters annually.

But energy relations between Turkey and Russia will be determined mostly by the role the United States wishes to play in the Black Sea and Turkey’s adherence to the Montreux Treaty, which regulates traffic into the Black Sea through the Istanbul Strait, said Piccoli. “Things depend on the United States and the role they want to play in the Black Sea. Turkey would find itself in a tight place if the United States wants to up its force on the Black Sea,” he said.

Some analysts still see Russia trying to make Turkey happy in the energy sector as Moscow’s largest state-owned energy company Gazprom is eager to get into Turkey’s downstream energy sector. Turkey is holding a number of natural gas distribution grid sell-offs during Turkey’s energy markets liberalization process, which Gazprom has expressed interest in.

Turkish energy companies said they doubt Russia will put its energy relations with Turkey at risk, but said they fear what such a move could do to industry during winter months. “We hope (Russian refusal to supply additional gas) doesn’t happen. That would be the first time Russia, which has been a reliable supplier to Turkey, would do something like that,” said a Turkish energy company that relies solely on Russian natural gas for its activities. (Reuters)