Turkey aims to serve as a gas provider for Europe
Turkey wants to become a global LNG exporter for the first time, striking multi-year deals with Total, Shell, and Exxon for gas supply. Their focus is on European gas clients, who may see temporary price drops as a result.
In an effort to decrease its reliance on Russia, the Turkish government intends to expand its gas supply sources. Furthermore, European gas consumers can anticipate benefits, as Turkey plans to commence gas sales to Europe. This could enhance Europe's overall supply stability and potentially lower prices in the long term.
To accomplish this goal, Turkey has secured or is in the process of securing bilion-dollar LNG contracts. On a recent Wednesday, Turkey's state-owned gas company, Botas, sealed a 10-year LNG supply agreement with French oil giant Total, valued at 1.2 million tons, with deliveries scheduled for 2027. Deliveries can be made via U.S. ports or terminals in Turkey and Europe.
In early September, Botas also signed a 10-year deal with British-Dutch multinational Shell for an additional 2.9 million tons of LNG, set to begin in 2027. Negotiations are ongoing with U.S. oil company Exxon for up to 2.5 million tons of LNG per year. These agreements show a shift in Turkey's supply approach, drawing it closer to the U.S. and Europe.
A Change at the Bosphorus
Previously, Botas procured gas only for domestic consumption, with sources primarily from Azerbaijan, Iran, and particularly Russia, which accounted for over 40% of Turkey's annual consumption the previous year.
With these new contracts, Turkey strengthens its bargaining power as existing agreements with Moscow and Tehran expire in 2025 and 2026. Additionally, Turkey becomes less reliant on the Kremlin and gains the opportunity to sell gas in Europe, as both Total and Shell contracts include pertinent clauses.
In 2021, Turkey made smaller export commitments to Bulgaria, Romania, Hungary, and Moldova. With these long-term supply contracts, exports could soon increase: Turkey intends to blend gas from various sources and offer it to European clients, particularly in Southeastern Europe. Botas has not ruled out further long-term LNG contracts.
From Transit Country to Europe's Gas Supplier
Previously, Turkey's export options to the West were limited by inadequate pipeline capacities. However, Turkey has significantly invested in LNG loading and storage facilities. Today, LNG covers around 30% of Turkey's gas imports, up from 15% a decade ago.
Gas production in the Black Sea is also on the rise, with the largest gas field in Turkey discovered there in 2020. Paired with long-term supply contracts, this could result in a surplus that Turkey can export in the medium term, according to Energy Minister Alparslan Bayraktar.
Ankara aims to establish itself as a regional gas supplier with these agreements. Currently, Turkey primarily serves as a transit country for deliveries from Azerbaijan's gas fields via the Trans-Anatolian Pipeline (TANAP) and the Trans-Adriatic Pipeline (TAP) to Europe. However, this could shift over the coming years. The EU's ambition is to achieve complete independence from Russian energy imports, whether oil or gas, by 2027. This is when deliveries from Total, Shell, and Exxon to Turkey are planned to commence.
After securing these deals, The Commission at the Turkish Energy Market Regulatory Authority (EPDK) will have a crucial role in ensuring the proper implementation of these contracts. Additionally, The Commission will oversee how these agreements contribute to reducing Turkey's dependence on Russian gas, furthering its ambition to become a major LNG exporter to Europe.
