Appetite for Gas

Turkey

Economic News

22 Jul 2010
Text size +-
Recommend

The release of a report by the Union of Chambers of Turkish Engineers (TMMOB) in March has come as a confirmation of longstanding concerns in Turkey's energy sector. The country has a ravenous appetite for natural gas, which although currently being quenched by imports, preoccupies the government. Turkish gas consumption has risen in 2005, and is expected to continue doing so in the years ahead.



The TMMOB report highlighted the extent to which local consumption has grown, rising by 21.5% to 26.8bn cu metres in 2005 compared to the 1.6% annual global average. Moreover, Turkey's thirst for gas is expected to increase massively this year as well, with a 36.2% growth in consumption expected in 2006, equivalent to 30.1bn cu metres. A 90.3% increase is expected by 2010, with gas usage predicted to reach 42bn cu metres.



Gas now accounts for about one-fifth of Turkish energy consumption, but in line with TMMOB projections, that market share is expected to rise - local media reported that gas use in Istanbul hit a record high in January 2006. Up to 2003, gas was available in just five cities in the country - Istanbul, Ankara, Bursa, Izmit and Eskisehir - as the infrastructure required to distribute it had not yet been installed.



The Natural Gas Market Law of 2001 detailed a process to remedy that: a regulator was created and private-sector companies were invited to apply for distribution licences. The domestic transmission network is being expanded, but the companies who obtain distribution rights are also expected to build their own facilities for gas delivery within five years of winning their concessions.



There will also be costs for consumers, who must refit residences and commercial buildings. Having a house equipped to utilise gas may cost as much as $2200. There is also a connection fee of about $180. That would be a significant investment for poor rural families, who comprise about 40% of Turkey's 73m people. Analysts estimate that about half of the urban population, or about 21m people, will sign up for gas connections.



Contrary to the delayed privatisation of other segments of Turkey's energy sector, the selling of assets and rights in the natural gas distribution process is already underway. The country has been divided into regions for this purpose, and rights to distribute gas in these regions are being sold. Tenders for 38 of the 66 regions have already been awarded. However, progress has been slow enough that in 2004 the World Bank issued a report with suggestions for speeding up the process for liberalising the gas market as outlined in the 2001 law.



The privatisation process will also require the state oil and gas distributing company, Boru Hatlari Ile Petrol Tasima AS (BOTAS), to end its monopoly on imports. The company is required to sell 80% of its gas import contracts by 2009. The new gas law of 2002 also requires BOTAS to auction off at least 10% of its annual gas purchase rights annually.



The World Bank has suggested that getting BOTAS' share of imports down to 20% by 2009 is unrealistic and unnecessary. It recommended focusing on increasing competition and adding cost transparency. Some analysts have complained that there has been very little information released about the bidding process for distribution rights, as highlighted in the international lender's 2004 report.



There have been concerns raised over Turkey's increasing dependence on imported gas, especially regarding its growing usage for the generation of electricity, predicted to hit 45% in the coming years, and a lack of storage facilities. The latter worry hit the headlines during the dispute between Russia, Turkey's main supplier, and Ukraine, on the route of one of the pipelines running to Turkey. With Russia threatening to halt supplies through the line due to Ukraine's unpaid bills, blameless Turkey was faced with the prospect of seeing its own needs being left unmet. This in turn highlighted the country's lack of long-term storage facilities, with Turkey only able to stockpile a few days worth of gas as a back up.



However, at least a partial solution is at hand. After 2009, BOTAS will become a trade, transmission and storage company, according to its web site. In November 2005, the World Bank announced a $325m loan to Turkey intended to facilitate building a natural-gas storage facility capable of storing as much as 1.42bn cu metres of gas. Designs at this point promise the ability to deliver 40m cu metres of gas daily for 20 days. It would be refilled with a maximum of 30m cu metres per day over 25 days. The facility will be located in an underground salt formation south of Ankara in the central part of the country. There is also an underground gas reservoir close to the inland Sea of Marmara in the north-west of Turkey that can hold 1.6bn cu metres.



"Natural gas storage facilities constructed under this project will help keep the cost of natural gas more stable across the seasons, give better security of supply, and encourage the construction of gas distribution networks,'' said Andrew Vorkink, who heads the World Bank's efforts in Turkey, in a release announcing the financing project. Turkey in the meantime will remain hooked on its gas addiction.

Read Next:

In Turkey

Turkey’s electoral results show uptick in confidence

The return to single-party government and a commitment to fast track economic reforms have boosted investor confidence in Turkey, though rising inflation and low growth rates could hamper the...

Latest

Dubai, the region’s financial hub, doubles down on fintech

A series of recent developments have underlined Dubai’s commitment to strengthening its position as a regional financial technology (fintech) leader.