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Gazprom primed to boost exports to Turkey

Hydrocarbon Engineering,

According to Business Monitor International (BMI), Russia has agreed in principle to increase exports of natural gas to Turkey, following a meeting between Gazprom chief Alexei Miller and Turkish Energy Minister Taner Yildiz. The deal would send a further 3 billion m3 of gas via the Blue Stream pipeline, which connects the Beregovaya compressor station in Russia with Samsun, Turkey. Deliveries could begin from early 2016.

BMI holds that the agreement would help Turkey source new gas supplies from a relatively cost effective source. Turkey imports pipeline gas from three sources: Russia, Iran and Azerbaijan. Of the three, Azerbaijan reportedly offers the best price at US$ 335/1000 m3. This is possibly due to the short distance from the country to Turkey. In comparison, Russia sells for US$ 420/1000 m3, slightly more than average western European charges, and Iran charges US$ 490/1000 m3.

Turkey has already secured a new import deal with Azerbaijan for 6 billion m3 of natural gas from Phase II of the Shah Deniz project that will send gas into Europe. However, this will not begin delivery until 2018. BMI forecasts gas demand to increase by 4.6 billion m3 from 2014 to 2017. Russia’s Blue Stream expansion could play a significant role in filling the gap from 2016, before new Azeri gas arrives.

Turkey remains in dispute with Iran over the high gas process it charges and appears unlikely to be able to renegotiate contracts, despite filing a complaint in a court of arbitration. The country is therefore unlikely to boost imports from its most expensive pipeline source. Russia, which is increasingly falling out of favour with its largest Western European markets and seeing fewer growth opportunities, offers the middle ground, BMI suggests.

However, Russia already supplies the vast majority of Turkish gas, approximately 59% in 2013, and a 3 billion m3 expansion of the Blue Stream pipeline would increase this to approximately 61%. Such an agreement would also help Gazprom improve its sales following the loss of its third largest gas export market, Ukraine, in 2014.

Gazprom has been investing heavily in increasing the capacity of the gas network connecting western Siberian gas fields to the Black Sea in preparation for the South Stream pipeline. However, with the chances of a southern pipeline route into Europe looking increasingly less likely, as Western Europe looks to reduce its reliance on Russian gas, Gazprom’s investment in expanding capacity may not have been completely in vain, if it can be used in part for Turkey.

BMI highlights that the focus of EU sanctions has largely been on the oil sector and access to finance. As such, it is unlikely to hinder the Blue Stream expansion project. Gazprom has the financial capability to undertake this project, and it is unlikely that the company will require significant foreign expertise due to its domestic capabilities.

Adapted from a press release by Emma McAleavey.

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