The Black Sea novel

The data on Russian gas purchases in 2022, finally disclosed by the Turkish side, would seem to be disheartening. Turkey reduced gas imports from Russia by 18%, to 21.5 billion cubic meters, while Gazprom, one of the largest suppliers to the Turkish market, lost the largest share. This looks especially sad if we remember that now, after the virtual cessation of supplies to Germany, Turkey has become the largest buyer of Russian gas – China may overtake it only by the end of 2023.

But it’s not worth worrying too much. First, there are obvious reasons for this reduction in purchases: in the face of a price shock in 2022 and the continued weakening of the lira, Turkey sought to reduce purchases under all contracts linked to European gas quotations. In addition, gas consumption in the country has fallen. This is not surprising, given that even at current gas prices of around $600 per thousand cubic meters, it is much cheaper to burn fuel oil, not to mention coal.

Secondly, unlike the situation in 2020, Turkey has no real alternative to Gazprom’s gas, since the cost of LNG in the European market is categorically not conducive to purchases. It now seems obvious that the Turkish authorities made a strategic mistake in 2020-2021 by postponing to the last moment the renewal of contracts with Gazprom for 8 billion cubic meters per year and tying their price to European gas indices instead of oil quotations. The Turkish government and the state-owned company Botas proceeded from the assumption that stable supplies of LNG to Europe would keep prices down there, and, of course, no one expected such a sharp withdrawal of Russian gas from the European market.

Now LNG and, paradoxically, Azerbaijani gas, where the contract price is also tied to the European market, have become too expensive for Turkey. In addition, the availability of LNG has seriously decreased, and it is difficult for Turkey to rely on it in the winter months, given the competition with Europe. And as the lira continues to weaken against the dollar, the ability of Turkish businesses to pay for gas imports in the same volumes looks doubtful.

In this situation, Russian gas remains the only source of flexible supplies for Turkey, and although Istanbul has been insisting on discounts for several months now, its negotiating position is not too strong now. Gazprom could probably go for a price cut in exchange for an increase in its gas sales through Turkey to Europe, for which it is now looking for ways to organize gas swaps with Azerbaijan and Iran. The existing infrastructure theoretically allows organizing such swaps in the amount of 8-10 billion cubic meters per year.