- The Writer holds an MSc in Eurasian Political Economy & Energy from King’s College London and also an MA in European Studies from Sabancı University.
Due to the nature of Turkey’s conventional natural gas agreements, based on long-term, oil indexed and take-or-pay terms, Turkey may need to pay for gas it has not consumed. This contradicts the essence and prerequisite of an energy hub as “a place where energy is bought and sold” as stated by energy security expert John Roberts, a senior partner with Methinks Ltd. Among all other requirements of an energy trading hub, Turkey must have the right to re-export gas under any circumstances to become a genuine hub as well as for energy security reasons. In reality, however, Turkey has no rights in this regard with the exception of gas contracts agreed with Azerbaijan.
And even these contracts have limitations in that they stipulate that Turkey can only re-export gas to Greece at a maximum of 750 million cubic meters (mcm) of gas annually. The main reason why Turkey has not been able to secure more significant re-export rights is due to the fact that energy producer countries do not like that gas importer countries could profit from gas which originates from their territories.
However, other conditions to support Turkey’s ambitions in becoming a hub must also be addressed. Firstly, the weight of gas-to-gas competition - a price formation mechanism, should be internalized or to put it simply, gas prices should be set by the fundamentals of supply and demand. Secondly, a transition towards flexible and dynamic market contracts, varying from short-term to spots and hub pricing, should be integrated and supported with a new legal and regulatory framework. Thirdly, a greater volume of LNG should be facilitated and integrated into the system to balance the risks associated with pipeline-based gas.
Only when Turkey overcomes these major hurdles and becomes a genuine energy trading hub in the region, would it be able to have a more influential role in regional energy geo-politics. Additionally, Turkey would be able to enhance its international standing, which eventually would contribute to the overall energy security of both Turkey and the EU.
If Turkey fails to diversify its supply sources, reduce its dependency on a few natural gas provider, liberalize its natural gas market, build better storage facilities and increase funding for the construction of gas transfer units, its ambition of becoming a physical energy hub country in its region will not be achieved.
Turkey’s successful advancement to the status of gas hub can only be realized through committed political will, based on a solid market culture, in which a deregulated market will operate transparently and with broad liquidity and flexibility.
To help elevate Turkey’s current status from that of an energy corridor to an energy hub, multiple gas supplies with the help of larger financial players, and the provision of non-discriminatory access to gas storage would be required.
Overall, when taking into account the hub conditions which I listed and comprehensively discussed in my previous analysis, becoming an energy hub has multiple preconditions that must be fulfilled.
Therefore, Turkey has to secure the right to re-export gas and build bigger storage facilities and terminals, liberalize the gas market and develop a strong infrastructure to bring about a more transparent, functioning and competitive gas transit system by which foundations can be laid down to establish a genuine energy hub.
- Opinions expressed in this piece are the author’s own and do not necessarily reflect Anadolu Agency's editorial policy.