4 firms take over Western Pipeline gas deal

August 12, 2012, Sunday/ 14:26:00

Four private Turkish energy companies have shaken hands with Russian gas supplier Gazprom for the delivery of natural gas via the Western Pipeline, a strategic line that feeds megacity İstanbul and a few other neighboring provinces.

Back in October, the state-owned Turkish Pipeline Corporation (BOTAŞ) notified Gazprom that its contract would be terminated. Gazprom said it was ready to supply the same amount of gas to private companies.

Turkey is Gazprom's second-largest gas consumer.

Turkey's first ever natural gas deal in 1986, the Western Pipeline carries 6 billion cubic meters (cm) of Russian gas to Turkey's industrialized and heavily populated western provinces, including İstanbul. This amount accounts for 15 percent of the total annual natural gas consumption in Turkey, a critical share. According to the '86 Western Pipeline agreement, either side has to notify the other of its intention to terminate the contract six months before Dec. 31, 2011, or the contract would continue for five more years. BOTAŞ was expected to renew the deal for another five years but changed its mind upon Gazprom's refusal to reduce the price of natural gas to what it considers an “affordable level.” Following the termination of the 25-year-old agreement in December, BOTAŞ decided to transfer the right to purchase natural gas to private companies.

The decision whetted many firms' appetite, with 26 of them flocking to Energy Market Regulatory Agency (EPDK) offices to apply for approval to negotiate a deal with Gazprom. The EPDK said licenses would be ready once the firms come back with an agreement with the Russian giant. Only four of them were able to do so. The largest share belongs to Turkey's Akfel -- via its subsidiary Enerco -- with 2.5 billion cm, followed by BosphorusGaz (750 million cm), Avrasya Gaz (500 million cm) and Shell Gas (250 million cm). These companies are expected to commence their gas purchases via the Western Pipeline and sell to local customers by the beginning of 2013.

Mixed feelings on gas front

The deals were welcomed by some analysts who said diversifying Turkey's energy supply channels via private companies was an important step. Observers argued that private firms would be able to negotiate better terms and thus provide gas at lower prices. Some other parties alleged that the government was turning the pipeline deal over to private companies that are politically affiliated -- or close to ruling party.

The decision over the Western Pipeline does not mean the end of relations at the government level with Gazprom. Turkey earlier announced it would intensify its cooperation with Russia by means of the Blue Stream pipeline on the Black Sea seabed, which supplies 8 billion cm of natural gas to Turkey annually. Turkey had last year given a nod to a South Stream pipeline project which would transport Russian natural gas to Europe via Turkish territorial waters. The pipeline is scheduled to be completed by the end of 2015.

Other options to reach gas-hungry Europe that exclude Russia remain a negotiation card which Turkey could use with Russia. Ankara has recently signed an agreement for the 2,400-mile, $5 billion Trans-Anatolian gas pipeline (TANAP) with Baku, stretching from Turkey's eastern to western borders. Moscow sees TANAP as a rival to its planned South Stream trunk and has already expressed its disappointment with the deal.

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