Energy researcher Irina Mironova writes that a Turkish gas hub where Russian natural gas can be traded is becoming a tangible reality, with the project’s launch planned for 2024. However, the primary purpose will not be to maintaining Russia’s gas exports to the West, but rather advancing Turkey’s longstanding aspirations for EU membership.
In October 2022, two weeks after the Nord Stream explosions, which deprived Russia of one of its key export routes to Europe, President Putin suggested that Russia would establish the “largest gas hub” for deliveries to Europe in Turkey. The news was immediately picked up by both Russian and international media.In fact, Turkey had been trying to promote the hub for the past 20 years, but until October 2022 Russia was not seen as a key player in this initiative. On the contrary, the feasibility of the project was justified by Turkey’s geographical proximity to the EU and interest in integrating with it.The EU, in turn, has viewed “hubs” as an efficient way to reform EU gas markets for several decades now. In 2014, the EFET (European Federation of Energy Traders) even identified the Turkish market as promising, noting that though Turkey, unlike the British NBP and the Dutch TTF, did not have a developed liquid hub, its market was more advanced than those of Hungary, Poland and Bulgaria.Then, why is Russia showing such keen interest in the development of the Turkish gas market currently? And will it be able to play a pivotal role in that process?What is Russia’s interest?Ever since the “gas for pipes” deal that brought Soviet gas to West Germany in the early 1970s, practically all Russian natural gas export initiatives were tied to Europe. Only a few years ago, the eastern route started to evolve with the Power of Siberia launch in 2019.Huge upstream investment has been made on the Yamal Peninsula over the past couple of decades, the idea being that Yamal gas will gradually replace Nadym-Pur-Taz production, which is in a declining phase. Currently, there is no physical capacity to move that gas anywhere but westward.Turkey is a stop on the way for Russian supplies headed to Europe that bypass the territory of Ukraine. The whole strategy of bypassing transit states was introduced in the mid-2000s and included Nord Stream in the Baltic Sea and South Stream in the Black Sea. Though neither project evolved as planned, Turkey remains a critical point for the southern vector of Russia’s European gas policy.For Russia, a natural gas trading hub in Turkey would mean an opportunity to still have some volumes of gas headed westward.Hub-based trading typically involves the purchase of a specified volume of gas without identifying its exact origin via electronic trading platforms. This “anonymized” gas, sourced from various suppliers, is delivered from the hub’s exit zone, which can be advantageous for maintaining supply volumes to a certain degree.Is Turkey ready for this?In 2022, following the major geopolitical crisis and explosions on Nord Stream, which led to a drastic 50% decline in Russia’s pipeline exports to Europe, Turkey became the leading pipeline gas importer from Russia, despite a decline in 2022 volumes versus 2021.
“Turkey has replaced Germany as the entry point for Russian gas to and key partner in the European gas market.”
Turk Stream, a natural gas pipeline running from Russia to Turkey.
The total capacity of Russian pipelines to Turkey amounts to nearly 50 bcm – and it remains the only real capacity to Europe still in service apart from that through Ukraine.Over the past 30 years, the role of Turkey has evolved from a relatively small consumer at the far end of the European pipeline network into a critical element of Russia’s remaining presence in the European market. In 1990, Turkey’s natural gas consumption was just over 3 billion cubic meters (bcm); in 2021, it set a record at 57 bcm.The USSR started to supply natural gas to Turkey in 1987 alongside gas exports to a large number of European countries. The gas traveled through the Trans-Balkan pipeline via Ukraine, Moldova, Romania and Bulgaria, and further from the Turkey-Bulgaria border by a trunk pipeline to Ankara. Today, there are two submarine pipelines that connect Russia and Turkey: Blue Stream (launched in 2003, it was a big step in Gazprom’s strategy to ensure presence in the Turkish market) and Turk Stream (launched in 2020).Whereas for Russia the gas hub in Turkey represents an opportunity to gain indirect access to the European market, for Turkey, as a candidate for EU membership, having a gas hub is an advantage. After the implementation of the Third Energy Package, hubs were introduced across the EU to reduce the risks of pricing not tied to the supply/demand balance in the natural gas market.However, to establish a gas hub in a broad sense, two factors are essential: market maturity in terms of physical characteristics (infrastructure, consumption volumes, etc.) and regulatory approaches for trading.Although the gas transportation infrastructure in Turkey is quite well developed and the country is active in purchasing gas in the spot market (in 2022, almost 35% of gas was imported under spot deals), Turkey still needs to maximize the ratio of volumes traded on the exchange to actual physical deliveries.Who is the boss?Seeing an additional venue for trading Russian gas, Russia has shown interest in this emerging “hub” and could expedite its growth by enhancing liquidity – by upping the physical volumes of gas traded.
“However, Russia’s direct ability to foster trading on the exchange seems limited. Moreover, disagreements on the choice of trading platforms for these transactions complicate Russia’s position.”
Furthermore, Turkey’s energy blueprint is centered around reducing its reliance on imported energy and diversifying its energy portfolio. The country is investing in domestic energy production, particularly in renewables and nuclear power. Notably, in 2022, gas imports saw a decline versus the previous year.In conclusion, portraying Russia as the main driver behind this venture would be a misrepresentation. For decades, Turkey has been steadily honing its gas trading mechanismsFor Turkey, the establishment of a gas market mirroring EU practices is not just about commerce – it’s a step closer to aligning with the major EU market and amplifying its trading power in both the Black Sea and Mediterranean Sea regions. Though Russia can bolster Turkey’s goals, primarily as a “liquidity provider” to Istanbul’s EXIST exchange, its involvement will ultimately be circumscribed by the priorities of the trading platform and, more broadly, Turkey’s market interests.
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