Is Turkey's LNG deal with ExxonMobil aimed at reducing dependence on Russian gas?

By Asif Aydinli

The agreement between Turkish energy company BOTAS and ExxonMobil to import up t o 2.5 million tonnes of LNG annually from the US for a decade marks a significant development in Turkey's energy landscape. Minister Alparslan Bayraktar's affirmation of this deal as a stride towards resource diversification underscores Turkey's commitment to ensuring energy security. Turkey's substantial re-gasification capacity further solidifies its position as a key player in the regional energy market, with the potential to bolster both domestic and regional energy supply stability. However, this development has led to speculation about whether Ankara intends to reduce its dependence on Russian gas in the future.

Does Ankara plan to reduce its dependence on Russian gas in the near future?

A leading analyst at the National Energy Security Fund and an expert at the Financial University under the Government of the Russian Federation, Igor Yushkov , answered this and other questions from News.Az.

According to him, Turkey consistently follows a strategy of diversifying its gas sources, which allows it to choose the most advantageous offers at any given time. The expiration of contracts with key suppliers such as Gazprom and Iranian companies opens new prospects for negotiations for Ankara.

"As these contracts are about to expire, Turkey gets a unique opportunity to revise the terms and, possibly, improve them by signing new agreements with other suppliers. This will allow the country not only to optimize energy costs but also to strengthen its negotiating position by using the competition among suppliers to its advantage. Such a policy not only helps improve the economic conditions of supplies but also ensures greater energy security by reducing dependence on one or a few sources.

Turkey effectively uses the strategy of diversifying gas suppliers to achieve maximum economic benefits. Gas supply contracts, associated with different terms and pricing mechanisms, are mostly oriented towards the spot prices of the European market. This allows Turkey to use the differences in pricing between spot prices and the terms of long-term contracts.
For example, Gazprom has several contracts with Turkish companies that may differ in the time lag — in some cases, the lag is one month, in others, it is longer. Also, not all Gazprom contracts fully disclose the pricing formula, and some may include oil indexing, which adds additional variability to the cost," Yushkov noted.

In such conditions, Turkey can promptly respond to market price changes: if spot prices fall, as happened in 2023, the country can increase purchases on the spot market, minimizing purchases under long-term contracts with higher lags, the expert said.

"When spot market prices rise, Turkey can increase the take-off under long-term contracts, where the lag allows purchasing gas at lower prices. This flexibility in choosing suppliers and purchasing strategies helps Turkey ensure energy security and economic efficiency.

Turkey employs the tactic of purchasing additional volumes of gas from Gazprom during periods when spot market prices start to rise, while Gazprom's prices have yet to react to the changes. This allows the country to manoeuvre between different suppliers, optimizing its fuel procurement costs," Yushkov declared.

From 2026 to 2030, a significant increase is expected in the global production capacity of liquefied natural gas (LNG), especially in the USA, Qatar, and Australia, the expert reported.

"Turkey anticipates this trend and seeks to pre-book LNG supplies in anticipation of lower gas prices during this period. Turkish companies, by booking LNG, act not only as consumers but also as traders. This means that even if the fuel is booked, it is not necessarily going to be delivered to Turkey. Depending on the market situation, the LNG can be resold in European or Asian markets if it proves more profitable. Therefore, it would be incorrect to claim that contracts with ExxonMobil or other suppliers are replacements for Russian pipeline gas or gas from other countries. Turkey uses various sources and suppliers to improve its negotiating position and ensure energy security.

Turkish companies purchase additional volumes of LNG to give themselves the ability to choose the most favourable offers at any specific time. It is important to note that the purchased LNG does not necessarily enter the Turkish market; it can be resold in Europe if it is economically advantageous. Such a strategy by Botas and other Turkish traders indicates the purely economic motivation of their actions, aimed at expanding business through the resale of gas. These companies also purchase Russian pipeline gas, receive surpluses from Gazprom, and resell them to neighbouring countries, strengthening their positions in the regional gas market.

Bulgaria buys gas from Turkish traders, as well as under contract with Azerbaijan. In 2022, the country stopped direct purchases of Russian gas, however, it effectively continues to receive it through intermediaries, primarily Turkish companies. These companies also actively supply gas to Romania and even Moldova, covering the entire Balkan region. By purchasing liquefied natural gas (LNG), Turkish traders can export it to more distant regions, including Asia, where prices may be higher. Thus, the decision to resell LNG to a particular region is determined exclusively by economic factors," the Russian expert noted.

If a more profitable market takes shape in Asia, companies there could increase their revenues, Yushkov believes.

"In this context, Botas's actions in signing a contract with ExxonMobil appear to be driven exclusively by economic interests. A possible political undertone may involve Turkish companies using agreements with ExxonMobil and other suppliers as a tool to exert pressure on Iran and Gazprom. Such an approach represents a kind of bluff and a trading element, which strengthens the negotiating positions of Turkish companies. However, other suppliers are also aware of the real situation," he stated.


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