By Dominic Evans
ISTANBUL, Sept 10 (Reuters) - Turkey expects gas suppliers
to offer more competitive pricing and flexibility if they want
to renew long-term contracts totalling 16 billion cubic metres a
year, a senior energy ministry official said.
More than a quarter of Turkey's long-term gas contracts
expire next year, including imports via pipeline from Russia's
Gazprom and Azerbaijan's SOCAR and a liquefied natural gas
(LNG)deal with Nigeria.
Competition from cheap U.S. LNG and the potential for Turkey
to start its own gas production in the Black Sea have changed
market dynamics, the Turkish ministry official told reporters.
"Old-fashioned" gas contracts, which are often indexed to
oil prices and commit buyers to penalties if they do not buy
their full quota, no longer match market realities, he said, and
prices should be set against those at major gas hubs.
"We started to discuss whether we are going to renew
(or)whether we are going to find an alternative supply," said
the official, who spoke at a briefing on condition of anonymity.
The decision would depend on whether suppliers "approach with
same old habits - no flexibility, not very competitive price
offers".
In that case "I don't think we will see the existing
contracts continue," he said.
Turkey relies on imports for nearly all its oil and gas
needs. In the first half of this year imports from Russia and
Iran fell back, while supplies from Azerbaijan increased and
purchases of U.S. gas rose sharply.
"The U.S. all of a sudden became the second largest (LNG)
supplier to the Turkish market in the first part of 2020," the
official said. "The main reason was they were very competitive."
BLACK SEA GAS
While Turkey's gas consumption is likely to increase,
despite a drive for renewable energy and alternatives such as
nuclear power, last month's discovery of a major gas field in
the Black Sea opens the way for domestic production.
Turkey says the field contains 320 billion cubic metres of
recoverable gas, and Energy Minister Fatih Donmez said last
month that data suggested more will be found as drilling
continues deeper under the sea bed.
"Most likely there is an upside potential and we will
announce it hopefully soon," the official said. "The timeline
will be most likely in October, because we are trying to analyse
two additional potential reserve areas" under the current level.
President Tayyip Erdogan said in August Turkey would start
pumping gas from the Black Sea discovery by 2023 - a symbolic
date marking the 100th anniversary of the Turkish republic - but
the official said full production would take longer.
"The timeline we announced is for the first gas delivery,"
he said. "It's not going to be the plateau production, which
will take at least an additional two or three years."
While that timeline is ambitious for an offshore gas field
lying under 2,000 metres of water, the official said Egypt had
brought gas onstream from its Mediterranean Zohr field with
comparable speed, and two factors would work in Turkey's favour.
The quality of gas from the Sakarya field in the Black Sea
was good, meaning there was no need for huge investment in gas
processing, and Sakarya lies just 170 km (106 miles) from an
existing pipeline along the Black Sea coast, he said.