Official TurkStream launch opens new supply corridor

BUCHAREST (ICIS)–Turkey and Russia have officially launched the 31.5 billion cubic metre (bcm)/year TurkStream project on Wednesday, establishing a new supply route to Turkey and south-east Europe.

Just over 20 million cubic metres (mcm)/day have been flowing to Turkey and Bulgaria through TurkStream 1 and 2, two pipelines with an annual capacity of 15.75bcm each since 1 January 2020, Turkish traders said.

However, the project was officially launched only on 8 January when the Russian president Vladimir Putin inaugurated it with his Turkish counterpart, Recep Tayyip Erdogan.

Turkish and regional market sources told ICIS that volumes started to enter Turkey via Kiyikoy, a new delivery point in the north-western European part of Turkey at the beginning of the year.

Sources said that 10mcm/day of the total volumes were earmarked for the Turkish market, while an average 11mcm/day had been exported to Bulgaria via the Strandja2 exit point.

Out of the 11mcm/day exported to Bulgaria, an average 2.4mcm/day were shipped to Greece and another 1.2mcm/day to the Republic of North Macedonia, according to data by the Bulgarian grid operator, Bulgartransgaz.

The remaining 7.4mcm/day had been entering the Bulgarian system.

TURKISH ARRANGEMENTS

Turkish public and independent importers which have been holding long-term contracts totalling 14bcm/year will continue to off-take volumes, but the delivery point has now moved from the historic Malkoclar border with Bulgaria to Kiyikoy on the Black Sea.

Market sources told ICIS that Russia will sell the gas to Turkish importers at a fixed price of $225-$230.00/kscm (converted at the forward rate for the Gas Year 20 at €18.88/MWh) in 2020. The price is significantly higher than the Gas Year ’20 price on the benchmark TTF hub which was assessed by ICIS at €15.95/MWh on Tuesday.

Turkish companies have failed to negotiate a reduction in their take-or-pay obligations, which means that they would have to continue off-taking a minimum of 80% of the contracted annual volumes, sources said.

Turkish companies also failed to secure the elimination of the destination clause in their long-term contracts with Gazprom, which means they would be barred from reselling excess volumes, the same sources said.

Gazprom did not comment by publication time.

Several sources told ICIS that the state company BOTAS will continue to import gas under its 4bcm/year contract with Gazprom. The agreement expires in 2021 and it is not clear whether the company would seek an extension.

Meanwhile, the contracts of four independent importers will also expire in 2021.

Sources said that two of the four importers may no longer be off-taking gas this year following an unsolved dispute over an arbitration award with Gazprom.

The remaining two may not seek to renew their contracts or, even if they do extend them, this may only be for a short period of time.

Turkish gas demand has fallen in the last two years and BOTAS has been tapping alternative LNG supplies.

Since TurkStream 1 is designed to carry 15.75bcm/year and the long-term contracts that have been diverted from the Trans-Balkan line to the new route amount to 14bcm/year, another 1.75bcm/year may be up for grabs. It is not clear how these volumes would be contracted.

Meanwhile, TurkStream 2 is designed to supply gas to Bulgaria, Greece, the Republic of North Macedonia as well as Serbia and Hungary. Although volumes are now flowing to Bulgaria, Greece and the Republic of North Macedonia because TurkStream 2 connects with the existing Bulgarian network, exports to Serbia and Hungary are delayed because the necessary infrastructure has not been completed.