Liquefied Natural Gas (LNG) has emerged as an alternative to traditional energy sources in the 21st-century energy transition. Due to its flexible usage and wide delivery capabilities, LNG offers opportunities for both importing and, if resources are available, exporting, especially for countries not geographically located on energy pipelines. However, the technical costs of LNG operations and the fluctuating spot gas prices until delivery increase uncertainty.
The construction of major LNG terminals, storage facilities, and the processes involved in cooling LNG to -160°C significantly raise costs. LNG is typically sold at spot prices in global markets, which can be more volatile compared to natural gas pipelines. Supply and demand dynamics, geopolitical developments, and energy policies can significantly affect LNG prices. The processes of converting natural gas into LNG (liquefaction) and back into gas (regasification) are also costly, requiring high energy consumption and advanced technology. Therefore, the technical and economic conditions of LNG investments must be well planned.
Currently, Turkey has five LNG terminals. Two of these are Marmaraereğlisi and Egegaz, and the remaining three are floating LNG terminals (FSRU): Etki Liman İşletmeleri, Dörtyol, and Saros. [i] In addition to the LNG agreement made with ExxonMobil in May, the LNG deal with Shell relates to the expiration of the annual 36.15 billion cubic meter pipeline gas contract between 2025 and 2027. [ii]
As of February 2024, Turkey’s LNG imports from countries other than Russia decreased compared to the same period the previous year. This was due to the decrease in Russian coal prices as a result of the Russia-Ukraine Crisis, which led to an increase in thermal power plant production. During the same period, LNG imports from Russia increased by more than 33%. In November 2023, Turkey extended its LNG import agreement with Algeria, which had been in place since 1988, for another three years. The Ministry of Energy announced that Turkey would continue to import 4.4 billion cubic meters of LNG annually from Algeria until 2027.[iii]
Finally, another 10-year LNG agreement was signed between BOTAŞ and Shell. The agreement stipulates the annual purchase of 4 billion cubic meters starting from 2027. [iv] Turkey imports nearly all of its natural gas consumption needs, and last year, it imported 14.3 billion cubic meters of LNG, which accounted for 28.3% of the 50.5 billion cubic meters of natural gas consumed.
Along with these contracts, it is observed that partnerships, particularly in projects like the Sakarya Gas Field, are being strengthened. As technical capabilities improve through collaborations, Turkey’s development in the energy sector may continue. However, the costs of energy security or ensuring uninterrupted supply exceed those of security expenditures, making energy one of the country’s main external deficits. Public disclosure of the delivery prices in LNG agreements and transparent communication could help reduce energy inflation. If long-term contracts were signed at prices lower than pipeline gas, it could be considered a major energy success. It is known that the Sakarya Gas Field currently meets only about 3% of Turkey’s annual supply, indicating that the country still faces a shortage of domestic resources and that periodic price increases impact national prices. On the other hand, increasing regional cooperation and extending contracts with resource-rich countries could reduce logistical costs and contribute to regional peace.
Turkey’s good relations with its neighbors have both direct and indirect significant impacts on its energy policies. Energy security, supply diversification, energy trade, and geopolitical stability are shaped by Turkey’s regional relations.
From an energy security perspective, Turkey imports most of its energy sources, such as natural gas and oil, largely via neighboring countries. For instance, pipelines from neighboring countries like Azerbaijan, Iran, and Iraq secure Turkey’s energy supply, and maintaining good relations with these countries ensures the sustainability of energy flow. Diplomatic tensions with neighboring countries could lead to disruptions in energy supply, threatening Turkey’s energy security. Therefore, a stable and constructive neighborhood policy ensures stability and security in energy supply.
Moreover, Turkey’s potential as an energy transit country depends on its relations with its neighbors. Turkey serves as a strategic bridge between Europe and the Middle East, the Caucasus, and Central Asia. Projects like the Trans-Anatolian Natural Gas Pipeline (TANAP) increase Turkey’s geopolitical importance, and harmonious relations with its neighbors play a critical role in the success of these projects. Cooperation with neighboring countries ensures the efficient operation of energy projects and brings significant economic benefits to Turkey. This serves Turkey’s goal of not only being an energy importer but also becoming an energy transit and trade hub.
In conclusion, opportunities for regional cooperation in energy markets depend on good relations with neighboring countries. Constructive dialogues with neighbors on issues such as natural gas and electricity trade could promote the integration of energy markets. This would help Turkey balance energy prices, increase market diversity, and ensure supply security. Especially in line with the goal of increasing the use of renewable energy sources, developing joint projects with neighboring countries is important for harmonizing regional energy policies.
[i] “BOTAŞ-ExxonMobil: Türkiye’nin LNG anlaşması neden önemli?”, BBC, https://www.bbc.com/turkce/articles/c0jky9gve4do, (Accessed: 03.09.2024).
[ii] BOTAŞ, https://www.botas.gov.tr/, (Accessed: 03.09.2024).
[iii] “Turkey, Algeria Extend LNG Deal for 3 Years”, EnergyCapital&Power, https://t.ly/NsCvs, (Accessed: 03.09.2024).
[iv] “Turkey’s Botas buying 4 bcm of LNG from Shell in 10-year deal”, Reuters, https://www.reuters.com/business/energy/turkeys-botas-shell-sign-long-term-lng-deal-2024-09-02/, (Accessed: 02.09.2024).
