Russia makes gas price concessions to Turkey

Turkey has become Gazprom’s second international customer to finalise an agreement to defer part of its payments to the Russian state gas giant for supplied natural gas if the price rises above a certain threshold.

Last year, authorities in Hungary — Russia’s closest ally in Europe — reached a similar deal with Gazprom under the pretext of protecting consumers’ interests, with the agreement recently extended for the next northern hemisphere winter season.

In an interview with Turkish broadcaster Haber Global, Turkey’s Energy Minister Fatih Donmez cheered the deal with Gazprom that may give Turkey’s state oil company TPAO an opportunity to import Russian gas later this year and then deliver some of it to countries in Eastern and Southern Europe.

“We held talks with Gazprom last year and reached agreements in view of the dramatic and unpredictable rise in gas prices. This was done in coordination with our Finance Ministry. We followed such a practice previously in our commercial relations and we have now suggested revising the payment schedule,” Donmez was quoted by Russian state news agency Tass.

This year, Gazprom has kept gas supplies to Europe at about 25% of the levels recorded before Russia invaded in Ukraine in February 2022, with the gas giant providing no hint that such deliveries might increase in the second half of this year.

However, Gazprom has recently resumed its threatening rhetoric, saying in posts on its official social network channel in April that Europe is lagging behind in pumping gas into its storage facilities.

That may become an issue for the continent if the next winter turns significantly colder than the past warm one, Gazprom warned.

A managing partner with Moscow-based energy consultancy RusEnergy Mikhail Krutikhin said that the payment deferral deal and expected gas price concessions from the Kremlin will eventually enable Turkey “to re-export imported Russian gas, purchased at discount, to higher paying international markets”.

Ankara has eagerly accepted a proposal from Moscow to position itself as a regional gas hub following the powerful explosions that last September took out of service three of the four subsea gas pipelines from Russia to Germany.

In an interview with CNN Turk in April, Donmez said that Turkey is seen to have the capacity to purchase around 100 billion cubic metres per annum of gas, of which 40 Bcm per annum can be sold to neighbouring countries.

He added that Turkey has started to amend its legislation, removing restrictions to gas exports.

According to data from a European association of gas transmission operators Entsog, Gazprom has been recently transiting about 27 million cubic metres per day of gas via Turkey to Europe, an equivalent of about 10 Bcm per annum.

Gazprom’s decision not to increase gas supplies to Europe this year has reportedly weighed heavily on the company’s operating performance in the first quarter.

Moscow business daily Kommersant earlier this week said that Russia’s total gas production fell by 10% in the first quarter to 180 Bcm compared to the same period of 2022.

Though Moscow permitted Gazprom to withhold publication of official production data, Kommersant suggested that Gazprom is mostly responsible for that decrease as the company has been unable to export pipeline gas to alternative markets.

Meanwhile, several other producers in Russia have reported growth in their gas output.