In October 2022, two weeks after the Nord Stream explosions, which deprived Russia of one of its key export routes to Europe, President Putin suggested that
Russia would establish the “largest gas hub” for deliveries to Europe in Turkey. The news was immediately picked up by both Russian and international media.
In fact, Turkey had been trying to promote the hub for the past 20 years, but until October 2022 Russia was not seen as a key player in this initiative. On the contrary, the feasibility of the project was justified by Turkey’s geographical proximity to the EU and interest in integrating with it.
The EU, in turn, has viewed “hubs” as an efficient way to reform EU gas markets for several decades now. In 2014, the EFET (European Federation of Energy Traders) even identified the Turkish market as promising, noting that though Turkey, unlike the British NBP and the Dutch TTF, did not have a developed liquid hub, its market was more advanced than those of Hungary, Poland and Bulgaria.
Then, why is Russia showing such keen interest in the development of the Turkish gas market currently? And will it be able to play a pivotal role in that process?What is Russia’s interest?
Ever since the “gas for pipes” deal that brought Soviet gas to West Germany in the early 1970s, practically all Russian natural gas export initiatives were tied to Europe. Only a few years ago, the eastern route started to evolve with the Power of Siberia launch in 2019.
Huge upstream investment has been made on the Yamal Peninsula over the past couple of decades, the idea being that Yamal gas will gradually replace Nadym-Pur-Taz production, which is in a declining phase. Currently, there is no physical capacity to move that gas anywhere but westward.
Turkey is a stop on the way for Russian supplies headed to Europe that bypass the territory of Ukraine. The whole strategy of bypassing transit states was introduced in the mid-2000s and included Nord Stream in the Baltic Sea and South Stream in the Black Sea. Though neither project evolved as planned, Turkey remains a critical point for the southern vector of Russia’s European gas policy.
For Russia, a natural gas trading hub in Turkey would mean an opportunity to still have some volumes of gas headed westward.
Hub-based trading typically involves the purchase of a specified volume of gas without identifying its exact origin via electronic trading platforms. This “anonymized” gas, sourced from various suppliers, is delivered from the hub’s exit zone, which can be advantageous for maintaining supply volumes to a certain degree.Is Turkey ready for this?
In 2022, following the major geopolitical crisis and explosions on Nord Stream, which led to a drastic 50% decline in Russia’s pipeline exports to Europe, Turkey became the leading pipeline gas importer from Russia, despite a decline in 2022 volumes versus 2021.