Does Turkey Need LNG From US?

Deputy Assistant Secretary of State Sandra Oudkirk said that it’s possible that the United States and Turkey will sign contracts for the supply of US LNG, adding that Turkey “is definitely aimed” at buying this type of fuel.

Turkey is definitely aimed at purchasing LNG. You just need to ask where they are going to get it from," Deputy Assistant Secretary of State Sandra Oudkirk said.

According to Oudkirk, it's possible that this gas will come from the United States. "While the United States and Australia are expanding their scope of LNG supply to the world market, it is becoming more flexible," she explained. The politician also said that the US is negative about the Nord Stream and Turk Stream projects.

"I don't think Turkey can sign any long-term contracts with US LNG exporters due to a number of factors. Firstly, the Turkish Stream pipeline will soon be put into operation, and a number of contracts that are expiring in 2021 are likely to be extended. Secondly, currently the future of Turkish gas demand remains vague, and if the possibility of selling and buying LNG surplus on international markets isn't developed, the reorientation of private companies to long-term contracts may have extremely negative consequences for Turkish trade. The third factor is high cost and financial responsibility," Sohbet Karbuz, Head of the hydrocarbon direction of the Mediterranean Observatory for Energy, told Sputnik.

For his part, Stanislav Mitrakhovich, leading expert of the National Energy Security Fund, lecturer at the Financial University under the Government of the Russian Federation, stressed that "when you buy LNG, the price is going to be higher than that provided by the contract with Gazprom, otherwise Turkey would have already been buying gas for its LNG terminals.

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Besides, if Turkey wants to increase the share of LNG in its energy balance, then it needs to build new gas receiving terminals and infrastructure for the delivery of LNG. Naturally, this means additional large investments that are incomparable with the costs that could have been avoided by still getting large quantities of gas from Russia. Therefore, I think that Turkey won't switch to getting large volumes of LNG. Turkey's LNG consumption may increase, but only slightly," he said.

Referring to the issue of the American LNG pricing formula, the expert noted that "the pricing formula for US LNG takes into account the cost of gas on the Henry Hub stock exchange; then costs for liquefying gas, loading, transportation, regasification, etc. are calculated. The initial component in the formula — the cost of gas at Henry Hub — may vary.

So, over the last few weeks, due to the cold weather, the cost of gas at Henry Hub has increased by tens of percents. As soon as the cold is over, the price may fall again. Thus, it's impossible to say exactly what the cost of gas under the contract will be, as it's calculated according to the formula whose components may change. In general, in most cases, LNG will be more expensive than pipeline gas."

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According to Mitrakhovich, Turkey won't give up gas cooperation with Russia in favour of American LNG: "We must understand that companies that supply pipeline gas, for example, Gazprom, can also carry on price wars. If they see competition from other suppliers increasing, they can adjust the price formula in a direction more advantageous to the buyer. As for writing down, we have a huge margin of safety. However, the Americans can try to put political pressure on Turkey. At present, relations between Turkey and the US are tense; and in this context, the prospect of Turkey buying more expensive American LNG for political reasons seems unlikely.

It is more convenient for Turkey to buy Russian gas, especially since with the Turk stream they will get gas directly, without any intermediaries, and therefore, it will be more reliable. I don't think that in this context, Turkey would abandon its cooperation with Russia in favour of LNG," the expert concluded.

The views and opinions expressed by the speakers do not necessarily reflect those of Sputnik.