FSUOGM: Turkey plans regional gas hub, Istanbul index in 2025

Turkey’s Energy and Mineral Resources Minister Alparslan Bayraktar told Turkish media last week that a natural gas trading hub could begin operating in Istanbul in 2025.

“We have set up a strong infrastructure for a trading platform that could operate as soon as 2025 in the Istanbul Finance Centre under the partnership of BOTAŞ and Gazprom,” Bayraktar said, as reported by the Daily Sabah newspaper.

The advent of a European embargo against Russian gas and oil for its invasion of Ukraine in February 2022 and the upcoming expiry of a transit agreement that covers the flow of Russian gas through Ukraine to Southeastern Europe is giving impetus to the gas hub project.

Turkey and Russia have been discussing the project since 2022, when it became clear that Russia was going to need a way to get around European sanctions to sell gas in Europe. Russia’s TurkStream pipeline across the Black Sea to western Turkey provided the conduit, but it could not be used to sell Russian gas directly to Europe without anticipated complications.

Ukraine has said it will not extend a gas transshipment agreement with Gazprom when it expires at the end of this year, impacting on Gazprom’s gas deliveries to those European countries that still purchase Russian gas, notably Austria, Hungary, the Czech Republic, Slovenia and non-EU member Serbia.

Russia has operated the Blue Stream gas pipeline from southern Russia to northern Turkey for nearly two decades. The TurkStream pipeline came into operation several years ago. It consists of two 15.75bn cubic metre-capacity pipelines: one to serve the Turkish domestic market, the other to carry gas to European customers.

Russia’s Nord Stream 1 & 2 pipeline systems through the Baltic Sea to German were forced to close in September 2022 after underwater explosions damaged all four pipelines. Their total design capacity was 55 bcm. That incident put more focus on the TurkStream pipeline and a gas hub in Turkey.

The Turkish gas hub will enable Russia to evade EU sanctions and continue to deliver gas to Europe although the European Commission is urging EU members to stop their purchases of Russian gas and find new suppliers. The EC has said the EU has ample supplies to get its members through the upcoming winter. Since 2022, the EU has built new infrastructure and filled its storage facilities while lining up new LNG delivery contracts with LNG producers, including the US.

The European boycott of Russian oil and gas is reported to be having a major impact on Russia’s foreign earnings and affecting revenues that could be used to finance its war in Ukraine.

Turkey sees the gas hub as a way to enhance its own energy security and provide the region with an alternative to European markets. The Turkish Petroleum Pipeline Co. (Botas) and Gazprom are to jointly control the gas hub, which will establish its own gas index – the Istanbul Gas Index (IGI) – with prices of its own. The hub will enable Turkey to become a component of the international gas trade.

Turkey has been in recent months negotiating new supply deals for LNG deliveries. It has long-term agreements for piped gas with Russia, Azerbaijan and Iran, and LNG agreements with Qatar, Oman and other producers. It recently signed long-term agreements with TotalEnergies and Shell. Turkey is receiving gas from a number of suppliers, especially Russia. A mix of those gas will be sold through the Istanbul exchange and Russian gas is likely to be a big component of the mix.

The Southern Gas Corridor (SGC), which runs from Azerbaijan to Italy, passes through Georgia, Turkey, Greece and Albania. It development has prompted Ankara to look closely at how it could play a bigger role in the regional gas distribution system.

“There will be an Istanbul Gas Index. That means gas prices will be determined in Istanbul,” Bayraktar told the media. “Russia will sell its gas with a price based on the Istanbul Gas Index.”  

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