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Crude Oil Inventory Draw Fails To Move Market

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Moscow And Ankara Fall Out Over Syria, Gas Deals Now In Question

Relations between Turkey and Russia had been warming during most of 2015 as their two leaders, Recep Tayyip Erdogan and Vladimir Putin, very publicly discussed plans for the proposed TurkStream pipeline through the Anatolian peninsula, which would bring gas not only to Turkey but also to Europe.

Then came Russia’s support of Syrian President Bashar al-Assad, first with military equipment and advice, then with air strikes against suspected rebel positions.

Because of this, Erdogan threatened to cancel a $20 billion contract for Russia to build a nuclear power plant on Turkey’s Mediterranean coast. And the TurkStream is also in jeopardy.

Related: Are Low Oil and Gas Prices Undermining Renewable Energy Yieldcos?

Now the two countries are in a pricing dispute on the gas Turkey already receives from Russia. BOTASS, Turkey’s state-owned gas and oil trader, has asked the International Chamber of Commerce (ICC) to arbitrate the case.

In February, the Turkish government announced that Russia’s state-owned gas company, Gazprom, had given Ankara a 10.25 percent discount on the gas Turkey buys from Russia, which totals between 28 billion and 30 billion cubic meters per year. Since then, however, the two nations have been arguing over the terms of the agreement.

Turkish Energy Ministry officials accuse Russia of unilaterally demanding that the deal include language on the proposed TurkStream project that would be favorable to Russia as a condition for Moscow’s final approval of the gas discount.

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One of these officials, who spoke on condition of anonymity, told Reuters, “We had agreed with Russia on the 10.25 percent discount, and this has not been put in effect due to various excuses. We are confident that we will get this discount through arbitration.”

BOTAS said in a statement that it told Russia about the ICC appeal on Oct. 26 and that it would cover the price Turkey pays for Russian gas since Jan. 1. Gazprom responded saying there was still time for the two sides to settle without ICC intervention.

“The possibility of an out-of-court settlement, as well as an arbitration decision, still remains,” Gazprom spokesman Sergei Kupriyanov said.

Related: Stop Blaming OPEC For Low Prices

Still, Turkey won’t be deprived of the energy it will need as winter approaches. “We will keep purchasing our gas as always until the court rules on the case,” Turkish Energy Minister Ali Riza Alaboyun said Oct. 27 in Istanbul.

In December, Gazprom said BOTAS would get a 6 percent discount on natural gas, but Turkey responded with a demand for a deeper price cut, arguing that it follows only Germany as the largest importer of Russian gas. Gazprom responded by announcing the 10.25 percent discount, although neither side has signed any formal documents to ratify the agreement.

Under the contract that BOTAS already has with Gazprom, Turkey is now free to appeal to the ICC.

By Andy Tully of Oilprice.com

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