Turkey: Natural Gas Storage Facilities And Exemption System

The cross-border energy projects and domestic supply security may face certain risks.

The liberalization of Turkey's natural gas market has long been a topic of heated discussion. Turkey has adapted material EU regulations for a competitive and liberal natural gas market. The third party access rule and transparency principles are the backbone of a liberal market since the dominant market players' market power is balanced by such regulations. Third party access rules and transparency rules allow new market entrants to access the information on the pricing conditions of infrastructure facilities and to benefit from those facilities under the same conditions as the facility owner.

Nevertheless, market data shows that the crossborder energy projects and domestic supply security may face certain risks due to the lack of sufficient infrastructure and storage capacity. Natural gas storage capacity in Turkey is far below the EU average. Increasing domestic gas demand and new cross-border projects that are imminently pending, should give notice that upcoming new regulatory measures may be enacted in an attempt to resolve the infrastructure and storage inadequacy problems. With respect to the foregoing, Turkey should keep itself as a secure transit country. Due to the impediments to new investments in infrastructure and storage facilities, Turkey may prefer to adopt an "exemption" rule in order to encourage new investments.

The third party access rule requires that facility operators grant nondiscriminatory access to third parties in return for a regulated earning. This rule aims to prevent the vertically integrated natural gas market players –those who are active at both the supply and retail level-from blocking the entrance of third parties into the market. New market players are predominantly dependent upon the infrastructure facilities of those vertically integrated companies to store or regasify their natural gas/LNG. When third parties are allowed to benefit from facilities under the same conditions as the facility owners, the market barriers for new market players are significantly removed. Moreover, the third party access rule aims to ensure the most efficient use of the existing infrastructure, with the goal being to bring down the unutilized capacity problem to a minimum for existing facilities.

Although the positive impacts of the third party access rule have been well recognized, natural gas infrastructure network and storage capacity in Turkey have not sufficiently improved in recent years. Currently, two natural gas market players, BOTAS and Egegaz, own two storage facilities for natural gas and LNG, which are open to access by third parties. However, the existing storage capacity fulfills only 5% of the annual natural gas consumption.1 Within the EU, the capacity level has raised to 20% of consumption on average, due to market demand increase and gas security considerations.2 Recently, BOTAS and TTC from China have been cooperating for a new storage facility under Tuz Golu, which is proposed to be completed in 2019.3 Yet, Turkey still needs a 7 to 8 billion US Dollar investment for new natural gas infrastructure facilities. Currently, the lack of existing capacity causes congestion for natural gas storage due to the long-term capacity reservation arrangements, take-or-pay obligations in natural gas contracts and increasing demand. Thus, both financial and legislative incentives are essential to ensure an adequate natural gas infrastructure network and storage capacity.

While the third party access rule is essential to ensure the efficient use of the existing infrastructure and a competitive market, the rule reduces the incentives of new investors to invest in infrastructure facilities. New investors seek to gain a satisfying return due to the high risk and financial requirements of such investments. Particularly, LNG terminals and underground storage facilities can be risky for investment. Moreover, potential investors are inclined to benefit from already-established facilities at the same price and at the same terms directly with the facility owner.

The regulation introducing the third party access rule was enacted in 2009 by Turkish natural gas legislation. Two storage terminals, owned by BOTAS and Egegaz, opened their facilities to third party access in 2010. Although the rule aimed to enhance competition in the upstream and downstream gas market, no new storage facilities have started operating since that time. The general sector opinion is that the third party access rule is a block to new investments in storage facilities.4 Industrial unions and investors in the market claim that new investors are not encouraged to invest in underground infrastructure facilities and LNG terminals that require a high cost. This should come as no surprise because the third party access rule puts the investors in a position where they can only earn a regulated return and use their facility under limited conditions.5

Moreover, an exemption right gives certain incentives for project promoters which invest in infrastructure or storage facilities. In practice, the European Commission (the "Commission") diligently examines exemption requests and verifies that the exemption criteria are met in each case.6 The Commission sets forth below the conditions for exempting the infrastructure or storage facility owners from third party access obligations:

  1. The investment must enhance competition in gas supply and enhance security of supply;
  2. The level of risk attached to the investment is such that the investment would not take place unless an exemption was granted;
  3. The infrastructure must be owned by a natural or legal person which is separate, at least in terms of its legal form from the system operators in whose systems that infrastructure will be built;
  4. Charges are levied on users of that infrastructure; and
  5. The exemption is not detrimental to competition or the effective functioning of the internal gas market, or the efficient functioning of the regulated system to which the infrastructure is connected.7

When a new entrant wants to operate a new storage facility in the market, the Commission usually accepts that the investment will enhance competition. New facilities primarily enhance the security of supply by providing leeway for new sources of gas to be transmitted through or stored within the country. The market shares of the exempted parties will also be indicative of whether exemption will create a dominant position in the market, thereby preventing competition in the natural gas market. Small market shares usually point out that the exemption is not detrimental to a competitive market. A new market entrant is much more likely to enhance competition than a vertically integrated company with a high market share proposing to construct a new storage facility. Furthermore, an exemption to a company with a dominant market position may result in the foreclosure of competition through constructing sufficient capacity to ensure supplies to the market and then restricting access to it. Thus, exemption requests by dominant undertakings in markets where the new infrastructure will be built are likely to have the greatest potential for harming competition and therefore require particularly careful scrutiny.

In case the facility does not become operational after a reasonable period allocated to the construction and commissioning of the terminal, this would constitute a disincentive to investment for other investors.8 Hence, the Commission usually imposes a maximum duration –usually 5 (five) years- for the facility to become operational.9 Considering the specific nature of Turkey's natural gas market, depending on the qualifications of the facility, a maximum duration for the exemption itself may be proposed. For example, the UK energy regulator, Ofgem, has set a 20 (twenty) year exemption period in the Isle of Gran LNG terminal application.10 Such time limitation may prevent the investors from enjoying the exemption for an unlimited period of time, thereby providing a balance with the third party access rule. Further, the Energy Market Regulatory Authority may impose a percentage limit for exempting the facility owner from the third party access rule so that 50% or 60% of the facility capacity may be exempted from the third party access rule.

The location, financial burden, logistics and climate of the proposed facility area are all indicative of the different risks associated with the new investment. In practice, depending on the total capacity of a new facility, one or more players may reserve the capacity of the new facility and share the costs in proportion to their reserved capacity. Project consortiums involving three or more companies may undertake such investments and mutually benefit from the exempted facility. Such consortiums may also enable the financing of the project in a smoother way through loans extended by banks or other financial institutions.


1. Acar, Ozan. Değerlendirme Notu, TEPAV, December 2013, p. 4.

2. 2011/0311 (COD), Brussels, December 20, 2001, COM(2011) 775 final, p. 11.

3. http://www.eud.org.tr/TR/Genel/BelgeGoster.aspxF6E10F889433CFFA79D6F5E6C1B43FFEB63B1F6541B1AB6

4. http://www.enerjidergisi.com.tr/haber/2013/02/dogal-gazdasubvansiyona-son-verilsin

5. http://www.enerjidergisi.com.tr/haber/2013/02/dogal-gazdasubvansiyona-son-verilsin

6. http://ec.europa.eu/energy/infrastructure/exemptions/exemptions_en.htm

7. Article 36 Directive 2009/73/EC.

8. LNG Shannon (IE) – C (2010) 5300, 26.07.2010.

9. LNG Shannon (IE) – C (2010) 5300, 26.07.2010; LNG Livorno (IT) –C (2009).

10172, 11.12.2009; LionGas (NL) – TREN D(2007) 324685, 18.10.2007.

10. Jones, C. EU Energy Law, The International Energy Market, 2010, p. 482.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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