Turkey: A Milestone In The Natural Gas Market: The Stock Exchange

Last Updated: 8 November 2017
Article by Şahin Ardiyok and İlker Fatih Kıl

An overview of the natural gas market of Turkey

Natural gas is one of the main fuels in Turkey, accounting for 17 percent of total primary energy supply and 36.6 percent of electricity generation in 2016.1 Natural gas supply is almost entirely provided by imports of 46.4 billion cubic meters (bcm), as domestic gas production is negligible (0.35 bcm).2 Since the enactment of the 4646 numbered Natural Gas Market Act in 2001, Turkey's natural gas net imports have grown significantly, driven by higher gas consumption in the residential sector and large-scale gasification, rising private investments in gas-fired power plants and growing consumption in the industry sector.3 Russia is the main natural gas supplier of Tukey with a 52.9 percent share of total natural gas imports; it is followed by İran, Azerbaijan, Algeria and Nigeria. According to the 2014 data, a 78 percent share of the import contracts is owned by BOTAŞ (state owned pipeline/transmission company) and only 22 percent shares of the import contracts are owned by the private companies. However, being dependent on Russia raises security of supply concerns while Turkey is pursuing the aim of being a regional gas hub. In fact, the construction of TANAP and TurkStream pipeline projects4 are solid steps towards that goal. In the meantime, Turkey has access to major supply sources through four import pipelines and two regasification terminals.

In 2016, the consumption amount of natural gas by sectors in Turkey was roughly 16.7 bcm by conversion sector, 14.1 bcm by industry, 11.6 bcm by household, 3 bcm by service sector, 0,4 by transportation sector and 0,34 by energy sector.5 Even though the legal framework of the upstream activities of natural gas is subject to the Turkish Petroleum Act, the legal framework of the natural gas market or, in other words, midstream and downstream activities of natural gas is designed under the Natural Gas Act which envisages a regulated liberal market. The main objectives of the legal system of Natural Gas Act may be summed up under three main headlines: establishment of a competitive natural gas market, reducing the share of state-owned enterprises within the market, and harmonization of the domestic legal framework with the EU. We should admit that the liberalization of the market and relatedly cost-reflective pricing have only slowly advanced since 20096 considering that regulated tariffs are set by the government, and as we mentioned before, the domination of the wholesale market with the control of roughly an 80 percent share by BOTAŞ and moreover insufficient network and storage infrastructure. Therefore, it is expected that we will observe new reforms for the market in the near future.

As a matter of fact, the establishment of a natural gas stock market may have the potential to serve for the liberalization of the market. Mustafa Yılmaz, the president of Energy Market Regulatory Authority (EMRA), has announced the good news that natural gas trading on the energy stock exchange will begin next year to institute an effectively functioning gas hub.

The Constitution of Energy Exchange İstanbul (EXIST)

Under the article 11 of 6446 numbered Electricity Market Act Energy Exchange Istanbul (EXIST) was officially established in 2015 upon the registration processes completed subject to the provisions of The Natural Gas Act, and the main objective and principal business activity is to:

"Plan, establish, develop and manage energy market within the market operation license in an effective, transparent, reliable manner that fulfills the requirements of energy market and to be an energy market management that procures reliable reference price without discriminating equivalent parties and maximizes the liquidity with increasing number of market participants, product range and trading volume as well as allowing to merchandise by means of market merger."

EXIST started operating in the power generation sector with day-ahead and intraday power markets. In particular, the day-ahead market is the main arena for trading power. In the day ahead market, contracts are made between seller and buyer for the delivery of power the following day, and basically the price is set where the curves for sell price and buy price meet.7 We called it "market clearance price". The market clearance price works as both market equilibrium price and benchmark price for the power.  In other words, tariffs of the energy determined automatically and transparently in EXIST stock market with proportion to supply and demand of electricity. Thus, the success and effectiveness of electricity companies trading on EXIST triggered the demand for a spot natural gas market to provide investors and gas companies with a reliable pricing mechanism and financial products with the trade of contracts and derivatives.8

What is natural gas stock market:

The spot is a market for financial instruments such as commodities and securities which are traded immediately or on the spot. In spot markets, spot trades are made with spot prices. Unlike the futures market, orders made in the spot market are settled instantly. Spot markets can be organized markets or exchanges or over-the-counter (OTC) markets.

Natural gas may be sold on a spot market basis, under longer-term contracts with fixed pricing, or terms that are affiliated with the market prices, and under contracts with some other types of pricing provisions. On the other hand, natural gas may be sold on financial natural gas markets such as future contracts, option contracts and swaps.

Natural gas stock market will be a spot market organized by EXIST, and its application will be a huge step for the liberalization of the market not only for creating a reliable pricing mechanism but also it will constitute transparency in the market.

What might be the expected benefits of the natural gas stock market

As we mentioned before, on the one hand, market mechanism of the natural gas in Turkey has some deficiencies such as regulated tariffs, the domination of the wholesale market by the state-owned pipeline company and moreover insufficient network and storage infrastructure and other regulatory restrictions, and on the other hand, as a developing country the market is far away from its limits, which involves so many opportunities. In other words, relative investment in the natural gas market of Turkey is risky but worth it. However, it can be claimed that the Natural Gas Stock Market will diminish the uncertainties and serve for the sake of the common good.

Considering that in the day-ahead market, the system price of natural gas will be determined by matching offers from suppliers with bids from market players to develop a supply and demand equilibrium price, the first benefit of the Natural Gas Stock Market will be the creation of a benchmark price for the market.

Furthermore, transparency in any market is critical to its overall health and efficiency and enables competition to benefit customers. Electronic trading and the reporting of certain natural gas commodity prices to index publishers will show us how natural gas markets maintain transparency and foster reliable price discovery.

In addition, marketers and other buyers and sellers of natural gas are able to use financial instruments traded on exchanges to hedge the risks associated with price volatility.

In summation, the natural gas market of Turkey has some structural deficiency caused by the slow advance of the liberalization of the market and related cost-reflective pricing; however, keep in mind that the legal infrastructure of the market is extremely liberal. On the other hand, a natural gas stock market may solve many problems of the market and pave the way to competition and liberalization. We should admit that gas cost must be reflected in the prices, and the restriction of gas import must be abolished in order to create a liberal market which attracts foreign direct investment to the country.

Footnotes

1. EMRA Natural Gas Market Report 2016, p.62.

2. EMRA Natural Gas Market Report 2016, p.i.

3. IEA: Energy Policies of IEA Countries, Turkey 2016 Review, p.103

4. http://www.enerji.gov.tr/tr-TR/Sayfalar/Dogal-Gaz-Boru-Hatlari-ve-Projeleri

5. EMRA Natural Gas Market Report 2016, p.63

6. IEA: Energy Policies of IEA Countries, Turkey 2016 Review, p.103

7. http://www.nordpoolspot.com/the-power-market/Day-ahead-market/.

8. https://www.dailysabah.com/energy/2017/10/16/turkeys-energy-stock-market-to-start-trading-natural-gas-in-april.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Şahin Ardiyok
Similar Articles
Relevancy Powered by MondaqAI
Kolcuoglu Demirkan Kocakli Attorneys at Law
Herdem Attorneys at Law
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Kolcuoglu Demirkan Kocakli Attorneys at Law
Herdem Attorneys at Law
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions