Ankara is preparing to secure a meaningful cut on Russian gas during this week’s talks. Bloomberg reports that top Turkish officials are guiding expectations for a notable discount.
The proposal under discussion envisions a discount of at least a quarter off the market price. The talks with a Russian delegation are scheduled to take place in Ankara on Friday, December 9.
According to Bloomberg, if a deal is reached and the price reduction is achieved, Turkey could relieve pressure on the lira, which has shown weak performance among major currencies over the past two years and has fallen substantially in recent periods as inflation and energy costs mount.
Bloomberg notes that President Recep Tayyip Erdogan could blunt energy cost increases thanks to lower fuel prices from Russia, a move that would appeal to voters ahead of upcoming national elections and could bolster political standing in the face of the European energy crisis.
Agency sources do not disclose the exact terms of the impending agreement, but Turkey is seeking a retroactive reduction of at least 25 percent on all gas purchases in 2023, and on certain purchases from 2022 as well.
If Ankara cannot secure an acceptable reduction during negotiations with Moscow, Turkish authorities are prepared to press for a delay in payments through at least 2024, a move intended to preserve liquidity during a volatile energy market.
Russian gas comprised a sizable share of Turkey’s energy imports, accounting for nearly half of the 59 billion cubic meters imported in 2021. Erdogan has highlighted that, given the global energy crunch and the lira’s inflation, Turkey’s electricity expenditures in 2022 could reach around 100 billion dollars, about double the previous year’s level.
In October, Putin and Erdogan discussed the possibility of establishing a major gas hub within Turkey to redirect gas flows toward Europe, a proposal that has continued to surface in public discourse.
The precise price of Russian gas for non-CIS countries following Western sanctions remains uncertain. After the Nord Stream incidents in September, the current transit route to Europe runs mainly through Ukraine.
Analytical firm INFOLine indicates that the average price of Russian pipeline gas to non-CIS countries in the first half of 2022 exceeded 730 dollars per thousand cubic meters, with prices approaching 800 dollars per thousand cubic meters in the European Union area. A macro forecast from the Ministry of Economic Development suggested an average export price of 829 dollars per thousand cubic meters for 2022 for gas delivered to non-CIS markets.
Meanwhile Moscow has been offering discounts to other partners. For instance, supplies to China via the Power of Siberia pipeline are arranged with prices tied to fuel and kerosene and adjusted with a quarterly cadence, resulting in a substantial gap relative to European prices. A Gazprom report indicates that in the second quarter of 2022 gas sold to China stood around 250 dollars per thousand cubic meters, while European markets traded well above a thousand dollars, implying a discount of roughly seventy percent for Beijing.
Belarus enjoys even lower pricing under a long-term contract signed late last year, with Gazprom supplying gas at approximately 128.5 dollars per thousand cubic meters, the same as in 2021. The exact price for India remains undisclosed, but Reuters reported in July that New Delhi was receiving gas with a discount of at least 30 percent from Moscow according to unnamed sources.
On December 8, Reuters reported that Tashkent declined to join a three-way gas alliance with Russia and Kazakhstan, citing Uzbekistan’s energy minister. The agency noted Uzbekistan fears Western sanctions and would not accept political conditions that could grant energy discounts. A technical contract for supply outside any alliance was not ruled out amid electricity shortages. Subsequently, Dmitry Peskov, the Kremlin press secretary, denied that Uzbekistan had rejected a tripartite alliance, stressing that such an arrangement carries no political conditions.