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Winter is Coming: European Energy Crisis and Turkey - Gökberk Bilgin


We are excited to start our fourth year at Synergy, where we published our first issue in September 2019. While preparing the first issue of the new semester, all our authors have prepared articles on the energy crisis in Europe, as we are going through a historical period to work on energy policies.


Efforts to reduce Europe's dependence on Russian natural gas, which has been increasing since the late 2000s, came to a head with the outbreak of the Russian-Ukrainian war. The International Energy Agency published a 10-point plan to reduce dependence on natural gas, which included energy conservation, no new natural gas contracts with Russia, and increased energy production from alternative sources.


The REPowerEU plan and the political measures taken by countries to support this policy aim to accelerate the start of a new process as much as possible. The most critical problem is that even if the austerity plan succeeds, no alternative can be created within a few years to match the amount of gas imported from Russia. The NordStream 1 pipeline, through which gas trade with Russia continues, was recently operated at 20% capacity for maintenance, causing electricity prices in Europe to the peak.


As shown in the graph below, European electricity prices have increased more than four times on average in Germany, Italy, and France in the day-ahead spot electricity market. In Turkey, there was a 3.3-fold increase compared to last year.

Source: Bloomberg Terminal & EXIST


In Spain and Portugal, governments can keep electricity prices low for the time being by creating additional resources to prevent electricity price increases from exerting pressure on the population. This policy is estimated to cost Spain €6.3 billion and Portugal €2.1 billion. In Turkey, on the other hand, Energy Exchange Istanbul (EXIST) manages to keep the price low by setting a ceiling price at the end of each month.

EXIST has set an upper limit of 4000 TRY/MWh for August 2022, and we have already reached this limit. I could not find any information on how much this would cost for Turkey and where the funding would come from, but if we scale up to Spain and Portugal, we can make an estimate.


So, what is the latest situation in the natural gas sector in our country? Natural gas consumption in Turkey has been gradually increasing in recent years. According to the "Annual Natural Gas Activity Report" published by the Energy Markets Regulatory Authority (EMRA), our annual natural gas consumption increased from 45.2 billion cubic meters in 2019 to 58.7 billion cubic meters in 2021. An analysis of consumption categories reveals that the main increase was in natural gas and electricity generation with 8.9 billion cubic meters. Residential natural gas consumption increased by 2.7 billion cubic meters to 16.7 billion cubic meters in 2021.


Turkey imported 26 billion cubic meters of natural gas from Russia in 2021. If we ignore the fluctuations in recent years due to the pandemic, we can say that this is the average import amount. As for natural gas storage, Turkey's capacity is around 3 billion cubic meters as of 2022. It covers only 5% of our annual consumption. According to the statement made by the Turkish Ministry of Energy and Natural Resources, this capacity is planned to be increased to 10 billion cubic meters in the coming year. When the storage capacity of European countries, where the crisis atmosphere is felt intensely, is examined, it is observed that they can store 25% of their annual consumption. Even if Turkey's current capacity increases to the 10 billion cubic meters planned for 2023, the fact that we can only store 12% of our consumption reveals how serious problems we may face if we face a crisis similar to the one in Europe.


In this context, the LNG option, which is considered to be an alternative, may not provide us with the gas we need because demand is too high. Even if we find enough gas with LNG, we may have difficulty meeting the additional cost of rising prices. Therefore, we are going through a time when energy-saving practices should also be prioritized in Turkey. Therefore, we are going through a time when energy-saving practices should also be prioritized in Turkey. As the Turkish Lira continues to depreciate against other currencies, we are facing a period in which we have less purchasing power than Europeans, even with our relatively cheap electricity prices. We need to quickly finalize our preparations to avoid the devastating effects that a political problem with the countries we export gas to or a technical glitch that could disrupt the gas flow could have on our economy. The phrase "Winter is coming!" from Game of Thrones is also applicable to us, even if we are trying to separate ourselves from the crisis in Europe.


When we started publishing Synergy last year, we were talking about Turkey's ratification of the Paris Climate Agreement, the positive atmosphere before COP26 and the transition to clean energy. If you had asked people that day to make projections for the coming year, very few would have said the scenario we are experiencing now, and perhaps it would not have been taken seriously. The increasing dynamism of the sector brings with it problems that are not easy to foresee. I hope to enter a period in which we can develop better solutions with the experiences we will learn from this crisis. In its new period, Synergy will continue to convey the latest energy, climate, and sustainability developments to its readers in Turkish and English. Our Synergy Gündemi program on YouTube, which we started during the pandemic curfews and commented on our articles, will also be on the air with a new episode with our first issue this season.