The 'ceiling price' of non-existent natural gas and Putin's proposal - LEVENT YILMAZ

The 'ceiling price' of non-existent natural gas and Putin's proposal

The Russia-Ukraine War upset the balances in the energy markets and destroyed the predictability in the market. Therefore, every kind of data or development responds instantly and sometimes causes price fluctuations of 30 percent per day in energy prices. In such an environment, EU member countries, which are preparing to enter the winter, came together to discuss the ceiling price application for natural gas. However, a series of surprises awaited them before this planned meeting.

WHAT HAPPENED IN THE GAS MARKET BEFORE THE MEETING

As in Nasreddin Hodja jokes, we witnessed the following developments just before the meeting where the EU will discuss how to apply a ceiling price to natural gas that does not enter the market;


    • The world's largest LNG (liquefied natural gas) importer, China, has announced its decision not to forward its LNG cargo to other countries, citing its own security of supply.

    • Malaysia, which is an important LNG supplier for Japan, the world's second largest LNG importer, cut its exports due to force majeure because it detected leaks in the pipelines going to LNG facilities.

    • Nigeria, another important LNG exporter, announced that it stopped LNG production due to force majeure due to the flood.

    • There are serious problems in meeting the increasing gas demand due to cold weather in the states in the northeast of the U.S. The interesting thing is that due to the Jones Act (we can say the U.S. Cabotage Act), this region is currently unable to use US LNG.


What awaits the EU, US?

These developments, which I have briefly summarized, may yield interesting results. For example, in previous years, Boston had to import LNG from Russia instead of using American LNG due to the "Jones Act". Similar problems could deepen in states in the northeastern United States if the exception is not granted in Puerto Rico, where the "Jones Act" is in effect and has been without power for four weeks. States on the east coast of the U.S. may have to bypass the U.S.'s own embargo and import LNG from Russia again.

The fact that an exception is granted for the east coast of the U.S. also means the situation is bad for the EU. Because the LNG cargoes, each of which is worth gold, that the EU expects from the U.S., may be directed to the states on the east coast of the U.S. instead of going to the EU.


WHAT WAS THE RESULT OF THE CEILING PRICE TALKS?

The EU must have learned some lessons from this picture. Because although the idea of applying a ceiling price to natural gas was discussed in the last meeting of the EU Commission, this proposal was not included in the accepted package. The most discreet voice on this issue came from the energy minister of Luxembourg, whose annual gas consumption is slightly higher than our Antalya. After the meeting, Minister Turmes stated that the approach of the Commission regarding the ceiling price for natural gas was justified.


My cautious optimism for Putin's proposal

At the weekend, Russian President Putin's proposal for Türkiye to become an "energy center" was on the agenda. Let me take this opportunity to briefly convey my views on this proposal, which caused intense debate. In fact, Russian President Putin's "energy center" proposal is not new. The issue was also discussed when Putin came to Türkiye in December 2014.


However, during this period, serious changes took place in the field in Türkiye. EPİAŞ, an energy exchange, was established in Istanbul in 2015 with the strategy of becoming a "trading center in natural gas". Spot gas in 2018 and futures gas exchange in 2021 were opened. In line with this strategy, whose pillar is EPİAŞ, Türkiye needs to be able to use gas from other suppliers in addition to Russian gas, in order to become a center in natural gas trade, as in North America or Europe, that is, to become a platform where pricing is made. It currently supplies gas from countries such as Türkiye, U.S., Azerbaijan, Qatar, Iran, Algeria, and Nigeria. Gas from Turkmenistan, Kazakhstan, Israel and Northern Iraq can be added to these suppliers. When the steps taken for the liberalization of the natural gas market in our country accelerate, a gas market in which gas competes with gas may occur, as in other gas trading centers.


Before I forget, I have stated in my previous articles that the gains that Türkiye has made and will gain with the discovery of Sakarya gas are not limited to reserves, but that it strengthens a market where gas will compete with gas (Istanbul Natural Gas Exchange). In this regard, I am in favor of being “cautiously optimistic”, as I think that we should evaluate Putin's highly valuable proposal within the scope of its potential to serve the above strategy.


NOTE: According to the Jones Act, ships transporting between American ports must be U.S.-flagged.

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