MOSCOW/ISTANBUL (Reuters) - Turkey wants to cut its reliance on Russian gas used in cars and households, prompted by a growing chill in ties between Ankara and Moscow after the downing of a Russian jet.
It is preparing to cut imports of liquefied petroleum gas (LPG) from Russia by a quarter next year, two sources told Reuters. Turkey has the most gas-powered motor transport in the world with 40 percent of its vehicles running on LPG.
U.S. LPG exporters were likely to benefit by making up the shortfall to Turkey, as would producers in Algeria and Nigeria, traders said.
One major Turkish importer said the United States could raise its share in Turkish LPG imports to 12-14 percent in 2016 from 6 percent currently.
Russia imposed sanctions on some Turkish goods after Turkey shot down a Russian military jet on Nov. 24, saying it had violated its airspace. Russia refutes that, saying the plane was in Syrian air space.
"Turkish firms are not simply worried about a reduction in LPG deliveries from Russia because of the current situation -- they are already preparing for this," one trader who works in the LPG market told Reuters.
"It may be more expensive, but the process of how to ensure future deliveries from elsewhere is being worked out," he added. "We are not just talking about deliveries from Algeria, but from the United States as well."
Russia may also adopt further punitive measures on Ankara, including freezing work on the Turkish Stream gas pipeline project, two sources at Russian gas giant Gazprom (GAZP.MM) told Reuters.
Turkey is heavily dependent on Russian natural gas and LPG, but the stakes are high for Russia too. It needs Turkish Stream to increase its own gas supply to Europe, and LPG exporters would have a hard time diverting cargos to other markets.
Russia's LPG exports to Turkey are now expected to drop by more than a quarter in 2016, major traders who sell LPG in the Black Sea and the Mediterranean told Reuters.
"I think Russia's exports to Turkey will fall to 0.8 million tonnes from 1.1 million in 2015," said one source with a major international trading company, who declined to be named.
About 21 percent of Russia's global LPG exports of 5.2 million tonnes went to Turkey. Exports topped $700 million in 2014 and $1 billion in 2013, according to Reuters calculations based on customs data.
"It's going to be difficult for Russia to stop LPG shipments to Turkey," the source said." Diverting those cargoes to other markets requires additional infrastructure and quite some time. Russia, which is at odds with the West, doesn't want to give up cooperation with Turkey, which buys a lot of Russian energy."
Some Turkish traders have already bought LPG from the United States this year as most Russian suppliers were diverting cargos to the more lucrative Ukrainian market, a source with a major international trading company said.
"Spot shipments from the United States may rise," said a source with a Turkish terminal operator and wholesaler, also pointing to exports from North and West Africa and France.
"There is even a possibility of shipments from the Middle East via the Suez Canal, but the arbitrage is closed right now," he added. "Algeria will certainly be offering better prices for Turkey than the Middle East to retain its dominance on the market."
Some players said negotiations were getting tough and did not rule out that Russia may stop LPG sales to Turkey altogether.
"We have agreed (with a Turkish customer) on shipments, we are ready to sign the papers. But we are going to have to put off talks about prices and volumes," one Russian exporter said.
"I haven't heard (about a halt in LPG shipments) yet, but it's a possibility," said the source with a major international trading company.
Market participants said a lack of storage capacity at Turkish terminals could limit import growth from the United States and West Africa. A large tanker from the United States had to be unloaded at several Turkish ports.
LPG buyers hope Turkey could increase its own output by 300,000 tonnes a year, which would raise the share of domestic LPG to more that 25 percent of consumption.
Turkey raised its LPG output by 24 percent to 646,488 tonnes in the first nine months of 2015, according to Reuters calculations based on official data.
Turkey increased LPG consumption by 8.2 percent to 3.062 million tonnes in the first nine months of 2015, according to Reuters calculations based on official data. In the same period, it raised LPG imports by 12.5 percent to 2.619 million tonnes.
The biggest suppliers in the first nine months of 2015 were:
- Algeria - 29 percent of total imports vs 32 percent in 2014;
- Russia - 28 percent, flat on 2014;
- Kazakhstan - 15 percent, flat on 2014;
- Norway - 13 percent vs 11 percent in 2014;
- USA - 7 percent vs zero in 2014;
- Nigeria - 3 percent vs 1 percent in 2014.
Country Consumption Vehicles Gas-fillin
mln tonnes mln
South Korea 3.780 2.355 2,001
Russia 2.900 3.000 4,450
Turkey 2.838 4.076 10,397
Thailand 1.974 1.070 1,150
Poland 1.645 2.846 5,460
Source: the World LPG Association (WLPGA)
Turkish LPG market data for 2012-2015, tonnes unless stated otherwise:
2012 2013 2014 Jan-Sep Jan-Sep Change, Share
2015 2014 % in 2015
Production 772,813 733,353 703,992 646,488 520,107 24.3
Imports 2,999,078 3,082,510 3,132,605 2,618,854 2,327,476 12.5
Exports 87,766 79,997 111,380 190,174 51,657 268.1
Sales 3,705,631 3,663,843 3,724,274 3,062,322 2,830,807 8.2
- transportation 2,694,857 2,726,924 2,835,742 2,316,339 2,114,498 9.5 75.6%
- household consumption 889,877 841,647 801,648 612,547 598,595 2.3 20.0%
- industry 120,896 95,272 86,884 133,436 117,741 13.3 4.4%
Source: Turkey's Energy Market Regulatory Authority (EPDK), Reuters calculations
Writing by Denis Pshenichnikov; Editing by Andrew Osborn and William Hardy