By Ekaterina Kravtsova
LONDON (Reuters) - Russian gas exports to Turkey and eight other southeast European nations fell by more than a quarter in the first half of 2019 as cheaper liquefied natural gas (LNG) and new Azeri supplies helped the region reduce reliance on Russia.
Russian exports to Turkey, the biggest regional market, fell 36% compared to the first half of 2018, while exports to Greece and Bulgaria dropped 12.7% and 17.4% respectively, data published by Russia's Gazprom (MM:GAZP) showed.
Low LNG prices, driven down by sluggish spot demand in Asia and rising output particularly in the United States, as well as the expansion of gas output and pipeline capacity from Azerbaijan, helped some regional nations diversify suppliers.
Gazprom's exports to the nine regional states fell 27% to 14.2 billion cubic meters (bcm) from 19.5 bcm a year earlier, the figures published by the Russian energy giant showed.
"Low LNG prices are accelerating the trend of reducing Russian gas dependency," said Alex Lagakos, head of Greek Energy Forum, a think-tank focusing on Greece and regional markets.
Dutch front-month contract, a benchmark for spot LNG delivered to Europe, averaged at $3.6 per million British thermal units (mmBtu) this summer, about half Gazprom's price for gas supplied to Turkey, a Turkish gas market source said. Gazprom does not publish its gas contract prices.
Turkey imported 8.1 bcm from Gazprom in the first half of this year, down from 12.7 bcm a year earlier. Its reliance on Russian supplies fell to 35% of its needs from 49%.
A Turkish gas market source said the drop in Russian flows might have been intended "to show Gazprom that Turkey can survive without Russian gas."
But analysts said regional countries were not seeking to squeeze out Gazprom completely in favor of LNG, rather they wanted to reduce their heavy dependence on a single supplier.
Gulmira Rzayeva, a research associate at the Oxford Institute for Energy Studies, said the region's aim was "to become more energy secure."
Turkey's gas imports from Iran held almost steady, while imports from Azerbaijan surged 43% in the period, after the launch of the second stage of BP's (L:BP) Shah Deniz gas field in the Caspian Sea and the Trans-Anatolian Natural Gas Pipeline (TANAP) run by Azerbaijan's SOCAR last year, data from Turkey's energy market authority EDPK showed.
Market share of Turkey's gas suppliers - https://fingfx.thomsonreuters.com/gfx/mkt/12/5665/5615/Turkey%20gas%20market%20share.jpg
CONTRACT TERMS
Turkish private companies that have deals with Gazprom to import 10 bcm a year have imported only 600 million cubic meters in the first six months, the source said, blaming high prices.
Another industry source said buyers were typically required to take 80% to 85% of the contracted amount or pay a fee.
Their failure to secure a price reduction in the Gazprom contracts might mean they could be reluctant to extend the deals when they expire in the early 2020s, industry experts said.
Rzayeva said one factor pushing Botas to reduce its reliance on Gazprom was the strict terms in the Russian firm's contracts that prevented gas being sold on to other buyers, a requirement limiting the Turkish state energy firm's bid to turn Turkey into a regional gas hub.
"The Russian contract has a destination clause, the Azeri deals from Shah Deniz stages 1 and 2 don't," she said.
Turkey's LNG imports rose 12% in the first six months to 4.92 million tonnes, equivalent to about 6.7 bcm, Refinitiv Eikon data showed. Spot LNG imports outpaced the rise in Turkish purchases via long-term contracts with Algeria and Nigeria.
Turkey's gas imports - https://fingfx.thomsonreuters.com/gfx/mkt/12/5660/5610/Turkey's%20gas%20imports.jpg
LNG SHARE
Greece, which imported 1.5 bcm from Gazprom in the first six months of 2019 compared to 1.7 bcm a year earlier, reported an even bigger 156% jump in LNG imports to 0.82 million tonnes, equivalent to about 1.1 bcm, according to Refinitiv Eikon data.
Gazprom's share of the Greek market also slipped to 50% from 60%, a Greek market industry source said, while the share of LNG rose to 40% from about 30%, Greek Energy Forum's Lagakos said.
"This is one of the highest shares in Europe (for LNG), only comparable to the ones of the Iberian market," he said.
Greece's Public Gas Company (DEPA) has been discussing a long-term LNG supply deal with U.S. supplier Cheniere and has reserved 1 bcm a year via the Trans Adriatic Pipeline (TAP), a link that extends to Italy and which is due to start in 2020.
Bulgaria, which until this year had been almost entirely dependent on Russian gas, has purchased two shipments of LNG from the United States. The LNG imports come via Greece as Bulgaria does not have a regassification terminal.
Bulgaria also signed a contract in April with DEPA for another gas shipment.
Construction of a pipeline to Bulgaria via Greece to import Azeri gas also began this year. Sofia plans to meet up to 30% of its gas needs beyond 2020 under a contract to import 1 bcm a year from Azerbaijan's Shah Deniz 2 field.
Ankara is also in talks with Sofia to supply any extra gas it receives from Azerbaijan to Bulgaria, Rzayeva said.
Bulgaria's state energy firm Bulgargaz and Botas did not respond to Reuters requests for comment.
Gazprom aims to beef up its network to supply the region and beyond. It is aiming to launch the TurkStream pipeline across the Black Sea to Turkey in coming months with capacity of 15.75 bcm a year in its first stage. The pipeline will be used to transport some gas to Europe that now transits Ukraine.
Gazprom said the recent drop in exports to Turkey and other regional countries would not affect the long-term Turkstream plans. "It is not correct to make a conclusion about demand for it from a one-time market situation," it said when asked.
Gazprom also told Reuters it was confident it would remain a major supplier to Europe, saying it "does not see any threat to its positions in Europe as gas demand in the region will remain consistently high."