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09 Aug 2021 | 09:42 UTC
Highlights
Hydro dams at record low levels
Widespread blackouts early August
Major gas contracts need renewing
Turkey is facing a period of extreme energy insecurity as record-low water levels in the country's main hydro power dams align with a heat wave, record power demand and the expiry of several legacy gas import contracts.
The problem was highlighted on the morning of Aug. 2 when rolling power cuts left much of the country without power for over an hour.
According to an industry source close to the matter, the cuts were caused by a conflict of interest between Turkish grid operator TEIAS and state water authority DSI, responsible for regulating the supply of potable water and irrigation for agriculture.
A sudden spike in electricity demand saw TEIAS order increased hydro generation, only for DSI to order the dams to halt generation to preserve stocks, which the source said were averaging 15% of norms. The action sparked countrywide outages.
On paper, Turkey has plenty of generating capacity to meet demand, with 98.162 GW as of June 30. The combination of low water levels and seasonal low wind speeds, however, means that as little as 45 GW are currently available against peak demand during a heat wave approaching 60 GW.
Daily power demand has broken records for several days in little over a month, reaching 1.146 TWh on August 4, some 12% above the 1.02 TWh recorded on June 29, itself a record.
Power demand in July was up 6.0% year on year at 30.24 TWh, with the 186.91 TWh reported for the first seven months of the year up 9.4% on the same period in 2020.
Thanks to low water levels more generally, generation from Turkey's hydro dams was down 29.5% over the first seven months of the year, accounting for 20.3% of generation compared to 31.5% over the same period last year, with the situation worsening by the month.
Conversely gas burn accounted for 29.8% of generation over the first seven months of 2021 versus 16.9% last year, with the percentage rising to 35.6% in July, against 23.5% in July last year.
With at least another month of dry weather expected, the shortfall is not about to disappear.
Speaking to S&P Global Platts, one industry source questioned whether TEIAS had a strategy to deal with the problem other than "hoping it starts raining in the autumn." Dry winters are not unusual in Turkey, and the fear is that climate change is making them more common.
TEIAS data show sharp falls in hydro generation -- the cheapest power available -- in 2001, 2007-2009, 2014, 2017-2018 and now 2021.
The problem of unreliable rainfall has been exacerbated by Ankara's policy of hiking gas-for-power prices, to reduce gas burn and rein in the country's current account deficit.
As recently as 2014 gas generated 47.9% of Turkey's power, falling to 18.9% in 2019 and just 16.9% over the first seven months of last year as the pandemic reduced demand.
With Turkey's combined-cycle gas plants currently operating at full capacity, however, the return to gas comes at arguably the worst possible moment -- just as the bulk of state importer Botas' legacy gas contracts come up for renewal.
One 6.6 Bcm/year contract for Azeri gas ended in April with a further 5.3 Bcm/year (Nigeria LNG 1.3 Bcm, Russia pipeline 4 Bcm/year) timing out by year's end, Together, these contracts represent 20% of Turkey's 57.9 Bcm/year gas import portfolio.
Worse, a large part of a further 10 Bcm/year of contracts for Russian gas held by private companies may also be unavailable. Russia's Gazprom has yet to respond to a query from Platts as to whether it had, as rumored, halted supplies to companies in breach of take-or-pay conditions.
In the meantime Botas has issued two major LNG buy tenders since June 1, and signaled its willingness to import Azeri gas on a spot basis.
While Turkey's pipeline suppliers, Azerbaijan and Russia, are unlikely to leave Ankara without gas, with spot LNG prices currently high, neither are they likely to accede to Ankara's demands for cheaper gas on more flexible terms.
Unless the rains return to fill dams, Ankara may have no choice but to renew gas contracts on unfavorable terms, just to keep the lights on.
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