A

s global gas demand is predicted to increase in 2024, geopolitics again plays a decisive role. The north hemisphere is almost halfway through the winter and extreme colds have already severely affected some parts. The U.S. just experienced a deep freeze with snowstorms offering scenes resembling science fiction movies. In another major gas demand spot, severe weather created chaos and caused Northern Europeans to stay at home. And here is the bad news: lower temperatures are expected to continue throughout February. In other words, winter is not over yet for 2024.

The gas market in 2023

With anxiety resulting from the Russia-Ukraine War affecting the global supply chain as a whole, global gas demand increased by just 0.5% in 2023. Although the U.S., African, and Asian gas demand driven by China increased, Europe experienced lower than expected winter demand. The mild winter weather helped a number of countries, especially in Europe, to pass the season smoothly.

Balanced demand across continents and increased power generation from both renewables and nuclear energy sources sparked the slight increase in global gas demand. Even though LNG prices were still above before pandemic levels, they decreased by more than half.

Immediately after the European Union allied with the U.S. and other major economies to impose sanctions on Russian energy products, the Kremlin reacted by cutting the gas flows to Europe. Although the cut did not last long, limited amount of gas started to flow again. Consequently, the increase in prices pushed EU industries to decrease manufacturing capacity or even end the production process. The limited pipeline gas supplies made the EU rush to increase its LNG imports, especially from the U.S. and Russia.

Yet, despite the fact that LNG imports were increased to offset Russian pipeline gas imports, the overall gas demand of Organization for Economic Co-operation and Development (OECD) Europe declined by 7% thanks to higher winter temperatures and the deindustrialization of European countries.

Asia, on the other hand, was home to increased natural gas demand. Led by China and India, the region’s overall gas demand was 2.5% higher than 2022. China’s loosening COVID-19 measures brought power and industrial demand up and boosted demand about 7%, or 12 billion cubic meters (bcm). As a result, the country once again became the world’s top destination for LNG.

Unsurprisingly, the EU’s rush to have a bigger share in the global LNG market and China’s resumed economic activities created tighter supply globally and more investment decisions were accepted compared to the previous year in the undersupplied gas market. The liquefaction capacity attracted record high investments: the 60 bcm capacity approved in 2023 by the EU was more than the capacity of the entire previous decade.

In addition, as the Russian attitude towards the EU resulted in questioning the reliability of pipeline gas, investments towards LNG regasification projects were also increased in 2023 relative to 2022. Project approvals in European states were among the highest, and European countries are expected to raise the total regasification capacity by 50 bcm by 2025. Yet, Asia was again home to the world’s largest project approvals: in a single year, the total amount of approved LNG projects amounted to a capacity of almost 100 bcm—and most of the projects were in China.

Gas market in 2024: Between a rock and a hard place

Geopolitics is continuing to affect the global energy markets. Heading into its third year, the Russia-Ukraine War continues to have adverse effects on the gas markets. As of February 9, the amount of pipeline gas exports by Russia to Europe is greater than the equivalent amount for the same period of the previous year. Still, however, it is 80% lower than that of 2021.

Although the EU member states were better prepared and gas storages were almost full before the winter season, gas demand remains  high and reliable suppliers are still significant for Europe.

As European gas firms rush to guarantee long-term LNG contracts with mostly American exporters, there was a surprising move from the Biden administration. Biden signed a presidential act to suspend the new project approvals to export LNG. While the administration did this as a result of climate activists’ harsh criticisms, there are doubts about whether the country can protect its newly obtained “world’s largest LNG exporter” title and supply enough gas for hungered European states.

What is more, since the extreme winter weather conditions continue across the United States, domestic gas demand is expected to rise. U.S. firms may be stuck between having to choose between feeding the domestic market and exporting overseas.

Since last October, another geopolitical event has been affecting the global energy markets: Israel’s attack on Gaza. After Israel declared war against Hamas, Iran-backed Houthis began to attack tankers belonging to Israel and its allies, especially British and U.S. ships, in the Red Sea. Although this is not the first time Houthis attack tankers or oil and gas infrastructure in the region, the timing of the attacks pose a serious threat to the global energy supply chain.

Many of the largest shipping firms and hydrocarbon corporations, including Maersk and BP, have diverted their routes to longer and costlier ones creating higher destination prices for importers. Of course, higher destinations charges mean higher oil and gas prices in both domestic and international markets, and have the potential to affect the supply chain as a whole. Every single increase in gas prices could lead to incremental increases in the prices of residential electricity and heating.

Added to the above, according to the latest forecasts of the International Energy Agency (IEA), the global natural gas demand is expected to increase by 2.5% in 2024 as a result of harsher weather conditions and increased industrial activities especially in developing countries. Furthermore, it is important to draw attention to the fact that the power sectors’ gas demand is even less predictable since the amount of electricity generated from intermittent renewables is ambiguous. Although it is expected that the natural gas to be produced in global markets will be slightly more—about 0.60%—than the natural gas that will be consumed, geopolitical developments will continue to pose a real threat to the meeting of supply and demand.

Recently, Turkey has made significant progress in the energy field. Turkey’s gas discoveries in the Black Sea region are regarded as a major achievement for the country’s energy security in the near future. Including the latest announcement, herein Turkey’s President Erdoğan declared the new discovery “good news” (müjde) as has become a tradition after every new discovery, the total quantity of the discovered reserves in the Black Sea reached 540 billion cubic meters (bcm).

According to the latest estimates in 2020, the total amount of the ten biggest gas discoveries in the world amounted to approximately 3.2 trillion cubic meters. Turkey’s gas discovery last year was the largest deep-sea discovery in the world and the second-largest of all gas discoveries. These discoveries and ones that might follow in the coming months can make Turkey a game changer in the regional and global energy markets, adding a further geopolitical importance to the country’s growing foreign policy capacity.

Opportunities Offered by the Gas Discoveries

Turkey’s gas discoveries will have effects on the country along two axes: economic and strategic. The economic value of these discoveries is estimated at $130 billion based on the current gas prices. In this respect, Turkey will gain a huge financial benefit. Moreover, Turkey is almost completely dependent on foreign gas resources and due to this dependency, it has to pay a significant amount for its energy imports annually.

Turkey’s annual gas expenditure is approximately $12.5 billion. With these discoveries, it is predicted that Turkey will save $5-6 billion and the total amount of the energy expenditure will be reduced by half. No doubt, the gas discovery and possible other discoveries are economically important for Turkey insofar as they will reduce the current account deficit due to energy imports and strengthen its energy supply security.

Gas discoveries in the Black Sea have broken a common conviction that there are no fossil fuel reserves in Turkey and that the existing ones are not economically profitable.

Gas discoveries in the Black Sea have broken a common conviction that there are no fossil fuel reserves in Turkey and that the existing ones are not economically profitable. Therefore, the natural gas discoveries in the Black Sea will provide an important motivation for Turkey’s future explorations and drilling activities.

On the other hand, Turkey will increase its bargaining power in the global gas markets. As is known, Turkey had made some long-term contracts with its current gas suppliers. With the expiry of the gas contracts amounting to approximately 18 bcm in 2021 and 38 bcm in 2025, Turkey will have an important chance to negotiate on more competitive gas prices and flexible terms – especially with Russia. As a result, Turkey will have an opportunity to reduce its energy import bill.

With Turkey gradually becoming self-sufficient in energy in the medium and long terms, the country’s foreign policy can also be expected to be more independent as Turkey seeks further self-reliance and multiple engagements in a world of multipolar politics.

Looking at different examples in the world, these dates are reasonable. For instance, in Egypt’s Zohr field, which was discovered in mid-2015, production started at the end of 2017, approximately 28 months after the discovery. Also, in Israel’s Tamar field, one of the most important natural gas discoveries in the Eastern Mediterranean, the production process began 3.5 years following the discovery.

Therefore, Turkey can reasonably install the floating platforms, pipelines, and production facilities within three years. At the same time, Turkey should definitely increase its technological capacity and know-how within this period in order to accelerate the efficiency of the process.

The global energy equation will be shaped around three issues: ownership of energy resources, controlling the energy resources, and transferring them to the international markets.

Future Energy Equation and Turkey’s Position

The global energy equation will be shaped around three issues: ownership of energy resources, controlling the energy resources, and transferring them to the international markets. Turkey carries out extremely important energy projects so that it can play an essential role in the above equation such as the Trans-Anatolian Natural Gas Pipeline (TANAP) from Azerbaijan through Georgia and Turkey to Europe, and TurkStream from Russia to Turkey and Europe. Via these pipelines, while Turkey receives 22.75 bcm of gas annually, an additional 25.75 bcm will be transferred to the European gas network via Turkey. Therefore, these two pipeline projects strengthen Turkey’s claim as an energy hub.

In addition to this, Turkey’s underground gas storage capacity is currently 4.5 bcm and this capacity is planned to reach 11 bcm – approximately 20 percent of the country’s annual gas consumption – in 2023.

Another dimension of Turkey’s recent natural gas discoveries in the Black Sea is that Turkey now has a substantial relief from its dependency on imported fossil fuels. Moreover, as a net importer of fossil fuels, the possibility of finding new hydrocarbon resources in the region provides an important motivation for Turkey.

Currently, the local and international gas infrastructure of Turkey is sufficient. Natural gas is delivered to all cities of Turkey. In addition, nearly 100 bcm of gas can potentially be transferred to Europe via Turkey in the long run which corresponds to almost 20 percent of the European annual natural gas demand.

Furthermore, Turkey is becoming a prominent market player with its liquified natural gas (LNG) facilities. With two LNG plants (Marmara Ereğli and Ege-Gaz Aliağa) and two floating storage and regasification units (FSRU) (Etki Liman and Hatay-Dörtyol), Turkey is the top country in the region in terms of LNG facility capacity.

Turkey has a total of 133 billion cubic meters of gasification potential in the national gas network per day through these plants. By creating a domestic seismic and drilling fleet and by virtue of the new natural gas discoveries and infrastructure investments in the Black Sea, the country has a crucial advantage in the independent pursuit of exploration activities in both the Black Sea and the Eastern Mediterranean.