Russia and Turkey continue working out compromise on gas

Russia and Turkey failed to agree on Russia's gas prices: Russian President Vladimir Putin admitted following the meeting with his Turkish counterpart Recep Tayyip Erdogan that the sides argued on gas prices. Ankara wants the price to be fixed and defined by a certain formula, but Moscow insists on market-based pricing.

According to the Russian president, the talks "were not so rosy, that we were just singing praise to each other and talking about achievements alone." "It was a business meeting," Vladimir Putin stressed, explaining that the sides will work on balance.

"As for the energy carriers, they are formed by the market. Such are the market prices; they are not imposed by a Gazprom directive. Although there are also issues and problems here. Our Turkish friends insist on some formulas for commercial reasons, while Gazprom offers other solutions," Putin said, adding that "those solutions will be found," because Moscow values the Turkish market.

Recep Tayyip Erdogan noted at the meeting that the construction of the underwater segment of the Turkish Stream gas pipeline is going in compliance with the schedule, and now the task is “to complete the construction of this part in time," Erdogan said. The only question is the price of gas, which will be supplied to Turkey via this pipeline.

Deputy director of energy policy of the Institute of Energy and Finances, Alexey Belogoriev, speaking to Vestnik Kavkaza, noted that the parties still do not disclose the details of the gas talks, and therefore their positions are not completely clear. "The logic of BOTAS always proceeded from a certain fixed price, which involves discounts from Gazprom, while Gazprom in its contracts focuses on two components - the oil basket price in Europe and European, mainly German gas hub prices," he said.

"That is, Turkey wants stable gas prices. At the same time, Gazprom’s formula currently provides a significant benefit, as European hub prices have reached a multi-month low. In this sense, Gazprom’s position looks quite strong. Without additional details it cannot be established what the Turkish side is trying to achieve, if Gazprom prices are already very low now, but the price dispute with the Turkish government is a constant backdrop of our gas relations," Belogoryev noted.

A leading analyst of the National Energy Security Fund, a lecturer at the Financial University under the Government of the Russian Federation, Igor Yushkov, pointed out the political component of  BOTAS requirements. "The Turkish side's logic is simple: "If we become a transit country for your gas, we must have an additional discount. "I think that the price formula as a whole suits Turkey and it does not want any fundamentally new contract, but wants to preserve the oil pricing, tied to the price of oil, but with an additional factor allowing them to get cheaper gas because of the transit country status from January 1, 2020," he explained.

"When the price of gas is already so low, it’s unprofitable for us to give an even bigger discount - Gazprom is trying to bring it to the Turkish side," Igor Yushkov said.

"It is quite possible that in the end Gazprom will make concessions, and a compromise will be reached, especially if Russia and Turkey continue actively cooperate in Syria," the expert concluded.