An analysis on Turkey’s natural gas hub development through a game-theoretic model application

ABSTRACT

Turkey’s natural gas hub development has been under the spotlight recently as its long-term gas supply contracts expire between 2021 and 2026. This study is an effort to investigate end-user prices and shippers’ behaviors in the natural gas hub development process through four noncooperative game models representing different maturity levels of the Turkish gas market. These models, comprising mixed complementarity problems, are solved by GAMS software using the Turkish gas market’s data. Our findings suggest that although increasing hub maturity yields decreasing end-user prices owing to the availability of more supply options and enhanced competition, a shift from long-term contracts to spot trading may result in an increase in the end-user prices due to strategic withholding by importers. Our models are pioneering as they are the first to depict the Turkish gas market with regard to shippers’ behaviors.

KEYWORDS:

• Natural gas
• gas trade hub
• market modeling
• gas market
• liberalization

Acknowledgments

We thank the anonymous referees and the editor for their insightful suggestions. The contents of this paper are the authors’ sole responsibility. They do not necessarily represent the views of BOTAŞ or Gazi University.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

¹ A natural gas hub is a platform where ownership of natural gas is exchanged between buyers and sellers (Xunpeng and Variam 2018)

² National Balancing Point

³ Title Transfer Facility

⁴ Net Connect Germany

⁵ Punto di Scambio Virtuale

⁶ Turkish Petroleum Pipeline Company, Turkey’s state-owned petroleum company

⁷ Petroleum and Natural Gas Platform Association

⁸ Strengths, weaknesses, opportunities and threats

⁹ Energy Market Regulatory Authority

¹⁰ Million cubic meters

¹¹ Billion cubic meters

¹² Ulusal Dengeleme Noktası (National Balancing Point)

¹³ Minimum Annual Quantity is the quantity of gas that buyer has to pay even if it does not take delivery in the respective year (Cohen 2019)

¹⁴ Minimum Summer Quantity is the quantity of gas that buyer is obliged to offtake in the months from April to September (Cohen 2019)

¹⁵ Capacity

¹⁶ Since all constraints are linear and objective functions’ hessians are positive, it can be derived that our problem is convex (Bazaraa, Sherali, and Shetty 1993)

¹⁷ Golombek, Gjelsvik, and Rosendahl (1995) assumed the price elasticity to be 0.93

¹⁸ Hasanov (2017) used 0.25, 0.50 and 1 values as the price elasticitiy of demand

¹⁹ Since Cohen (2019) suggests that Turkish importers’ summer obligation is set around 37.5%, we assumed the summer quantity obligation to be 35% for the SOC and 40% for the private importers

²⁰ Turkish gas market end-user prices for the power generation, industry and household sectors (BOTAŞ 2019)

²¹ The power generation, industry and household natural gas demands, being average of 2016–2018 years, are used to calibrate the inverse-demand functions (EMRA 2020)

²² i1, i2 are assumed to be the private importers and i3 is assumed to be the SOC