LONG-TERM NATURAL GAS CONTRACTS AND ECONOMIC PERFORMANCE: A HISTORICAL DECOMPOSITION ANALYSIS FOR TURKEY

Abstract

In the study, it was intended to capture a better relationship between the determined macroeconomic variables and natural gas prices via the long-term natural gas contracts of Turkey, due to the upcoming expiry dates for some of the long-term natural gas contracts that Turkey signed before. Especially, the long-term contracts between Turkey and Russia are taken as a basis and examined because Turkey mostly imports natural gas as well as crude oil and products from Russia, and the nearest long-term natural gas contract expiry date is the one with them. The main underlying cause of such a study is based on Turkey’s need of ensuring energy supply security for its ever-growing population and economy as well as accessing clean and cheaper energy sources like natural gas, as a net energy importer country via alternative long-term natural gas contracts more suitable for both sides. Solely with the help of the Historical Decomposition Method by benefitting the Near-VAR Model, the missing part about the quantitative examination of long-term natural gas contracts and economic performance of Turkey was attempted to be executed by applying econometric techniques explained in the methodology part of the paper. These econometric techniques implemented in three different scenarios and, besides, five different natural gas price formulas are offered for Turkey’s long-term natural gas contracts to be discussed in detail. The scenarios are based on concerning different energy commodities and different regional benchmarks by considering the effects on many macroeconomic variables or vice versa. Consequently, as an empirical finding, it has been obtained that a better performance can be demonstrated in terms of industrial production with one of the formulas produced as an alternative. In a nutshell, this paper is constructed upon six parts beyond the introduction and organized as follows; natural gas markets, natural gas pricing and contracts, Turkey’s natural gas market, Turkey’s long-term natural gas contracts, methodology and empirical findings, conclusion and recommendations.