Work and discussions on a potential gas hub in Türkiye are underway while a decision is expected to be made in 2023, Russian Deputy Prime Minister Alexander Novak said Friday, noting that the center could provide tools for a gas pricing mechanism.
In October, Russian President Vladimir Putin first floated the idea of setting up a gas hub in Türkiye following mystery explosions that damaged Russia’s Nord Stream gas pipelines under the Baltic Sea.
Russia’s energy sales to the European Union have sharply fallen since the start of its war in Ukraine, as the EU moved to cut dependence on Moscow. President Recep Tayyip Erdoğan backed Putin’s idea and both countries instructed authorities to work on a road map.
The Russian energy giant Gazprom is actively continuing discussions with Turkish officials on the matter, Novak told an interview with state television, stressing that a final decision on the hub could be made sometime next year.
A week ago, Putin reiterated Russia’s plan to build the hub in Türkiye and said prices for sales to Europe would be defined using an "electronic platform" that would be set up at the center. Novak said prices would be defined according to market conditions.
"It is not clear how the price is formed on Dutch, U.K. or other trading platforms. We are talking about creating an alternative to the platforms where bots work, a center that will create prices according to the market," he noted.
Novak also said there were talks with other potential countries that could join the project in the future.
"We are talking about creating a new platform, in which not only Russian suppliers will be involved but also other exporters. Currently, we are actively working on this issue with our Turkish colleagues and other potential countries that may participate in the project," he added.
"Since gas to Europe is currently supplied from the south by Algeria, Qatar and Azerbaijan, we are talking about creating some kind of hub, which, in principle, will include not only Russian suppliers but also other exporters. I think a decision will be made in 2023."
Potential oil output cut
Meanwhile, Novak said despite Europe’s efforts to cut reliance on Russian oil and gas, energy exports from Russia are in demand worldwide and Moscow has been diversifying its buyers.
He noted that Russia may cut oil output by 5%-7% in early 2023, as it responds to price caps on its crude and refined products and halt sales to the countries that support them.
Detailing for the first time the Russian response to the price caps introduced by the West over Moscow’s invasion of Ukraine, Novak said the cuts could reach 500,000-700,000 barrels per day (bpd).
He said it would be difficult to provide for global economic development without Russian energy and predicted possible gas shortages in Europe, which has introduced restrictions on gas prices, as well as on oil.
The European Union, G-7 nations and Australia introduced a $60 per barrel price cap on oil from Dec. 5, besides the European Union’s embargo on imports of Russian crude by sea and similar pledges by Britain, Canada, Japan and the United States.
"We believe that in the current situation, it is even possible to take risks of lower production rather than be guided by the selling policy regarding the price caps. Today it is $60, tomorrow it can be anything, and getting dependent on some decisions made by unfriendly countries is unacceptable for us," Novak said.
Putin said on Thursday he would issue a decree early next week on Moscow’s actions in response to the price cap. Novak said the decree would ban sales of oil and oil products to countries that join the price cap and companies that demand its observance.
He also said that Russian oil production is expected to rise this year to 535 million tons (10.7 million barrels per day) from 524 million tons in 2021, while natural gas output will fall by up to a fifth to 671 billion cubic meters.
Exports decline
The sanctions have hit sales of Russian oil, which makes up a large share of state budget revenues. Exports of Russia’s flagship Urals crude blend from Baltic Sea ports may fall by up to a fifth in December.
This month, Urals crude has been sold at deeper discounts, and dominant buyer India has bought barrels at well below the $60 price cap.
Novak said he believed that the discount would stabilize soon and that Russia has spent much of this year preparing for sanctions and price caps.
He also praised the work of the OPEC+ group of leading global oil producers, which includes Russia, saying that the oil price is likely to remain in the current range of $70-$100 per barrel next year barring the emergence of unforeseen events.