How Much State Support Is There for Natural Gas?

To answer this question, we actually need two pieces of information. 

First: how much does the state pay per cubic meter of natural gas?

Second: how much do we pay per cubic meter of natural gas?

If we know both, we can find the ratio and find the right answer to this question.

The information on the price Turkey pays for natural gas is written in its international contracts, but unfortunately this information is not made public because it is a state secret. 

Let's take a look at international spot market prices to get a closer look at the answer to our question.

I think let's look at the US market first. Because I think it will be useful in terms of giving us more accurate information about the real natural gas cost prices, even if they do not match the prices we pay. 

When we look at natural gas prices in the international spot market in the US, we see that they are priced in a unit called MMBtu. "M" means one thousand times, two "M", i.e. "MM" can also be defined as 1 million Btu.

Btu is an energy unit called "British thermal unit". In fact, this is a unit related to the heat given off by the quality of the gas. However, it is possible to convert this unit into M3. Briefly after a lot of energy conversion:

1 M3 = 1 MMBtu / 27.3192

With the formula, we can calculate the natural gas price in the spot market in M3.

The spot market natural gas price of 1 MMBtu in the US was $3.7652 on January 7, 2023. There is a website that provides instant prices in graphical form. 

Prices reached as high as $9.74 in mid-August 2022. Since then, they have been on a downward trend.

In the graph, we can also see natural gas prices throughout history since the spot markets were established. I did a little bit of reading and natural gas prices have been very volatile throughout history. 

In September 2005, for example, it jumped to $13.92, and in March 2020, it went down to $1.65. 

Then it entered an upward trend again, and as I wrote above, probably with the effect of the Ukraine war, it reached $9.74 in August 2022. 

Nowadays, it is in a downtrend again.

If we put it in the formula, at today's exchange rates, that is, if we accept the USD/TL rate as 18.75, 

1 M3 natural gas = $3.7652 x 18.75 TL/$ / 27.3192 = 2 Lira 58 kurus. 

If we calculate over 1000 M3, it would be 2 584 Lira. The price of 1000 M3 is more commonly used for comparison.

Of course, as I said, this price is the price in America. 

In Europe, spot market prices are at completely different levels.

Spot market prices in Europe are set in Euros. MWh (megawatt-hour) is used as the unit. Here too, they used energy units for pricing.

I will not go into detail, let me write the direct formula again to find the M3 price.

1 M3 = 1 MWh / 95.53836

If we examine the graph, again in late August 2022, natural gas prices peaked in Europe, 1 MWh of natural gas was €239.91. Then it entered a downward trend again. On January 7, 2023, the price dropped to €69.15.

Again, natural gas prices are on a downward trend in Europe these days.

If we take the €/TL exchange rate as 20 liras and calculate:

1 M3 natural gas = 69.15 € x 20 TL/€ / 95.53836 = 14 Lira 48 kurus. 

If we calculate over 1000 M3, it is 14 thousand 476 Lira.

I look for news on the internet. 

I found a news article dated January 5, 2023. Turkey paid 19,455 lira 96 kurus for 1000 M3 natural gas purchased from the spot market. 

Looking at the graph, on the 5th of the month, prices actually went down to €65 per MWh unit, then rose slightly. On January 6, they rose to €77, then dropped again. 

The Euro/TL rate was probably different on the 5th of the month, so I think we can accept what is written in this news article as correct.

Well, I think we can say that we understand the spot market prices. 

In this case, let's take a look at how much we pay for natural gas at home.

Natural gas prices in houses are priced with a unit called SM3. 

This unit is a unit called standard M3. It means 1 M3 natural gas at 15°C and 1.01325 bar absolute pressure. The calculation is based on this unit. 

There are some correction coefficients to find the cubic meters of natural gas consumed in this unit, but I will not go into the details now. 

On the websites of gas distribution companies, there are different prices of natural gas in M3 according to the annual usage limits. As the annual consumption increases, the unit price also increases.

Let's take the lowest price in our calculation. The rate will be higher, I am making positive discrimination for our state.

On the website of the Istanbul Gas Distribution company, the price is 5 lira 21 kurus excluding VAT. There is also a kwh price, 49 kurus, again excluding VAT. I don't know how they do the calculation, maybe some natural gas clocks work in M3 and some in kwh. Maybe that's why they may have written prices according to two different units.

Since we are comparing over M3, I take the M3 price into account.

I don't know how much natural gas you spend per month these days, even if you turn the boiler down very low, but on these cold days you probably don't spend less than 150 M3 per month.

If it is 150 M3, the monthly expenditure is 781 lira 50 kurus at these prices. I don't know how much the VAT is these days, there were some reductions in VAT rates before, but I understand from some complaints I have read that they are being billed at 18% these days. If they have really abandoned the discounts made in the past, it means that VAT at 18% will be applied to your invoice. 

In this case, your bill will be 922 TL 17 kurus with a monthly expenditure of 150 M3, which, as I said, will vary depending on the boiler setting and the insulation level of your home.

Our state says that it subsidizes natural gas prices for residences by 75%. 

I do not take the VAT into account, because I will make the comparison with international prices. 

In other words, for 1000 M3 of natural gas, you pay 5209 liras excluding VAT, which means that the state says that it actually pays 20,836 liras 15 kurus, four times this price. 

We have examined the spot market prices above. If we take these prices into account, even though prices have fallen slightly in recent days, taking into account the previous high prices, yes, we can accept this rate as correct on average.

However, one question still sticks in my mind. Don't we have long-term contracts? 

Shouldn't the prices written in these contracts, signed by the state, be much more favorable than spot market prices?

If in reality the prices of the natural gas we buy with long-term contracts are lower than the spot market, then maybe the 75% figure is not so accurate. 

Anyway, it's just a question on my mind. One way or another, it is clear from our calculations that the state subsidizes the price of natural gas for households. If the state is really buying natural gas at more favorable prices, the subsidy rate may not be that high. At worst, we can say that this is political rhetoric. We are already used to politicians exaggerating things.

One more question that has been on my mind, have you noticed how low the prices are in the US spot market?

It means that the cost of extracting natural gas in the US is actually much lower than the selling prices in Europe. Or if the cost is more or less the same, the prices in Europe are quite high. I wonder if it's because of the war? You have to compare the two graphs throughout history. Anyway, I'll look at it sometime.

If we compare today's prices: 

14.476 Lira / 2 584 Lira, the ratio is 5.6.

This means that prices in Europe are more than 5 times more expensive than in America!

As I said, either they extract natural gas with much cheaper methods in America, or it is quite costly to get natural gas to Europe. Especially these days. I will look into this a bit more in the future, and if I find out the reason, I will share it.

It is quite cold in Moscow today. Even now (in the evening) it is -22°C outside. It will be much colder at night. Although it will return to normal in a few days, I mean to -10°C. 

Somehow I thought of writing something about natural gas in the cold. 

Here, of course, we are heated with central heating system. The price paid for heating does not make any difference in summer and winter, a standard price is paid every month according to the M2 of the house. Twice a year the prices are slightly increased, sometimes not. 

Of course, it is not as cold there, but on these cold days, the boilers must be turned up a bit. Naturally, the bills are quite high in these months, even with the state support. 

What can I say, I hope we find more economical solutions to this energy problem as soon as possible so that this issue will no longer be a nightmare at night. 

I will also write something about home insulation in the future. Insulation is very important for lower bills, especially in these cold winter days.

Let me end this article here for now.

Love and respect to everyone from Moscow.