1. NATURAL GAS SECTOR

2. INTRODUCTION A Brief Summary of the Industry The Overall Structure of the Market Conduct of the Firms in the Sector, Performance Influenced by the Structure and Conduct Policy Recommendations

3. HISTORY OF NATURAL GAS MARKET

4. History of BOTAŞ Established in 1974 Beginning to transport natural gas in 1987 9 February 1990 - monopoly power “Agreement of Natural Gas Usage” 2 May 2001 - removing of monopoly power “Natural Gas Regulation Law (#4646)”

5. Agreements Turkey - Soviet Union (natural gas agreement in 14 February 1986) Begining to import LNG from Algeria in 1994

6. Invesments and Projects Fedaration of Russia-Turkey Natural Gas Pipeline Doğu Anadolu Natural Gas Pipeline System Projects of Sivas-Mersin, Konya-İzmir Natural Gas Pipeline Project of Underground Storage System Project of Turkey-Greece N.G. Pipeline Project of Turkey-Azerbaijan(Şahdeniz) N.G. Pipeline Project of Turkey-Iraq N.G. Pipeline Project of Turkey-Egypt N.G.Pipeline

8. Main Statistics in Energy and Natural Gas Sector in Turkey Amount of natural gas consumption in Turkey is 14.1 billion m³ in 2000, 22.1 billion m³ in 2003. It is supposed to reach to 31 and 43 billion m³ in 2010. Energy consumption in Turkey in 2004 is 0.8%of the world’s consumption, and this is increased by 5.7% relative to 2003. 60% of natural gas is used in energy sector.

9. MARKET STRUCTURE

10. Number & Size Distribution of Buyers and Sellers SELLER SIDE: The structure of the market is determined by Natural Gas Market Law(#4646).[2.May.2001] Before the law After the law Monopoly Try to reach of BOTAŞ competitive market

11. ...brings the limitation on the market portion of the corporations. * At most 20% of the market portion(per a firm)

12. Portion of public sector → decreases Portion of private sector → increases “the monopoly natural gas market will try to reach competitive market structure through the oligopoly.”

13. The likely firms ; Gaz de France Shell BP Gazprom Koç grubu- Statoil Eni

14. BUYER SIDE: * Major 3 consumers of natural gas market; →households →industrialists →commercial firms * “Free consumer” » have a right to determine provider » can compromise in prices and provisions

15. Entry & Exit Conditions Barriers to Entry → two requirements to join “the letting a contract by competitive bidding”(İHALE) 1) “import bachelor’s degree sufficiency certificate” 2) Pre-acknowledgement from the seller(firm or country)

16. Product Differentiation Monopoly Oligopoly Some product differentiation

17. Few sorts of the natural gas... LNG (Liquid natural gas) CNG ( natural gas used in the cars) Compressed natural gas *Product differentation in service sector! → competition ads.

19. CONDUCT

20. Pricing Policy Before Natural Gas Regulation Law ; BOTAŞ was the main determinator in pricing policy After the law; price list is determined by EPDK The automatically determined pricing system; Based on inflation and exchange rates Imports BOTAŞ, prices BOTAŞ Transporting BOTAŞ, prices EPDK. Distribution EPDK, prices EPDK

21. Effects of Price Changes of Comlements and Substitutes on the Demand of Natural Gas Fossil sources (petroleum, coal, and natural gas ) Increase in price of any source of energy affects prices of other sources more or less.

22. Price Discrimination Before the application of the law ; BOTAŞ was applying price discrimination (third degree price discrimination) Consumers 2 sub-groups Industrialists pay less consume more After 2002 ; BOTAŞ applies the same price for the whole distribution regions Disadvantage consumers( have less cost)

23. Marketing As new companies enter the market, competitiveness will increase and new marketing stategies will be progressed

24. Storage Storage function is in the control of EPDK Getting licence

25. Distribution PRODUCER TRANSMITTER FIRM DISTRIBUTOR FIRM LAST CONSUMER HOUSE INDUSTRY

26. Distribution PRODUCER WHOLESALER TRANSMITTER FIRM DISTRIBUTER FIRM(transport) DISTRIBUTOR FIRM(sale) HOUSE INDUSTRY

27. PERFORMANCE

28. Quality of natural gas and services » Quality of natural gas: not the case that Turkey can manage since it doesn’t produce. » Quality of services: has been improving day by day. Max. Production efficiency & high-quality service

29. Technological Progress The technology must be sufficient to support projects. » quality of the machine that produces goods » quality of the pipe lines that are used in transmission

30. Allocative Efficiency Has not been achieved for many years. competition Allocative efficiency √

31. POLICY RECOMMENDATIONS

32. Liberalization- Direct Investments In order to have a liberal natural gas market, it is expected BOTAŞ start to depute its contracts to the other firms gradually. Existing and potential projects should be financed by the support of foreign and local investors in near future.

33. CONCLUSION establishment of BOTAŞ N.G.R.L(#4646) BOTAŞ & EPDK “...the monopoly market tries to reach competitive market through the oligopoly...” Entry & exit contracts conditions

34. CONCLUSION Some product differentiation Pricing BOTAŞ & EPDK Marketing, Storage, Distribution, Technology are gradually developing processes

35. CONCLUSION Finally, policy recommendations (Liberalization & Direct investments)

36. THANKS….