Regulation of natural gas pipeline transportation and storage

Ownership and infrastructure

Describe in general the ownership of natural gas pipeline transportation, and storage infrastructure.

Pursuant to the section 4(c)-9 of the Natural Gas Market Act No. 4646 (NGMA), the national gas transmission grid (including the transmission pipeline) is owned by Petroleum Pipeline Company (BOTAŞ), which is a company in the form of public economic enterprise. On the other hand, the NGMA also contemplates that there may be other transmission companies that may construct their transmission lines. Despite this legal situation, as of the time of writing, the only transmission company operating in Turkey’s natural gas market is BOTAŞ and the only transmission pipeline is the one that is owned and operated by it.

Companies with a storage licence are responsible for designing, constructing and operating their storage facilities in compliance with the applicable laws. Companies holding storage licences have ownership of their storage facilities. The storage facilities Ege Gaz FSRU and Etki FSRU are privately owned, while Marmara Ereğlisi LNG Terminal, Silivri Underground Natural Gas Storage, Salt Lake Underground Storage and FSRU Dörtyol are owned by BOTAS.

Regulatory framework

Describe the statutory and regulatory framework and any relevant authorisations applicable to the construction, ownership, operation and interconnection of natural gas transportation pipelines, and storage.

Pursuant to the Natural Gas Market Licence Regulation (Official Journal No. 24869 of 7 September 2002) (NGMLR) sections 21 and 23, transmission companies and storage companies are responsible for planning and constructing their facilities pursuant to the standards prescribed by law. The main instrument regulating these standards is the Natural Gas Market Facilities Regulation (Official Journal No. 24918 of 26 October 2002) (NGMFR). Section 5 of the NGMFR sets the main standards for all natural gas facilities. According to this provision, the planning, design, manufacturing, installation, testing, inspection, commissioning, operation, maintenance, repairs and minimum safety levels applicable to these plants should be in compliance with the TS, EN, ISO or IEC standards. If none of these standards are applicable, they should be in compliance with other standards or documents recognised by the Turkish Standards Institute. Section 6 articulates that the facilities can only be constructed and operated by those holding the relevant certificates. The matters relating to such certificates are regulated in the Natural Gas Market Certificates Regulation (Official Journal No. 24887 25 September 2002). According to section 7, qualified personnel must be employed regarding the operation of the facilities and they should be given the required training. Finally, according to section 8, up-to-date operation and maintenance manuals of the facilities should be kept ready in the relevant parts of the facilities.

Land rights

How does a company obtain the land rights to construct a natural gas transportation or storage facility? Is the method for obtaining land rights to construct natural gas distribution network infrastructure broadly similar?

For transmission and storage facilities, the acquisition of land rights may take place via private agreements (ie, purchase agreements transferring the ownership, granting of rights of usufruct or rights of construction over the land or lease agreements) with landowners or via expropriation subject to a decision of the Energy Market Regulatory Authority (EMRA). After the relevant land is expropriated, the transmission or storage licence holder will be given the right to use the land for its intended purposes. The method for obtaining land rights to construct a gas distribution network is also similar. The procedure is outlined in section 12 of the NGMA.

Access

How is access to the natural gas transportation system and storage facilities arranged? How are tolls and tariffs established?

Access to the natural gas transportation system is subject to BOTAS’s prior written consent. According to section of the NGMLR, there should be provisions in the licences of transmission companies that they will treat third parties equally relating to access to their transportation systems. This general principle is also regulated by section 32 for transmission companies, distribution companies and storage companies. According to the NGMLR, transmission companies (currently only BOTAŞ), must connect to the system those who apply for connection within 12 months provided that the system is available. Details as to the connection are regulated in the Natural Gas Market Transmission Network Operation Regulation (Official Journal No. 24918 of 26 October 2002) according to which the third party and BOTAŞ would sign a connection agreement for connection to the transmission network and a transportation agreement for transportation of natural gas.

Pursuant to section 23(4) of the NGMA, storage companies are required to respond to the requests made to them for the acquisition of storage services within 30 days. If the request is denied, the reasons for it should be notified to the applicant. The applicant may apply to EMRA within 60 days of the date of rejection whose decision will be binding over the relevant storage company.

The section 33 of the NGMLR regulates when a distribution company or a transmission company may deny a request to access to their system. According to this provision, such denial is warranted when the capacity is not sufficient (if the applicant agrees to cover the expenses that will be incurred for the required capacity increase, its application cannot be rejected on the ground that the current capacity is not sufficient) or when the applicants will not be able to perform their obligations relating to access or that they are to be imposed with substantial monetary and financial compensation obligations owing to their current contracts. In all of these cases, the denial decision should be notified to EMRA along with their reasoning.

Tariffs for transportation of LNG is determined by EMRA as per section 11 of the NGMA. The entry and exit tariff model is adopted. The prices for private storage facilities are determined by the private parties freely provided that the relevant principles under the relevant legislation are complied with, while the prices for underground storage facilities are regulated through tariffs.

Issues relating to third-party access balancing, adjustment of different gas qualities are handled subject to the terms and conditions of BOTAŞ Network Code (the Network Code). Each applicant is required to request access capacity in accordance with the schedule set forth in the Network Code.

Interconnection and expansion

Can customers, other natural gas suppliers or an authority require a pipeline or storage facilities owner or operator to expand its facilities to accommodate new customers? If so, who bears the costs of interconnection or expansion?

Pursuant to section 33 of the NGMLR, distribution companies, transportation companies and storage companies have the authority to refuse access if their capacity does not allow it. However, if the applicants agree that they will bear the costs of expanding the capacity, the application cannot be refused as per section 33(4). Therefore, the customers have the power to require the companies to increase their capacities provided that is possible to do so. The cost of interconnection or expansion shall be borne by the customer that claims for connection at the end-user point. While the ownership of such additional facility shall remain with the relevant distributor or transmission operator, if the connection line is built longer than the claiming customers’ demand, due to future projections, then the prospective connecting customers must compensate the customer that incurred the initial cost, to the extent of the capacity allocated to the prospective customer.

Processing

Describe any statutory and regulatory requirements applicable to the processing of natural gas to extract liquids and to prepare it for pipeline transportation.

The processing of extracted natural gas is defined under the realm of ‘production’ activity as defined under Turkish Petroleum Act No. 6491. Therefore, production licence holders are entitled to conduct this activity subject to the natural gas transmission regulations. The gas prepared for the pipeline transportation must comply with the quality defined in the Network Code.

Contracts

Describe the contractual regime for transportation and storage.

To transport natural gas by using the transmission network of wholly state-owned transmission company (BOTAŞ), the applicant and BOTAŞ must enter into a standard transportation agreement. The standard transportation contract includes basic terms and conditions, such as precedents, delivery conditions, reserve capacities, payments and the parties’ responsibilities against each other. However, the critical issues are referred to the Network Code, which carries a particular importance for such contractual relationship. The transportation fees determined on an annual basis, as per the Natural Gas Market Tariffs Regulation (Official Journal No. 29856 of 13 October 2016) (NGMTR) shall apply. The fees for transportation are based on the entry and exit tariffs (capacity and commodity charges are applied).

The agreements to be concluded between those who are willing to store LNG and the storage companies are to be drafted and concluded between themselves, while the respective tariffs shall apply relating to underground storage of natural gas. That is to say, there is no standard form of contract regarding the agreements to be entered between the private entities. On the other hand, the ‘service contract’ in the Regulation on Defining Fundamental Principles and Procedures for the Usage of Subsoil Natural Gas Storage Facilities (Official Journal No. 27954 of 4 June 2011) shall apply for underground storage of natural gas. The respective storage fees are based on capacity charges (injection price, withdrawal price and swap price) as determined under the NGMTR.

In both transportation agreement and storage agreements the third-party access rules associated therewith shall apply.