Despite volatile oil prices, a good year in terms of refinery margins

Oil prices in 2008 were highly volatile, peaking in July before descending sharply. During the first half of the year, economic growth in developing countries such as China and India created high demand for oil. During the same period, geopolitical problems in producer countries and bottlenecks on the supply side, in addition to the tendency of some investment funds to invest in commodities and oil in order to protect their revenues against inflation and devaluation of the dollar, resulted in oil prices rising to a record $145 per barrel in July. However, as a consequence of the global liquidity crisis and the economic recession that began to worsen in September, there was a severe drop in the price of oil. In December, crude oil prices fell below production cost to $35 per barrel. Even OPEC's attempt to decrease oil production twice during the final quarter failed to halt the decline in prices.

Crude oil prices continued their sharp decline in the second half of the year with the intensifying economic crisis. Oil product prices performed better than crude prices for a number of reasons: an uncontrollable deterioration of global crude oil prices coupled with divergences between supply and demand; compliance with changing environmental norms became problematic; production problems arising from European and Asian refinery maintenance down time; and refining bottlenecks resulting from hurricanes in the U.S. Consequently, the profit margin in the Mediterranean oil market remained above the 2007 level by an average of 4.1% to reach $5.54 per barrel.

Turkish energy sector:

Petroleum products

The sustained growth of the Turkish petroleum products sector in recent years decelerated in 2008, particularly during the last quarter mainly due to the economic slowdown. The rise of international oil prices to all-time highs during the first half of the year and their sharp decline thereafter created an unstable price trend. These factors, combined with the requirement to maintain national reserves and the increase in foreign exchange rates, had an unfavorable financial impact on companies operating in the sector.

Total consumption in the domestic market edged up by 0.1% to 18.1 million tons. Consumption of white products (gasoline and diesel) declined slightly by 0.9% to 15.4 million tons while consumption of black products (fuel oil and central heating fuel) increased by 6.2% to 2.7 million tons.

LPG market

World LPG consumption was 234.2 million tons in 2009. The top five countries consume 50% of the worlds LPG supply: China, the United States, India, Japan and Mexico. The top five LPG producers in the world are America, Saudi Arabia, China, Russia and Canada.

Turkey continues to be a large LPG market with a consumption level that for many years has remained at 3.6 million tons/year. The Turkish LPG market ranks 11th in the world and second in Europe.

The segments of LPG consumption in Turkey are as follows: 63.7% auto gas, 31.3% cylinder gas and 5% bulk gas. Due to the increased use of alternative energy sources over the previous year, cylinder gas consumption dropped 4%, bulk gas consumption dropped 5% and the auto gas market dropped 9%.

Electricity and natural gas sectors
Energy prices were volatile in the natural gas and electricity sectors. In parallel with the oil prices decrease in 2009, up to 40 % of decrease occured in the price of natural gas used in the industrial sector. Besides that, 10% price increase in electricity occured. Because of the economic downturn, total electricity consumption in Turkey decreased with an amount of % 3,5 according to the previous year.

In December 2009, TEİAŞ, started the final Balancing and Settlement Regulation process.

Privatizations in the energy sector
The Privatization Administration placed 20 regional distribution companies operating under Türkiye Elektrik Dağıtım A.Ş. (TEDAŞ) in the privatization program at the beginning of 2008. While, four regions in the electricity sector was privatizated, the others process is going on.

Despite the deepening economic crisis, mergers and acquisitions made it a busy year for the energy sector. Local and foreign interest in the sector is expected to continue in 2010 as Enerji Üretim A.Ş. will continue to privatize various state enterprises, such as power plants.

Koç Group Energy Segment

Koç Group, Turkey's energy sector leader, holds the entire domestic refining capacity through Tüpraş which meets 70% of the country's total demand. Tüpraş  posted record average refinery margins for 2008 despite the impact of the economic crisis.

Opet continued to boost its market share and maintained its position as the 3rd largest player in white products and 2nd largest player in black products.

Aygaz became the main shareholder of all Koç Group energy companies, with the exception of petroleum distribution and refining. Aygaz also continued to dominate the Turkish LPG sector.

As the leaders of the Turkish energy sector, Koç Group companies control more than 60% of Turkey's total product storage capacity.