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 sector
Utilization of natural gas continued to increase around the world in 2008, limiting the use of LPG in households and industry, although the use of autogas continued to become more widespread.
In Turkey, the second largest LPG market in Europe, total LPG consumption remained stable at 3.5 million tons. Cylinder LPG sales slipped by 10% while bulk gas sales contracted by 20%. In contrast, the autogas market increased by 5%
Electricity and natural gas sectors
Energy prices were volatile in the natural gas and electricity sectors. The introduction of previously postponed price increases pushed the price of natural gas used in the industrial sector up by 75%. The 49% price increase in electricity combined with the economic downturn depressed total electricity consumption in Turkey, leading to the first contraction since 2001.
In July 2008, the Higher Planning Board decided to apply the “Cost-Reflective Tariff” model to electricity and natural gas tariffs and; in August 2008, the Electricity Market Law was amended to improve the monitoring and evaluation mechanism for the Security of Supply.
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. Four regions in the electricity sector and two regions in the gas distribution sector were privatized during the year. Meanwhile, Türkiye Elektrik Ticaret ve Taahhüt A.Ş. (TETAŞ)'s tender invitation for the construction of Turkey's first nuclear power plant drew only one bid.
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 2009 as İstanbul Gaz Dağıtım A.Ş. (İGDAŞ) and 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.