Turkey’s natural gas sector is at a crossroads. Turkey’s relations with Russia, the country’s most important energy partner, have fallen apart since the downing of the Russian military jet by the Turkish air force on November 24th 2015, prompting the country to go in search of alternative energy supply routes.
In the last decade the role of natural gas in meeting Turkey’s growing energy needs has become increasingly important, turning the country into one of the biggest natural gas markets in Europe as import volumes grew rapidly and reached 46 Bcm (billion cubic meters) in 2014. This fast paced economic growth coupled with industrialization and beneficial gas prices played a major role in the political choice of making natural gas the dominant fuel type in Turkey’s energy mix. Natural gas accounts for more than 40 percent in Turkey’s power generation capacity.
An Energy Relationship
Turkish-Russian economic ties expand across all sectors; from telecommunication to tourism, reaching up to USD 33 billion of trade volume, but above all comes energy. Turkey’s import of hydrocarbons from Russia is at the value of USD 17 billion. The country’s natural gas relations date back to 1984, when an Intergovernmental Agreement was signed between the Turkish government and Union of Soviet Socialist Republics to import 5-6 Bcm of natural gas per year from the former Soviet Union.
Relations were further strengthened with the rise to power of the AKP which saw a shift in Turkey’s foreign policy aimed at transforming Turkey into a regional power. The AKP’s policy foresaw the establishment of better relations with Russia, Iran, Iraq and Syria while “breaking away” from traditional partners such as the US and the EU.
Today, Turkey imports natural gas from Russia through the Bluestream and the Trans-Balkan pipeline at a 16 Bcm capacity; providing for 60 percent of the country’s gas consumption. TurkStream alone was supposed to be of a total capacity of 63 Bcm, making it the most important milestone in the Turkish-Russian energy relationship.
This project (like Southstream) would be in line with Russia’s strategy aimed at bypassing Ukraine, which has proved to be a “troublesome” transit route for Russian gas to reach the European market, while simultaneously undermining the development of rival gas routes to Europe and the EU’s Southern Gas Corridor. However, when it comes to Turkey’s interests, such a big project would see the country even more dependent on Russia. Such a development would put the country in a potentially hazardous and disadvantageous position in the event of a similar scenario in the future as the one it faces today, where the two countries are involved in a diplomatic dispute. A cut on gas flows to Turkey from the Russian side does not seem likely for now as it would hurt Russia as well, already under sanctions, and given that Turkey accounts for 10 percent of Russian gas exports. Regardless, just the possibility of this cut highlights Turkey’s need to strengthen its own energy security.
The fact that Erdogan and Putin, who have shared a friendly relationship in the past, jeopardized their countries economic ties shows the vested interests they have in Syria and that their personal relationship has fallen apart. The two countries have diverging interests in other countries as well, like in Georgia, with which Turkey enjoys good relations being the country’s major exporter. The Russo-Georgian conflict in 2008 was particularly shocking to Turkish officials given their belief that they shared common interests with Russia in preserving the territorial integrity of countries in the Caucasus, but no such escalation between the two took place, with Turkey asking for a Caucasus Stability and Cooperation Platform to be set up.
Looking for Alternatives
Turkey neighbors (including Russia) hold 63 percent of the worlds natural gas reserves and the Turkish government rushed to reinforce connections with the other importers. President Erdoğan visited Qatar and Prime Minister Davutoğlu Azerbaijan. As reported by the Qatari media, Erdoğan and the Qatari Emir signed “dozens of agreements” including an unspecified gas supply deal. Erdoğan also told reporters that “Qatar Petroleum made a bid to invest in LNG (Liquefied Natural Gas) in Turkey for a long time. Due to the known developments in Turkey, they set off on a search as to what kind of steps they could take in LNG and LNG storage. We expressed that we viewed this positively”. Likewise, Davutoğlu’s visit in Baku focused on the progress of the Trans-Anatolian Pipeline project (TANAP) which the two governments agreed to accelerate so as to be operational before 2018, as originally scheduled.
However, according to EIA, Turkey’s LNG imports count for 13% of total natural gas imports and the country’s storage capacity is limited to just 5% of total needs leaving the country well exposed in the possibility of a gas supply disruption by Russia.
The Kurdistan Region of Iraq (KRI) has emerged over the last few years as an important player in the international energy markets, attracting important foreign investors in hydrocarbons development. According to the Kurdistan Regional Government, the region holds an estimated range of 3-6 tcm of natural gas resources and could become an important supplier to Turkey. In 2013 the Kurdistan Regional Government signed a natural-gas sales agreement with Turkey for the export of 4 Bcm/y by 2017. A similar situation as the Baku visit could be anticipated for this project as well in efforts to accelerate construction works if possible to have it ready earlier than 2017.
Another alternative could be Iran. Iran is the second largest supplier of gas to Turkey, accounting for 30% of the country’s imports, and the nuclear deal formally adopted in October 2015 paves the way for new deals and imports from Iran. Currently Iran exports to Turkey are regulated by a 25-year deal signed back in 1996 which foresees the supply of at least 10 Bcm/year to Turkey. Even so, Iran is also a long term alternative given that the country will focus at a first level to develop infrastructure for satisfying its own economy’s needs and later look to exports, especially at a time when the market is oversupplied.
Moreover, relations with Iran are not well at all given the conflicting interests in the Syrian crisis. In order for Turkey to see Iranian gas, Turkey would definitely need the support of the EU. Turkey is vital to the EU Southern Corridor Initiative which sees the transport of natural gas from the Middle East and the Caspian Sea to Europe. Even so, it is highly questionable whether Iran would be interested in selling gas to the European market where demand is decreasing rather than invest in LNG and aim at the Asian markets which are much more attractive. Moreover, under a scenario in which Iran is keen on selling large volumes of natural gas to Europe, it is even more questionable whether Iran would want it to flow through Turkey, as it would put Turkey in an advantageous position over Iran. It also has to be taken into consideration that the existing Tabriz-Ankara pipeline has been blown up a number of times by Kurdish militants of the Kurdistan Workers Party (PKK) stressing the point that supply distortions can occur.
A New Policy
Turkey’s search for new alternatives might lead to a reconciliation with Israel which would also be very interested in a gas deal with Turkey, so it can its giant offshore Leviathan field to its full potential. Israel would be keen on exporting its gas to Turkey, given the recent discovery of the “supergiant” Zohr field which can turn Egypt into a net exporter of natural gas, hence cancelling Jerusalem’s plans to sell gas to Egypt.
EU – Turkish relations seems to be returning to old standards given the two recently agreed to open a new chapter of EU-Turkish relations and sign a 3bn euro deal for dealing with refugee flows. In terms of energy, Turkey should move forward with policies aimed at furthering the development of renewable energy given the country’s abundant wind, solar and world class geothermal resources.
The construction of TurkStream, along with TANAP and pipelines from Iraq and Iran could definitely turn Turkey into one of the world’s most important natural gas hubs. However, under current circumstances Turkey’s ambition to become an energy hub doesn’t seem to be achievable. All in all, AKP’s shift in foreign policy breaking with “old friends” in Washington, Brussels and Jerusalem depicts clearly that AKP’s dream for regional power is over.