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Will Turkey be the new hub for gas?

Professor Gulshan Dietl is an ICSSR Senior Fellow affiliated to the Institute for Defence Studies and Analyses (IDSA). Click here for more details.
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  • November 06, 2013

    Largely unaffected by the stagnation in most of the developed world, the Turkish economy has continued to grow and stands at $800 billion today. Consequently, its demand for energy has increased and is expected to double over the next decade, according to the International Energy Agency. Natural gas accounts for an increasing share of the energy basket in Turkey. Its gas-generated electricity demand growth is estimated to be even higher.

    Turkey’s natural gas reserves are 218 billion cubic feet (bcf) and its production is roughly 27 bcf. In the circumstances, it relies heavily on imports to meet its domestic demand. Additionally, Turkey positions itself as a gas transit hub – importing from Russia, Azerbaijan, Turkmenistan and Iran and re-exporting some of it to Europe. More importantly, it provides passage from the gas production sites to the consumers. Today, it holds a privileged location between the substantial gas reserves of the Caspian basin and Russia and the substantial market in Europe.

    In 2011, the country imported approximately 890 bcf from Russia via the underwater Black Sea Blue Stream pipeline, about 290 bcf from Iran via the Tabriz-Dogubayazit pipeline, and approximately 140 bcf from Azerbaijan via the Baku-Tbilisi-Erzerum pipeline. The latter one is expected to be integrated into the Southern Gas Corridor pipelines – a European Union initiative to secure gas from the Caspian.

    A critical scrutiny of the prospects for Turkey’s emergence as the natural gas hub is in order. The domestic demand is growing leaving little surplus to meet re-export commitment - especially during the peak months. The gas infrastructure has been vulnerable to frequent terrorist attacks leading to supply disruptions. The Baku-Tbilisi-Erzerum pipeline or any other pipeline entering from Georgia has to pass through Turkey’s Kurdish region, where the attacks from the militant rebels have increased in frequency and damage. The pipeline from Iran has also witnessed sabotages.

    Regionally, the Interconnector Turkey-Greece-Italy (ITGI) transportation project from the Shah Deniz gas field in Azerbaijan to Italy has had positive fallout in Turkey’s relations with Greece. The initial agreement between the Turkish state pipeline company BOTAS and the Greek gas company DEPA led to the laying of the pipeline by the Turkish Prime Minister Recep Tayyip Erdogan and the Greek Prime Minister Kostas Karamanlis in 2005 – a milestone in decades of distrust and hostility between the two nations. The pipeline is operational since 2007.

    On the other hand, Turkey is entering into troubled waters in its quest for more pipeline options in the region. The BOTAS has already started building a large pipeline toward northern Iraq planning to import gas from the Iraqi Kurdistan. The project is bound to invoke opposition from the central Iraqi government in Baghdad. The Turkish Minister of Energy and Natural Resources Taner Yildaz has also expressed interest in playing a large role in importing and re-exporting Israel’s gas deposits from the Leviathan gas field. Implementation of the project will have negative fallouts for the Turkish regional policies.

    The Qatar-Turkey agreement to build a pipeline originating in Qatar and moving through Saudi Arabia, Jordan and Syria reaching Turkey has been perceived to be one of the major reasons for the uprising in Syria. A pliable regime in Syria would have been an absolute prerequisite in its implementation. The Turkey-Iraq Pipeline and the Arab Pipeline from Egypt have not been realized due to the political instability in the region. The gas imports from Iran have remained static in view of the sanctions on the country.

    Beyond the region, Turkey suffers at times and benefits at others from the global scramble for a share in the gas resources. It has been a contested territory for rival pipeline proposals – the most interesting being the South Stream project of Russia and the Nabucco project of the West. The South Stream pipeline proposes to carry gas from the Russian Black Sea coast in Krasnodar Krai through an off-shore pipeline under the Black Sea to the Bulgarian landfall near Varna and a connecting on-shore pipeline from there to Greece, Italy and Austria. In 2009, the pipeline was rerouted through the Turkish exclusive economic zone to avoid the Ukrainian exclusive economic zone as Russia and Ukraine fell out on the terms of the agreement. An ambitious project to deliver 63 bcm of gas annually, it is expected to start its commercial operation by the end of 2015.

    The Nabucco, originally proposed in 2002, was to follow roughly the same route as the South Stream. A decade later, it was revised as Nabucco-West which would have been a shorter and a more modest version. The Nabucco-West would have been a commercially viable and logistically advantageous proposal but the risks of causing a gas glut in the market and of raising tensions with Russia doomed its prospects. In June this year, its fate was finally sealed when the Trans-Adriatic Pipeline (TAP) was chosen as a route from the Shah Deniz II fields in Azerbaijan to Western Europe. The TAP will connect with the Trans Anatolian Pipeline (TANAP) near the Turkey-Greece border in Kipoi, cross Greece, Albania and the Adriatic Sea before coming ashore in southern Italy.

    Rotterdam is the undisputed leader as the hub for crude oil. It is one of the world’s largest ports with a huge rail, road, air and sea network. Handing the cargo, managing trans-shipment, operating refineries and petrochemical plants, the city has acquired the title of “Gateway to Europe”.

    So, will Turkey be the hub for gas tomorrow like Rotterdam is the hub for oil today? Its ambition to emerge as a major conduit of gas to Europe suffers from an inherent limitation; the future growth in energy demand will be from Asia and not Europe.

    Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.