Turkey: Energy-sector manoeuvres

At the high-profile Black Sea Energy and Economy Forum, Turkey’s top leadership expressed strong rhetorical support for the Nabucco gas pipeline project, while reminding Europe that the country plays the key role in Nabucco’s success and implying that more serious consideration needs to be given to its EU membership bid.

The paired messages of EU-Turkey gas cooperation and the importance of Nabucco were emphasised in a series of speeches given by Prime Minister Tayyip Erdoğan; Deputy Prime Minister Ali Babacan; the minister of energy and natural resources, Taner Yıldız; and Egemen Bağış, minister for EU affairs and chief negotiator of Turkey in accession talks with the EU.

That strong rhetoric is backed by a series of recent manoeuvres on the part of the government to secure Turkey’s role as a future transporter and supplier of natural gas to Europe. The government took aggressive action in September to assert itself with an Eastern Mediterranean drilling expedition, while simultaneously opting not to renew a gas importation agreement with Russia – instead favouring Azerbaijan for its state contract.

For years, the Nabucco and Southern Stream pipeline projects – the former of which will transport natural gas via Turkey to Eastern Europe and Austria, and the latter of which will provide Russian natural gas to the same region – have been competing for financing and the approval of governments throughout the region.

The EU’s interest in achieving energy security through diversified sources has collided with the efforts of Russia’s Gazprom to secure a long-term revenue stream and greater regional influence, in a struggle that has become a textbook example of the importance of energy policy in international affairs over the past decade.

While he did not consider the ministers’ statements about Nabucco as an exclusive endorsement of the pipeline project, the international president of the Turkish Petroleum Pipeline Corporation (BOTAŞ), Ibrahim Palaz, clarified Turkey’s role in the pipeline competition. “Turkey is foremost a transit country for gas – for instance, it is only buying 6bn cu metres of the 16bn cu metres available from Azerbaijan’s Shah Deniz field,” he told OBG. “Europe needs to vastly diversify its sources of natural gas, and currently the sources with the greatest combined potential are those to the south and east of Turkey.”

While positioning itself as a transit route to meet European demands, Turkey is also grappling with importation issues to supply its own needs. On October 1, Yıldız, announced that BOTAŞ, the state-owned energy supply company, would not extend its 25-year natural gas supply contract with Gazprom that is set to expire in December, following a dispute over a discounted gas price.

The so-called Western Route contract, which brings gas to Turkey via Ukraine, Romania and Bulgaria, currently represents 15% of Turkey’s natural gas supply. The government has said it expects private firms will negotiate their own contracts with Gazprom to overcome the loss, but the future of imports from the route remains uncertain.

Turkey’s annual natural gas consumption reached 38.3bn cu meters in 2010, and imports totalled nearly all of that, at 38.04bn cu metres. Production within Turkey averaged only 885m cu metres per year between 2006 and 2009; however, the country is able to import a total of 45bn cu metres of gas under its current agreements, according to Yıldız. In 2010, approximately 45% of Turkey’s gas imports originated in Russia. Iran was the second-largest supplier (21%) and Azerbaijan the third largest (12%).

The move thus appears to be part of plans to promote the country as a transporter and supplier of gas, perhaps as an alternative to Russia, and to this end Turkey is positioned to better support the Nabucco project. Over the past decade, Turkey has imported 93% of the oil and 98% of the natural gas that it consumed. In the first half of 2011, the country’s energy imports increased by roughly 41%.

Thus, while private Turkish firms will likely ensure that no supply-side problem results from the cancellation of the Western Route contract, the government is looking to other suppliers to increase their contribution.

In August, the State Oil Company of Azerbaijan Republic (SOCAR) announced it would increase supplies to Turkey from 6m to 16m cu metres per day while repairs are conducted on the Tabriz-Ankara pipeline, after being damaged by two bombings in July and August. If such increases can be achieved over the longer term via a variety of sources, it is reasoned, the country’s reliance on Russian gas can be mitigated.

The yet unbuilt Nabucco Gas Pipeline will cross the Caucasus and Turkey, transporting gas over 3900 km to Austria from the Caspian Sea. BOTAŞ is just one of six shareholders, the others being Bulgarian Energy Holding, Transgaz (Romania), MOL (Hungary), OMV (Austria) and RWE (Germany), each with a 16.67% stake.

The project saw the support of a seventh shareholder, the publicly owned German-Austrian gas-procurement vehicle Bayerngas, on September 30. Bayerngas’s announcement was timed to precede the deadline for bids on the Shah Deniz II gas field. The field off Azerbaijan’s Caspian Sea coast is a key source of natural gas supply for the future Nabucco pipeline.

Turkey also moved to the epicentre of a second critical gas competition that has implications for the entire region. The commencement in late September of exploratory drilling operations off southern Cyprus in the Levantine Basin resulted in swift condemnation from the Turkish government and threw a spotlight on the region’s natural gas resources. In 2010 the US Geological Survey had estimated the Levantine Basin held 1.68bn barrels of oil and 122trn cu feet of natural gas, but the start of drilling operations compounded the already strained relationships between Israel, Turkey and the Cypriot governments.

The extensive pipeline project and new exploration in the Mediterranean have implications for Turkey’s foreign policy position regarding both Europe and the Middle East. The country’s emphasis on the Nabucco pipeline’s importance, combined with its efforts to secure a stake in the Levantine Basin, demonstrate that Turkey is just getting started as a leader in regional energy supplies.