A little more than a month ago Turkey has victoriously announced that the Tuna-1 wildcat, drilled to a total depth of 4525 metres, has discovered the most prolific Turkish offshore field and concurrently the largest gas field in the entire Black Sea area. The discovery was hailed by President Erdogan as "the largest gas discovery in Turkey's history", presented in Turkish media as a "game-changer", a "transformational event" that could finally break the energy pessimism haunting the country for decades. The lauded discovery came on the back of Turkey continuing to assess the Eastern Mediterranean with the Cyprus-Turkey tensions still running high. Yet is Tuna (the field will most probably be renamed Sakarya) really that significant, can it really provide the foundation of a new deepwater offshore renaissance for Turkey?
The first thing to astound in TPAO's discovery is the sheer size of Sakarya - its reserves (assessed at 320 BCm) are fourfold of the heretofore largest Black Sea discovery, the Neptun field in Romania's deepwater offshore (42-84 BCm). The comparison with the Neptun field which is also located in the Upper Miocene and Pliocene sandstones might provide some useful insights into the production curve of Tuna, were it to be producing. Yet Neptun Deep is struggling to attain an FID (now expected to take place in 2021) and will most probably see its operator, the American major ExxonMobil, sell the totality of its 50-percent stake. Considering that Turkey's largest offshore gas field Akcakoca is currently producing around 0.2-0.3 BCm per year and has total reserves 100 times less than Tuna, the latest Turkish discovery stands out as a behemoth amongst pigmies.
Most of the Black Sea's major projects (or projects which were perceived to become significant) have taken place within a consortium that would inevitably include oil majors with substantial deepwater offshore expertise. Take the Han-Asparuh exploration block in Bulgaria (initially a consortium of OMV, Total and Repsol; the latter has already left the project) or the above mentioned Neptun Deep field offshore Romania (located just a 100km from Tuna-1), in almost all cases the project's operator is an international major with a thorough knowledge of deepwater projects. Even the Turkish national oil company TPAO has previously preferred to team up with Shell or ExxonMobil to assess its Black Sea reserves. However, in the case of Tuna the Turkish NOC has spudded the well and assessed its reserves completely alone, creating an unprecedented event in the history of Black Sea exploration. Related: Goldman Sachs: Biden Win Is Bullish For Oil
Against the background of the European Union becoming ever more impatient with Turkey's Eastern Mediterranean drilling campaigns, the Tuna discovery provides the Turkish leadership with real-life proof that it can and should develop whatever block it lays claim to, meaning that it not only possesses military capacities to intimidate Cyprus but also has the scientific competence to assess, find and develop the offshore bounties of its seas. This makes up for a brilliant internal-use PR stunt on the back of Brussels threatening Turkey to levy sanctions against it if Ankara fails to cease its (purportedly) illegal drilling campaign in what the EU considers to be Cyprus' territorial waters. The political aspect of the Tuna discovery is also underscored by the fact that it was President Erdogan who announced the discovery and not industry-relevant leaders.
Luckily Turkey has so far escaped the travails of the coronavirus' second wave, crippling much of Eurasian economic activity. Domestic discontent has been brewing nevertheless as the Turkish economic miracle seems to be heading towards a drastic hit in 2020 - the World Bank estimates that Turkey's GDP will contract 3.8% year-on-year (although Berat Albayrak, President Erdogan's son-in-law who happens to be the Economy Minister recently predicted a GDP growth of 0.3% in 2020, preferring to use the PPP numbers although even Turkey's purchasing power parity might soon go negative). The tension flare-up in Nagorno Karabakh might serve a temporary distraction from the country's economic problems yet much more will be needed to placate people's concerns. The Tuna discovery will evidently not suffice in and of itself, however, might serve as a useful element of government PR.
Relatively soon after the Tuna discovery Turkish analysts have started flaunting the prospective field's 10 BCm per year production plateau. This has sparked a separate thread of discussion, claiming that Tuna could at its peak save $2.5-3 billion per year of Turkish expenses provided that its assumed breakeven level of $3-4 per MMbtu remains valid. Interestingly, all this is taking place against the background of almost half of Turkey's long-term gas supply contracts running out in the upcoming year. In 2020 and 2021 a total of 24 BCm contracted capacity will expire (of this some 8 BCm per year will be Gazprom's pipeline commitments vis-Ã -vis Turkish buyers) and the Turkish side would now be in a position to use its assumed 2023 startup of the Tuna field - postulating that its ramp-up would be as swift as that of the supergiant Zohr field in offshore Egypt - to bargain better import pricing terms for its future supplies.
All in all, as sudden as the announcement of the Tuna-1 discovery might seem, there remain doubts over its size and potential. There are just way too many factors indicating that the announcement might not be as mouth-watering as portrayed. It might happen that the 320 BCm of total reserves might translate into a tiny fraction that is actually recoverable - all the while the field might genuinely herald a new era of deepwater offshore production Turkey. Time will tell…
By Viktor Katona for Oilprice.com
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Viktor Katona is an Group Physical Trader at MOL Group and Expert at the Russian International Affairs Council, currently based in Budapest. Disclaimer: views set… More