Turkey has dreamed about becoming an energy hub for decades, and as East Mediterranean offshore energy projects develop, it seems that dream may soon become reality. With the discovery of new offshore gas in the area, Ankara has stepped up its aggressive approach to becoming a real energy player. In a move to attract even more attention to the possible gas reserves of the country, Turkey’s energy regulatory authority (EPDK) announced the offshore Black Sea gas volumes will be open for trading on October 1 in Istanbul on a futures gas market. To support that endeavor, Turkey will have to set up a futures gas market which, according to Mustafa Yilmaz, head of EPDK, will be connected to the existing energy exchange, EXIST. Turkey indicated that the exchange is meant to de-risk trading by giving more trade stability than the current spot gas market. Yilmaz said that the 540 billion cubic meters (bcm) of gas, slated to have a market value of over $100 billion, will be open for trading under the name ‘Black Sea Gas Contract’ in Turkey's future gas market. This move comes after an announcement by Turkish President Erdogan last week a new 135 bcm gas discovery in the Amasra-1 well in the offshore Black Sea northern Sakarya Gas Field. In 2020, Turkey announced a 405 bcm discovery in the Tuna-1 well offshore Sakarya Gas Field. If these figures are accurate and the quality of the gas reserves is attractive to the market, the age of Turkish energy dependency could well be over. The announcement of these volumes would imply the country’s gas import dependence will soon be slashed.
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Official statements indicate that the first 3-5 bcm per year will come onstream by 2023, which could be increased to around 15-20 bcm per year. That would result in Turkey’s gas imports being slashed by around 30%, officials stated. Turkey’s Energy Hub strategy will be supported by diversified gas supplies from the Black Sea, in combination with the existing Trans Anatolian Natural Gas Pipeline and TurkStream pipelines.
For the Turkish domestic gas market, the discoveries are a godsend. In 2021-22 around 30% of Turkey’s long-term and oil-indexed contracts will expire. That includes 6.6 bcm from Azerbaijan and 8 bcm from Russia, which represents a financial burden on the country’s economy. The oil-indexed contracts are now more costly than in 2020. Some other supplies are coming in too, such as LNG from Algeria, Nigeria, the USA, and Qatar, while gas pipeline volumes are also being sourced from Russia, Azerbaijan, and Iran. Holding vast offshore gas reserves that will come onstream in 2023 will increase the negotiating position of Turkey in the coming months. 2022 will be a pivotal year for Turkey as contracts will still need to be signed as long as no domestic supplies come onstream. The expectations are that oil-indexed contracts are no longer feasible and most new pipeline contracts will be spot-based. In September last year, the EPDK did a spot pipeline import deal from the Malkoclar entry point on the border with Bulgaria. The country’s total imports at present are set at 48 bcm, while consumption in 2020 was 48.2 bcm. In 2020, domestic gas production was 441 million cubic meters. The annual gas bill is around $44 billion.
It will interesting to see if the ongoing East Mediterranean crisis will see some positive effects from this Black Sea bonanza. So far, Turkish officials have reiterated that there will be new drilling operations in the East Mediterranean region, with a specific focus on disputed waters with Greece, Cyprus, and others. Turkish minister of energy Fatih Donmez stated that the country will carry out fresh drilling projects in the Eastern Mediterranean. He reiterated that there is potential in the wells that have been drilled so far, adding that in the coming months the Yavuz drillship will be heading to a new site. Further developments on this topic can be expected from US president Biden’s meeting with Erdogan in Brussels this week. A positive meeting could lead to a Greek-Turkish rapprochement.
By Cyril Widdershoven for Oilprice.com
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1- The Iraqi-Turkish pipeline (ITP) bringing Iraqi crude oil via Turkey to Ceyhan on the Turkish Mediterranean coast.
2- The Turk Stream gas pipeline bringing Russian gas to Turkey under the Black Sea and from there to the EU.
3- The Southern Gas Corridor (SGC) bringing Caspian gas to the EU via the South Caucasus Pipeline (SCP), the Trans-Anatolian Pipeline (TANAP) and the Trans-Adriatic Pipeline (TAP) pipeline for transit through Greece, Albania and across the Adriatic to Italy.
4- The Tabriz-Ankara pipeline bringing Iranian gas exports to Turkey. It is possible in the future that the Tabriz-Ankara pipeline could be connected to the TANAP-TAP pipelines for Iranian gas exports to reach the EU.
Turkey opposes the construction of the proposed Cypriot-Israeli-Greek gas pipeline ‘EastMed’ bringing Israeli and Cypriot gas exports to Italy and the EU via Greece under the Mediterranean because it could undermine its stated goal of becoming the energy hub of the EU by competing with the Turk Stream gas pipeline and also the SGC.
To undermine the EastMed, Turkey already has plans to build an 80-mile long gas pipeline connecting the Turkish Cypriot enclave with the Turkish coast where it will connect with existing gas pipeline carrying gas to the EU. Were there to be a rapprochement between Turkey on the one hand and Greece, Israel and Cyprus on the other, Israeli and Cypriot gas exports could be exported to the EU via Turkey using the proposed Turkish pipeline.
In order to underscore its keen interests and intention to become the energy hub of the EU and also an international hub in its own right, Turkey announced that the offshore Black Sea gas discoveries estimated at 540 billion cubic metres (bcm) will be open for trading on October 1 in Istanbul on a futures gas market under the name of ‘Black Sea Gas Contract’ in Turkey's future gas market. The new gas discoveries are scheduled to come on stream in 2023.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London