Turkey’s energy import bill has been a major drag on its economy for decades. In 2019, the country imported $41 billion worth of energy among which 45 billion cubic meters of natural gas. Besides LNG imports, the most important exporters are Russia, Azerbaijan, and Iran. Turkey's high import dependency explains the enthusiasm with which the discovery of the gas field was announced. There is widespread skepticism about whether the publication was too premature. However, it can be better understood if geopolitical factors and the near expiration of several long-term gas import contracts are taken into account.
The reservoir is branded ‘Sakarya’ and is located some 150 kilometers from Turkey’s Black Sea coast. The gas field was discovered in ultra-deep waters which makes it difficult to exploit. Furthermore, the field is near Romania’s shore (100 kilometers) and the previous largest gas field in the Black Sea, Neptun Deep block (84 bcm), which was discovered eight years ago.
Initial estimates have suggested that Sakarya could hold 320 bcm. Turkish President Erdogan, however, announced in October that the reserve had been upgraded to 405 bcm. This happened after not more than one exploratory well, raising eye-brows with industry experts. The extractable reserve value of the field is highly uncertain which means there is a cloud of uncertainty concerning profitability.
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According to energy analyst Necdet Pamir, “it is not scientific to declare the size of a field and then simply convert it into dollar terms. Let us neither underestimate nor exaggerate it. The discovery of gas has an economic value. However, drilling one [test] well and then declaring a reserve is not correct. Further tests should be done. Wells should be opened. The reserve cannot be understood from the very first day. The declared estimates are speculative.”
Furthermore, the physical proximity to Romania’s offshore gas industry indicates that major geological challenges are ahead. The Black Sea has a unique morphology. The shallow shorelines quickly turn into ultra-deep waters. According to Wood Mackenzie researcher Thomas Purdie, “the basin center is deep, cold, and highly anoxic. These harsh, challenging conditions require specialist experience, not currently at TPAOs disposal. The Sakarya development will almost be at the deepest limits of the Black Sea. This is an ultra-harsh environment.”
Gas should be flowing to customers by 2023 which, not so coincidentally, is the 100th anniversary of the foundation of the Turkish Republic. Also, parliamentary and presidential elections will be held that year. However, according to Mehmet Ogutcu, head of the Bosphorus Energy Club and a former diplomat, “the 2023 goal seems to be too optimistic. The average period from discovery to market is around 7-8 years in the gas industry.”
Although much skepticism remains, the discovery couldn't have had better timing. Turkey is embroiled in conflicts with most of its neighbors over a variety of issues among which energy and territorial disputes in the Eastern Mediterranean. The find emboldens Ankara during a period when the country doesn’t have many friends.
Also, several large long-term contracts with exporter Russia will expire in the next few years. Turkey has been paying 20 percent more for its gas than European customers. But the development of Sakarya could strengthen Ankara’s hand during negotiations. Researchers at the Oxford Institute for Energy Studies expect Turkey to be able to lower prices from $225-$235/thousand m3 to $130/thousand m3.
However, to develop the gas field, Turkey needs to attract foreign expertise to drill in the extremely harsh environment of the ultra-deep waters of the Black Sea. This means that Ankara should offer incentives for these companies to invest. Also, a stable business environment is required as it will take years before any return on investment is realized. The confrontational style and bellicose language of the current leadership in Ankara make it difficult for Western firms to close an agreement.
Furthermore, the current gas market is oversupplied with both piped and shipped natural gas. This means that the return of investment could be relatively low for investors. In an oversupplied and decarbonizing world, specialized oil and gas companies could prefer projects with the highest level of profitability. Therefore, it remains uncertain whether there is much enthusiasm with foreign companies to sign up for a highly complex and politically contentious project.
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Turkey, however, will enter talks with Gazprom more confidently when discussing new long-term supply contracts. The Russians will likely offer lower prices and more favorable conditions. After more is known of the extractable reserve value of Sakarya, it could be concluded that the discovery is less of a game-changer than anticipated.
By Vanand Meliksetian for Oilprice.com
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