Nigeria is one of Turkey’s largest trading partners in Africa, and trade remains an integral component of Nigeria – Turkey bilateral relations. In 2014, trade between the two countries reached approximately US $2.5 billion. However, this figure fell to US $1.5 billion in 2015 and approximately US $1 billion in 2016, largely due to a drop in global oil and gas prices.
Over the past several decades, Nigeria has become one of Turkey’s most important providers of liquid natural gas (LNG), currently accounting for more than 20 percent of LNG imports. However, this trade relationship has the potential to develop and expand as the global LNG market flourishes, and both the Turkish and Nigerian governments invest in furthering their domestic LNG sectors.
Nigeria: Small but Important
Nigeria's oil and gas industry is the largest on the continent, with attention traditionally focused on oil production. However, with global oil prices having remained lower than expected for longer than expected, attention has increasingly shifted to Nigeria’s natural gas sector.
In fact, Nigeria’s most significant natural resource is natural gas. Boasting the 9th largest gas reserves in the world, and the largest in Africa, Nigeria’s gas reserves are estimated at 187 trillion cubic feet (Daily Mail, 08.03.2017).
Although only 3 percent of Turkey’s natural gas is sourced from Nigeria, Nigeria accounts for more than 20 percent of Turkey’s LNG imports. The natural gas is imported through a contract between Nigeria LNG Limited (NLNG) and Turkey’s state-owned BOTAS Petroleum Pipeline Corporation, and since November 1999, Nigeria has delivered more than 4,000 LNG cargos to BOTAS’s Mamara LNG Terminal in Turkey.
Furthermore, in 2014, Nigeria exported about 900 billion cubic feet of LNG, accounting for some 8 percent of LNG traded globally and ranking Nigeria as the world's fourth largest LNG exporter (Practical Law, 01.05.2017). Notably, the global LNG market is one of the fastest growing markets in the world, and is set to increase by about 50 percent between 2015 and 2020.
This is nothing but good news for Nigeria LNG (NLNG) – a private company in which the government holds a 49 percent stake.
Since production began in 1999, NLNG has been one of the fastest growing companies in the world. With six trains currently operational, NLNG’s gas plant in Finima, Bonny Island in Rivers state, has a total processing capacity of 22 million tonnes of LNG a year, and up to 5 million tonnes of natural gas liquids (LPG and condensate).
It is also estimated to contribute about 4 percent of Nigeria's Gross Domestic Product (GDP) (NLNG, 24.07.2017); and with plans to add a further two trains, NLNG could unlock three times as much gas as the country’s proven reserves.
NLNG currently has contracts with several buyers across the world, as well as with Turkey’s BOTAS. However, the Sales Purchase Agreement (SPA) between NLNG and BOTAS is set to end in October 2021, and no further deal has yet been agreed.
Notably, Shell, a 25.6 percent shareholder in NLNG, has already made clear its desire to provide more LNG for Turkey, believing that Turkey has the potential to become a regional natural gas trade hub.
Turkey’s Energy Dilemma / Turkey as a Transit Point
Turkey has become one of the fastest growing energy markets in the world. Strong economic growth over the last decade has contributed to a 4.4 percent average annual increase in energy consumption by Turkey between 2005 and 2015. And despite a slowdown in the economy in more recent years – due to both domestic and international political tensions – Turkey’s energy demand is expected to continue rising for the foreseeable future.
Despite this increasing demand for energy, only around 25 percent of Turkey’s total energy demand is being met by domestic energy resources, leaving the country extremely reliant on external sources. Notably, 98 percent of Turkey’s natural gas – which has become Turkey’s main source of energy in recent years – comes from external sources, imported through pipelines from Russia (60 percent), Iran (20 percent) and Azerbaijan (10 percent), and increasingly from LNG sources (Nigeria and Algeria).
This dependence on foreign imports has become a point of concern for the government in Ankara, particularly following a deterioration in relations with Russia, Turkey’s biggest natural gas importer. Ensuring its current and future energy security is a top priority.
Notably, any interruption in gas flows – from Russia in particular – could not only severely damage Turkey’s growing economy, but also increase domestic political tensions. Furthermore, Turkey’s gas consumption remains limited by import capacity and, with imports already operating at close to maximum capacity, natural gas shortages - particularly during peak winter months - are not uncommon.
This increase in domestic demand is actually helping drive the development of energy infrastructure.
Furthermore, despite having no meaningful natural gas reserves of its own, the Turkish government has made no secrets about its desire to establish Turkey as a regional natural gas hub – receiving natural gas from sources from the Middle East, Africa and Asia and distributing it throughout Europe.
In order for this ambitious goal to be realised, the government has already begun investing in expanding its natural gas infrastructure.
Two of the main projects currently in development are the Trans Anatolian Natural Gas Pipeline (TANAP), designed to transport Azeri gas to Europe and Turkey, as well as the TurkStream natural gas pipeline which will transport Russian gas across the Black Sea to Turkey.
As well as developing its gas pipeline infrastructure, the government is also investing in expanding its LNG infrastructure, and Energy and Natural Resources Minister Berat Albayrak has pledged to almost double Turkey’s annual natural gas storage capacity to 11 billion cubic meters (bcm) by 2023 – making its total storage capacity one of the biggest in the region.
In an apparent contradiction, although the Turkish government appears keen to transit natural gas across the country through pipelines, it has discouraged LNG transit through pipelines. Furthermore, the government also does not allow LNG vessels to transit through the Turkish Straits for safety reasons, essentially making itself a gateway to Europe and Russia for LNG.
In this context, Nigeria could play a major role in Turkey’s energy sector.
Turkey already possesses an offshore storage facility in De?irmenköy (Silivri) (operated by the Turkish state-owned energy company TPAO), and three LNG land terminals: Marmara Ere?lisi (operated by BOTAS), Alia?a – ?zmir (operated by the Azeri SOCAR and the Turkish energy company Ege Gaz), and the Lake Tuz storage facility (operated by BOTAS). In December 2016, Turkey's first LNG storage and re-gasification facility (FSRU) was launched in ?zmir's Alia?a district (operated by Etki Liman, a joint venture between Kolin and Kalyon groups, two companies with reported close ties to the Turkish government).
Furthermore, the Turkish government has announced several projects that will complement the country’s already existing infrastructure. The most imminent one is likely to be the commissioning of a second FSRU, which would be owned and operated by BOTAS. Further plans are in place to increase the storage capacity of both the De?irmenköy and Lake Tuz natural gas storage facilities. Most of these projects are to be completed by 2020-22.
While BOTAS is clearly one of the most important actors in Turkey’s natural gas sector, accounting for about 80 percent of natural gas imports, it is also the only institution that deals directly with NLNG, and the Nigerian government. Therefore, as both institutions are under some degree of political influence, it is likely that the relations between the Turkish and Nigerian governments could play a part in the signing of a new contract between BOTAS and NLNG – as the current one expires in 2021.
Notably, on the Turkish side, the main players are BOTAS and the Energy Market Regulatory Agency (EMRA), two key institutions that play a role in President Erdogan’s ability to exert informal influence over the energy sector. As the chairmen of these two entities are strongly believed to be under the indirect control of President Erdogan, the contracts reached with the NLNG would have to be pre-approved by him.
However, with both Turkey hoping to increase LNG imports, and Nigeria hoping to increase both the production and export capacity of its natural gas, an extension – or even an expansion – of the current contract could serve to benefit both countries.
Will Nigeria Help Turkey Become a Regional Gas Transit Hub?
As a resource-poor country, Turkey’s reliance on imported energy, and high domestic demand, is leaving little natural gas for export. In this sense, Turkey is still primarily considered a consuming country, not a transit country.
However, significant investments in infrastructure, particularly in terms of developing pipelines and increased LNG storage and processing facilities, suggests that Turkey is serious about establishing itself as a regional natural gas transit hub.
And with Turkey aiming to become a regional energy hub, Nigeria – and its nascent LNG sector – will want to retain a foothold in the country.
Furthermore, by investing in the LNG sector, Turkey will be able to reduce its dependency on Russia for natural gas if needed. And if future circumstances mean that this does indeed occur, Turkey’s requirement for LNG will merely increase. A continued relationship between Nigeria and Turkey therefore remains firmly in the cards.
As Nigeria’s economy shifts away from oil, investment opportunities for Turkish companies will increase in sectors including power, manufacturing, mining, construction, agriculture, aviation and security.
Ties between Nigeria and Turkey are thus set to expand; a relationship that would inevitably benefit the perceived business culture of both – where political exposure and questionable business practices are often regarded as a fundamental of commercial success.
By Shadow Governance Intel for Oilprice.com
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