Turkish Policy Quarterly’s roundtable discussion on energy policies delved into the question of Turkey’s potential to be an energy hub in the coming decade and examined the current developments regarding the geo-strategically significant Southern Corridor for Azerbaijani natural gas.
ISTANBUL - October 1, 2013 - Turkish Policy Quarterly (TPQ), with support from BP Turkey, hosted a roundtable discussion titled “New Regional Opportunities: Can Turkey be an Energy Hub by 2023?” The panel included Mehmet Öğütçü, Chairman of Global Resources Corporation; Hakan Türker, Vice President for External Affairs at BP Turkey; and –with the support of the Center for Strategic Studies of Azerbaijan (SAM)– Gulmira Rzayeva, Principal Research Fellow for SAM. The discussion was chaired by Zeynep Dereli, Managing Director for APCO Worldwide Turkey Office.
Is Turkey an Energy Hub?
Turkey’s 2023 ambitions, such as becoming a top-10 economy, set the grounds for a discussion of the role of energy in attaining these goals. Hakan Türker stated that “Turkey's energy demand will be increasing six percent each year” in the decades ahead. Mehmet Öğütçü expanded further, stating that rather than a vision of speculative numerical targets, a satisfactory Turkish goal for 2023 should be grounded on commonly shared strategic objectives including an integrated energy management, aimed at uninterrupted and competitive supply of cleaner and greener energy at affordable prices. He underlined that without achieving energy security, Turkey’s 2023 goals will remain on the paper.
Öğütçü stated that “being a regional hub is not having pipelines crisscrossing your territory.” He named liberalization of markets, multiplicity of sources, physical infrastructure, political stability, an enabling business environment, as well as the right legal and institutional framework as other, more relevant, prerequisites. He also emphasized that the private sector has to play the leading role in the energy sector with the state’s strategic guidance and support and called for building internationally competitive Turkish “energy champions” on the basis of how their peers operate.
Global Game Changers in Energy Supply and Demand
Regarding the economics of regional energy, the dramatic geographical shift in energy supply and demand was underscored. Öğütçü stated that world energy markets are shifting from largely Western driven demand by mostly OECD countries to a new direction in which emerging economies play a larger role and determine the future demand and supply map of the world. Öğütçü said:
“BRIC countries’ share in world consumption five to six years ago was around 14 percent altogether. By 2030, we project this to rise to 35 to 40 percent. This huge shift in demand will be coming largely from Asia-Pacific economies led by India and China.” As Öğütçü phrased the need for future resources, “in light of the demand projection we have, by 2030, we will need four Saudi Arabia’s to meet the demand.”
Furthermore, Öğütçü noted that there will be significant changes on the supply side, in which Canada and the U.S. are leading the way in shale gas and shale/tight oil exploration and extraction. As he put it, “The real game-changer is the rising North American shale gas/oil production which will have profound implications for global competitiveness and geopolitical shift.” Hakan Türker suggested that in the future, various LNG suppliers will be servicing Europe; “however, the majority of supply will still be coming via the pipeline imports from Russia, Azerbaijan, and other sources.”
Mehmet Öğütçü emphasized four game-changers relative to the future energy outlook in our region: the U.S. expected dethroning of Russia as the world’s largest natural gas producer by 2015, decline of Russia as a super gas power and abundance of gas from other suppliers, marking a shift from oil indexed pricing to hub-based pricing: the East Mediterranean and Kurdish Regional Government of Iraq gas coming on-stream and changing the regional dynamics, the possibility of Iran coming back to the world energy scene in the wake of a possible thaw in the U.S.-Iranian relations; and the opening of the TAPI as well as the Trans-Caspian gas pipelines if political hurdles could be cleared. However the primary game-changer at this time involves the development of the Southern Corridor, which will be supplying Shah Deniz 2 gas from Azerbaijan, first to Turkey, and finally reaching Italy via Greece and Albania.
Why the Southern Corridor and why TAP?
Hakan Türker presented BP’s perspectives regarding this “mega” project, which will cost altogether 40 billion dollars and cross six countries with a 3,500 km pipeline, involving a lot of communication with governments. 16 bcm of natural gas will be delivered in the first instance, with six bcm sold to Turkey and 10 bcm will be transported to Italy via TAP.
According to Türker, not only will this project enable Turkey to get at least 25 percent of its supply but also, “once the gas will start flowing to Turkey by 2018 and to into Europe by 2019, there will be other projects, other pipelines, other initiatives to develop the Southern Corridor.”
Gulmira Rzayeva elaborated on the role the Trans-Anatolian Gas Pipeline (TANAP) saying that “TANAP gives Turkey an excellent opportunity to really become a hub, eventually importing and exporting gas from Iraq, Kurdistan, Iran, Turkmenistan, Cyprus, Lebanon, Israel, and other potential places.” According to Rzayeva, it is a quite scalable project with up to 30 bcm of full capacity.
Rzayeva also pointed out the “so-called future generation fields in Azerbaijan that [were] recently discovered, each of them containing from 200 to 700 bcm of gas, (…) which are currently under development (…) and it is expected that these fields will come online after 2022, or 2025.”
Rzayeva took up the commercial and political reasons why the Trans-Adriatic Pipeline (TAP) was selected. She noted that Italy is the third largest market in Europe, having one of the highest gas prices, and that the country has a 90.4 percent dependence on gas imports. In terms of the future of the Italian market, Rzayeva noted that “Italy is planning to develop a reverse flow from the south to north of the country. So, that means that Shah Deniz gas can go from south to north of the country to reach the other destinations.”
She stated that “contracts with Russia, Libya, and Algeria are expiring [within the] next decade” and, “Italy’s indigenous production is declining up to 10 percent each year.” With nearby market accessibility and enough investment, other neighboring countries could be viable final destinations for the Shah Deniz gas, according to Rzayeva. “The most important market for [Azerbaijan] would still be the Balkans and the Southeastern European market, [despite] the failure of Nabucco West. It is also possible to reach those markets via existing interconnectors. Or, if those interconnectors are not in place, then, just small investments are needed to build such interconnectors.”
Rzayeva then explained the important reasons behind the failure of Nabucco West, underlining the lack of “financial instruments provided to materialize the project and [the lack of] political support for Nabucco West from Brussels and Washington.”