“TURK STREAM” – A PARADIGM SHIFT BETWEEN RUSSIA AND TURKEY
Natural Gas Europe | January 28th, 2015 |
By Drew Leifheit
Last December, Gazprom’s killing off of South Stream and the bringing to life of “Turk Stream” was a paradigm shift towards Turkey, said Mr. Mehmet Ogutcu, Executive Chair, The Bosphorus Energy Club, in his address to delegates at the European Gas Conference this week in Vienna, Austria.
In the past, he explained, Gazprom never allowed Turkey to re export natural gas, but the company’s position had changed because of the difficulties it has in regard to the EU, Bulgaria and global markets, and Turkey being one of the secure markets with growing demand. Meanwhile, Turkey has been disappointed and frustrated with the EU over the lack of progress in the country’s EU accession process, which includes a section on energy.
“It’s not in Turkey’s interest either,” he offered, “to go into the straight jacket of the EU acquis on energy matters, while it has so many other options and is flexing its muscles.”
Of the 63 BCM that would traverse Turk Stream, 49-50 BCM would arrive at the Turkish-Greek border, gas which would be sold to Europe. “First, of course, Europe has to accept that rather than it going through Ukraine, going through Turkey.
“Secondly, Turkey has made it very clear that they will not get involved in the offshore pipeline bringing the gas to Turkish territory. There’s also a possibility of building LNG as well, but Turks are very keen on using this leverage for negotiating better pricing with Gazprom,” said Mr. Ogutcu, who recalled that Russian President Vladimir Putin offered a 5-6% discount, but Turkey is aiming for a minimum 15% discount.
He added, “There is a risk of undermining or weakening other options. Turks will not do anything which will undermine, for example, the Southern Gas Corridor, because of their shareholding in TANAP.
With weak demand in Europe, he said, it is a question where this gas would go.
“So this is a question that I think Turkey has to handle with great care – energy diplomacy. This is what they are doing now, they haven’t jumped on the horse yet,” commented Mr. Ogutcu.
Despite signing a letter of intent, the Turkish side of Turk Stream is a bit more downbeat in terms of price and other competing projects that Turkey is participating in.
“From what we know,” he explained, “Turks are quite clear that they don’t want to be just a transit country – they want to be a regional hub.”
Meanwhile, he added that Iran also contributes a significant amount of gas to Turkey, but Tehran is not the easiest partner as well as asking for a high price.
“The Southern Gas Corridor project is the one that’s going ahead. It’s a concrete one and the investment levels have been advancing. It’s a $45 billion project, the largest gas project that’s going ahead,” said Mr. Ogutcu, which would transport Shah Deniz II gas to Europe. He added that it is set to be completed in 5 years, with Turkey as the second largest investor after BP.
Turkey, he said, is a country that is heavily dependent on global gas markets. “Turkey doesn’t have any meaningful amount of oil or gas,” he explained, adding that 98% of its natural gas was imported.
Meanwhile, he said Turkey needs an estimated $120 billion in capital for its energy industry by 2023, the 100th anniversary of the founding of the state.
“Gas is a critical field for Turkey,” said Mr. Ogutcu. “Clearly, the Turkish government is trying to reduce the share of natural gas in its energy mix, especially in power generation – at some point it was beyond 50%, but now it’s down to 44-45% and the intention is to go down to 30%.” This, he explained, would happen through use of lignite and renewable resources. Despite this, gas demand is set to nearly double in Turkey by 2024.
He offered, “This is a critical area for Turkey, a national security matter, because it’s a country with big ambitions and wants to become one of the top 10 economies of the world by 2023. It has a GDP of around $1 trillion already and is the biggest power culturally and militarily in the area where it is, so there’s a potential.”
Fortunately, quipped Mr. Ogutcu, Turkey has neighbors with enormous amounts of gas, like Russia from which it receives the bulk of its natural gas via Blue Stream which runs under the Black Sea. Turkey’s relationship with Russia, he noted, is not all about energy but also covers areas like defense, construction and tourism, as well as a nuclear reactor being built in Turkey by Rosatom – a project that is also set to displace a significant amount of natural gas.
Mr. Ogutcu reiterated, “Natural gas is a national security matter for Turkey. It is critically important for its ambitious economic-political projects, and if Turkey wants to become a regional hub beyond meeting its own gas supply requirements, we all agree that Turkey has to align its foreign policy with its energy policies, and never treat gas matters in isolation from geopolitics.”