Turkey Changes Tack for the 2020S: Energy Specialist - NATURAL GAS EUROPE

February 24th, 2016

Turkey needs to react quickly to the consequences of the dramatic worsening of its relations with Russia since November. Hasan Selim Ozertem, head of energy security studies at Turkey’s international strategic research organization (USAK), spoke to NGE about the problems facing over half of Turkey's gas supplies and the steps it can take to mitigate them.

Ozertem is one of the new generation of Turkish think-tank experts. He has worked on projects with the UN, the Turkish ministries of domestic and foreign affairs and the UK major BP.

Mr Ozertem, this is a critical juncture in the Turkish-Russian relations. What is its impact on Turkey’s energy security?
Russian-Turkish relations were projected to be mutually beneficial through inter-dependence between our two countries. In the longer term this may be still valid, but right now there are concerns about the future as economic cooperation becomes a secondary issue among increasing security concerns in the region. Turkey’s neighbourhood is unstable, the East Med is a region of unresolved disputes and Russia is confrontational. The rift with Russia is deepening.

Understandably within Turkey energy security has become a major issue, something we were not considering a priority issue a few months ago. But it has now become a popular subject once again. Russia has not cut gas supplies, but we need to ensure our energy needs, including future needs, are secured.

So what is Turkey’s dependence on Russia?

Our gas consumption was 48.7bn m³ in 2014, with about 55% supplied by Russia. Turkey’s 14bn m³/yr western route gas supply contract with Gazprom will be up for renewal in 2021 and the 16bn m³/yr Black Sea route contract in 2025. In total over 36bn m³/yr contracts will be up for renewal between 2021 and 2025. And on top of these Turkey may need to find another 20bn m³/yr by 2025 to cover its growing gas needs, expected to reach at least 65-70bn m³/yr by then. Our growing gas demand makes us vulnerable.

Turkey is developing policies to deal with this potential vulnerability. What is this concentrating on?
For a start Turkey’s decision-making model is being revised to reflect changed energy dynamics. Energy security in Turkey revolves around four pillars: accessibility, sustainability, affordability, availability. We are looking into diversification of energy resources:

• Getting more competitive prices (affordability)
• Formation of a consumption basket, to provide more resistance to fluctuations (sustainability)

This requires:

• Stable political environment for accessing of alternatives (accessibility)
• Available resources, domestic or foreign (availability)

Turkey is investigating different energy scenarios, not just alternative gas supplies. But fortunately low oil-prices have taken some of the pressure away. On the negative side, declining oil prices are leading to declining incentive for new investment.

So what alternative resources are you investigating?

A key element of our evolving policy is to limit dependence on any one country to less than 50%. In that respect we are investigating options for more LNG imports, eg Qatar or even the US, and new pipelines, such as Azerbaijan, Iraq, Kurdistan, eastern Mediterranean, Iran, Turkmenistan, etc. On the other hand, coal has become popular once again and Turkey also examining possibilities of taking advantage of its vast coal reserves.

In a turbulent region and with the Syrian situation deteriorating how do you achieve a stable environment to enable you to access these alternatives?
Turkey realizes that this requires cooperation with its neighbours and potential partners. This may be achieved by playing an active role in promoting stability in our neighbourhood. Talks with Israel and between Turkish and Greek Cypriots for a political solution are part of this and are supported. Talks for normalization of the Turkey-Israel relationship are now well advanced, even though there are still issues to be resolved.

Similarly negotiations between the two communities in Cyprus are progressing with Turkey’s support. It is hoped that success will open up access to East Med gas resources, but still these are really delicate negotiations.

What are the key energy risks for Turkey?

There are two key risks for Turkey: deepening unpredictability for developing economies in global scale and deepening crisis in the Middle East. But these risks can be turned into advantages as the cost of energy consumption declines and this coincides to a period for Turkey to renew its contracts. So many experts say that this is buyers’ market now and if Turkey manages to play its cards right this will help it to get out of this turbulence with critical gains.

What are Turkey’s new targets and energy reforms?

We are getting prepared for different scenarios. Growth projections were revised in October 2015 based 4% in 2018 increasing to 5% by 2018.

As a result of this, and energy mix diversification, natural gas demand projections, which earlier on went up to 80 bcm by 2030, will now be revised probably downwards. Probably down to 65 bcm by 2025.

After 24 November 2015 we embarked on a new debate in energy policy and reform. New targets are being set for 2019. With regards to gas imports these include:

• Maximum dependence on one country 50%
• Storage capacity to increase from 2.7bn m³ to 5.3bn m³
• Send-out capacity to increase from 20mn m³/d to 100mn m³/d.

In order to reach to new growth targets it is estimated that $110bn investment will be needed for the next 10 years. This requires Turkey to build up a strong image with a vibrant reform performance.

How can you sum up the new and still evolving energy situation in Turkey?

Energy security is Turkey’s new motto and diversification is its new principle. Turkey has some advantages, such as cheap investment environment, and a dynamic economy with a young society, but there are also increasing risks at the geopolitical level. In order to attract more investment the Turkish economy needs to develop and implement a new reform agenda in our economy based on sustainable growth and find alternative markets or strengthen the existing ones for our export routes.

In order to deal with geopolitical risks Turkey needs to develop resistance tools to control repercussions coming from our unstable region and the Middle East. More important, it needs to adopt a positive agenda, cooperate with potential partners and play an active role for stability building in our neighbourhood.

Dr Charles Ellinas @CharlesEllinas
Nonresident Senior Fellow – Eurasian Energy Futures Initiative, Atlantic Council

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