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| Turkey’s Natural Gas Imports are Surging, Sources: EIA; JTC |
Jude Clemente , CONTRIBUTOR
The ongoing tension between Turkey and Russia makes Turkey’s dependence on foreign energy perhaps the country’s biggest concern. And this begins with natural gas, which passed oil in 2012 to become Turkey’s main source of energy. Turkey imports 99% of its gas, and Russia pipes in nearly 60% of Turkey’s total gas use.
Turkey is the second largest consumer of Russian gas and paid Gazprom some $10 billion last year. Iran supplies 20% of Turkey’s gas and Azerbaijan 10%, all via pipeline. LNG, mainly from two countries (Algeria and Nigeria), supplies about 13% of the country’s gas. As an OECD Member, and thus a member of the IEA, Turkey has been advised to diversify away from Russian gas, and Russia may also be looking elsewhere (e.g., China, India) in its response to the downing of its warplane by Turkey in November.
There does indeed appear to be a growing organized effort to squeeze Russian energy firms out of Europe, but for Turkey in particular, an interruption in gas flows from Russia would severely damage the economy. The “Turkish Stream” planned gas pipeline project to link Russia and Turkey was shelved in December.
Falling over the years, The Institute for 21st Century Energy ranks Turkey’s Energy Security as 20% LOWER than the OECD Average. Of the 25 countries ranked, Turkey ranks near the bottom at 23rd for “natural gas import exposure.” But, it’s actually even worse since natural gas is far more important in Turkey than the only two countries ranked below it, France and Spain.
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| Turkey is a Natural Gas-Based Economy, Sources: IEA; JTC |
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| Turkey’s Strong More Money = More Electricity LinkSources: USDA; JTC |
So, regardless of what Greenpeace, Sierra Club, and/or even your elected representative keep telling you, know this: natural gas is a “dispatchable” energy system, and “non-dispatchable” sources like wind and solar don’t displace it.
From 2012-2015, Turkey slowed a bit from “Europe’s ‘fastest growing economy“ to “Europe’s third-fastest growing economy.” One of the many things that the anti-coal, anti-oil, and anti-natural gas movement regularly fails to understand (or more likely chooses to ignore) is the direct relationship between more economic growth and more energy demand, working in tandem to drive each other upwards (really underscoring why we need investments in all sources and fields of energy!).
This is especially true in emerging economies like Turkey, where there’s still immense room for growth. Compared to other OECD nations, Turkey’s relatively lower personal incomes and less electricity use means the future is obvious: as Turkey continues to grow, the country will continue to need more natural gas, the backbone of Turkey’s power system. Although having 6-times the population, Turkey uses less electricity than Pennsylvania does.
Yet, Turkey has one of the most perfectly linked GDP and electricity use connections of all nations that I have studied. And over 50% of Turkey’s natural gas use is for electricity, compared to ~33% in the U.S., meaning that demand for gas is mostly tied to the cornerstone of a modernizing economy: the generation of increasingly amounts of electric power.
Add on the fact that households in Turkey constitute another 25% of gas demand, and it becomes very clear very quickly that the amount of gas Turkey consumes is directly tied to how much money residents have. Per the USDA, Turkey’s real GDP per capita will surge 80% by 2030, compared to just 25% in the European Union.
Thus, the construction of new housing and apartment blocks will significantly increase gas demand growth in Turkey’s household sector. And soaring demand has Turkey with the “2nd fastest growing house prices in the world.“
Turkey’s electricity demand is projected to rise ~8% per year over the next decade, compared to overall GDP growth of 4-5%, making it one of the fastest growing power markets in the world. This growth will help reverse a falling lira and low electricity prices that have hurt utilities.
Turkey is highly ranked for an emerging economy in Forbes‘ “best countries for business list,” with a sophisticated energy market incentivizing foreign investors to invest. For example, the retail electricity market opened in 2010 to investors through the tender of six distribution companies, an attractive market at a very early stage in its development.
Of note, although 97% of Turkey is located in Asia, it’s accepted as a European country and takes part in most European contests and associations. Turkey’s unique geographic position between continental Europe, the substantial reserves of the Caspian Basin and the Middle East, and fast-growing Asia gives it a strategic role in the growing use of natural gas around the world. Turkey must encourage more competition, but it’s the country’s good positioning that should allow it to access gas from more sources, especially mid- to long-term.
Turkey’s gas from Russia and Iran is under long-term contracts at relatively high prices. And business relations have been strained due to the penalties Turkey has had to pay under onerous contracts, enabled by the inflexible nature of piped gas infrastructure (a problem that LNG cargoes are helping to alleviate).
Meanwhile, the entrance of the U.S. on the rapidly expanding LNG market, perhaps the fastest growing energy market of them all, could help Turkey diversify most, helping the U.S. to “Fulfill Its NATO Treaty Obligations.” In the Fall, Turkey was importing natural gas at $12 per mmBtu and $14 per mmBtu from Russia and Iran, compared to gas futures for March delivery in the U.S. now trading at around $2.00 and projected to stay under $7 for decades.
Looking forward, Turkey’s gas deals with Russia terminate in 2021 and 2025. Coinciding with the centenary of the republic, “Turkey in 2023 alone will be able to get rid of dependence on Russian gas by 30%.” By then, deals with Iran will also be up for renewal and a major LNG supply contract with Algeria will have terminated. Enerjisa says “import prices will be oil-based and convert to hub prices only after 2023,” opening the door for more nimble, flexibly priced exporters in the U.S.
With just two import terminals, Turkey needs more LNG import capacity for flexibility. While the European Union has wisely been installing specialist terminals to receive gas from the U.S. and Qatar, Turkey hasn’t been so responsive. This is becoming an even greater gas security issue in growing Turkey since the country’s gas demand is up 45% since 2010 while the European Union’s gas demand has been falling. Turkey’s “regasification capacity [is] insufficient to satisfy large amount of imports.”
There are other commercial risks and challenges in Turkey that need fixed. Although gas demand can double in winter months, Turkey still has one of the weakest gas storage systems, capable of meeting less than 10% of total consumption, compared to a nearly 80% capability for Ukraine, also highly dependent on more politically risky Russian energy. Unlike oil, gas emergency stocks to buffer crises is not a requirement under IEA rules, although it’s long been recognized it should be.
To be sure, U.S. LNG will face competition reaching Turkey, but the opportunities are still great. In December, Turkey’s state-owned energy company, BOTAŞ (which has an 80% market share in import contracts), signed a preliminary agreement with Qatar’s national petroleum company to purchase LNG over a long-term period – yet, no such infrastructure currently exists.
Qatar is routinely jammed at 100% or above liquefaction utilization rate, and the country’s role as the driver of liquefaction capacity growth is being passed to the U.S. and Australia. Qatar’s overall shift toward supplying developing Asia (“Qatar slashes gas price for India, waives penalty“) mirrors broader trading patterns in the oil industry.
Turkey says “Azerbaijani gas ‘not an alternative for Russian”. And due to political tensions between Baghdad, the Kurdish region, and Ankara, it’s not clear whether Iraq gas will start to flow to the Turkish market. In any event, Iraq has insignificant gas output, yielding in a year half of what the U.S. does in a single day.
Turkmenistan seeks to supply Turkey gas via TANAP, but numerous contracts with China challenge that. And to join the pipeline, Turkmenistan will have to lay another pipeline across the Caspian Sea, complicated by debates around the legal status of the area. And with 50% of its population age 24 or younger (i.e., domestic needs are rising), Algeria has had nine straight years of declining oil and gas production, with annual gas exports plunging nearly 20% (here).
Continuing, as a “Newly Industrializing & Less Developed Country,” Iran has nearly 45% of its population age 24 or younger, so the country will surely need to keep more of its own gas; leveraged to supply nearly 65% of all energy, to generate 70% of electricity, for huge enhanced oil recovery projects (Iran will lean on gas to double its very low oil recovery rate to 40%), and to fuel the world’s largest natural gas vehicle fleet. And as for new gas player Israel (here), it could ironically be more American senior-level diplomacy itself that could help supply Turkey with piped gas (here).
Turkey’s domestic gas market is in the early stages of liberalization, which will be crucial to securing new supplies, lowering supply costs, gaining private infrastructure investment, and bolstering power market liberalization. Although it will take some time to gain traction, growing gas importers like Turkey will be prime targets for U.S. LNG.
This is especially true as the price of oil rebounds (and it will). The more competition-based U.S. will offer flexible pricing in a growing spot LNG market. Turkey’s “long-term import contracts have become insufficient to meet winter demand.” The U.S. is dependable, a G7 country with strong rule of law, fiscal stability, and robust regulatory systems.
The gas prize is big in Turkey, where demand could double to 11-12 Bcf/day by 2025 alone. Turkey’s nearly 230 gas power plants are waiting to help modernize major population centers Istanbul, Ankara, Izmir, Adana, and Gaziantep. If the average price for imported natural gas can fall given greater access to more outside sources like U.S. LNG, Turkey’s demand will grow even faster forecasted.
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