By Dilara Zengin & Ebru Sengul
Turkey's strategic role as an energy transit country could in the long term evolve to a regional gas hub, but the benefits of this status as a 'Turkish gas bazaar' is questionable, experts told Anadolu Agency.
Brenda Shaffer, adjunct professor at the Center for Eurasian, Russian and East European Studies (CERES) at Georgetown University, said that Turkey at present is already a critical oil and natural gas transit state.
“The Bosphorus is one of the world’s most important oil transit lanes (and thus an important potential energy choke point). Oil from multiple sources, including Azerbaijan and Iraq, is exported via Turkey’s ports. Turkey receives natural gas today from four different projects spanning across Russia, Azerbaijan and Iran, and from 2018 it will receive gas from another project, with the establishment of Trans-Anatolian Natural Gas Pipeline (TANAP),” Shaffer explained.
She also underlined that the Southern Gas Corridor will increase the importance of the country, and from 2020 onwards, Turkey will become an important gas transit state to multiple markets in Europe.
“The Southern Gas Corridor may transit gas from additional sources in the future, such as Iran, the Kurdish region of northern Iraq, Israel and Cyprus, raising Turkey’s importance as a gas transit state. However, most of the gas imported to Turkey and anticipated to transit Turkey is traded in the framework of long-term contracts and not as a hub,” she noted.
"While many people like to talk about the importance of being an ‘energy hub’, it is not clear that there is any special value in this for the host country," according to Shaffer.
“Serving as a major energy transit state elevates Turkey’s geopolitical importance regionally and globally. However, it is hard to see the added benefit affected by whether that gas is traded in the framework of contracts or on spot markets at hubs. In addition, there are financial risks from hub-based trade,” she said.
Shaffer said that in Europe and a few locations in Asia and Latin America, policy efforts are being made to change gas trade into hub-based spot markets, instead of long term contracts.
“The prevailing assumption among most EU policy makers is that gas traded in this manner [on the spot market] will bring lower prices, encourage development of new gas volumes and enhance security of supply through turning gas trade into a transaction between commercial entities. This transition is somewhat of a policy experiment, and its long-term consequences are not at all clear,” she said.
Oil and gas trading hubs require liquidity, meaning multiple buyers and sellers and they also require strong rules of law, a free market structure and business transparency, according to Shaffer.
“At the same time, it is important to note that Turkey’s geopolitical importance goes way beyond energy transit. Turkey has most likely the most powerful military in the Middle East and one of the most powerful militaries in Europe and its strategic location places it in the epicenter of most of the main geopolitical developments in both arenas,” she added.
However, she noted that Turkey’s recent efforts to expand its gas storage will enhance its own security of supply and also help it establish a ‘hub’, if this is a policy choice in the future.
Rem Korteweg, senior research fellow at the Center for European Reform, also reiterated that Turkey's importance for Europe as a transit country for non-Russian gas.
"By 2019 Azerbaijan will be exporting 16 billion cubic meters through the Southern Gas Corridor. The corridor uses the TANAP to transport gas across Turkey to the Greek border and 6 bcm will stay in Turkey, 10 bcm will be exported to Europe through the Trans Adriatic Pipeline (TAP) pipeline. In the future, Turkey could also become a transit for gas from other places in the region, from across the Caspian, from Northern Iraq, perhaps even from Cyprus if a peace agreement is signed, or from Iran," he said.
Korteweg noted Turkey's crucial role in the future to develop sufficient diversified sources of gas supplies to meet both domestic and Europe’s energy security objectives, given that the share of imported natural gas in Europe’s energy mix, is likely to increase over the next decades.
"If Ankara is able to reach an agreement with Moscow on the construction of the Turkish Stream, Turkey could also become an alternative route for the export of Russian gas into the European market," he said.
He defined an energy hub as a place where energy sources, mainly gas or crude oil, are traded and distributed.
"Because they are locations for the sale and purchase of – in this case – natural gas, energy hubs usually have their own pricing system. Think of Henry Hub in Louisiana, or in the Netherlands, the Title Transfer Facility, or the Central European Gas Hub in Baumgarten, Austria," he said.
He clarified that a functioning gas hub ideally has multiple sources of gas, multiple options for distribution, like pipelines or LNG terminals, sufficient storage capacity and multiple buyers of the gas.
"This is very different from a gas ‘transit’ country whereby the gas that is produced elsewhere is simply transported across the territory of the state en route to the final destination. It is not a marketplace for gas," he explained.
He said that for now, Turkey will be a transit country but in the longer term it could evolve to become a regional gas hub.
"If Turkey were to build pipeline infrastructure to bring Kurdish, Cypriot, Russian or Iranian gas to one place and construct sufficient storage capacity to allow trading to take place, it could develop an energy hub of its own, a Turkish gas bazaar, " he noted.
He added that the most likely place for this would be close to the Greek-Turkish border, since EU member states would remain the most likely purchasers of this gas and Europe would also have to develop sufficient import infrastructure and interconnectors to make this work.
"Turkey would benefit economically as it would gain transit and trading fees; the additional infrastructure and import opportunities would help satisfy some of Turkey’s own domestic energy needs; and the creation of a Turkish energy hub would increase the country’s geopolitical relevance. But this is just an idea for now, not reality," he said.
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