Gas in the Black Sea: Initial Assessments & Critical Questions

Home , Fatih (drillship), Kanuni (drillship)

POLICY OUTLOOK POLICY OUTLOOK DISCUSSION PAPER

Dr. Serkan Birgel

(Celal Güneş - Anadolu Agency)

The weight of critical introspection on the discovery, fair or otherwise, should not overshadow the fact that Turkey has discovered natural gas in the Black Sea, and that for a country that has had to be so dependent on external imports, any development that helps alleviate such a condition is good. There is of course a process, and a litany of moving pieces need to come together to ensure that the gas is brought to market in a competitive fashion. Further discoveries to be had in the Black Sea will strengthen the economic case, as well as the interplay between domestic demand and the nature of global energy supply. This outlook explores some of the critical questions at stake going forward.

The opinions expressed in this report represent the views of the author(s) and do not necessarily reflect the views of the TRT World Research Centre. POLICY OUTLOOK POLICY OUTLOOK

of the majority of the country’s natural gas imports, a re- Figure 1: Turkey’s External Dependence for Primary Energy Demand Introduction cent trend has seen a 144% increase in LNG imports from the U.S. that was been registered from the first half of 2019 “Turkey begins where the oil fields end”, as the popular 80 to 2020. idiom has it, after modern-day Turkey was salvaged from 76.0 75.7 74.1 the ashes of the Ottoman Empire. As such, Turkey, unlike 75 On the demand-side, natural gas demand in Turkey has 72.4 72.4 other countries in the region has had to almost entirely actually fallen slightly year-on-year since 2017 given 69.4 rely on oil and natural gas imports so as to help satisfy 70 weaker economic growth but also inter-fuel competition, 67.2 primary energy demand. This remains the case for the having steadily increased year-on-year since 2009 (Table time being, despite the recent and impressive enhanced 2). Turkey has in recent times tried to reduce the use of 65 uptake of renewables. In terms of primary energy de- natural gas for power generation and as such alleviate the mand, Turkey is approximately 75% dependent on exter- 60 burden of dollar-denominated gas imports. 57.7 nal sources (Figure 1). Figure 2 below stratifies Turkey’s primary energy demand by fuel type. In terms of natural Looking at figures from 2013 onwards, Turkey remains a 55 gas, on the supply side Turkey is 99% dependent on im- premium gas market ranging between 45-50 bcm (a peak 51.6 ports1, with 46.83 billion cubic metres (bcm) imported last of 55.25 bcm registered in 2017), with 52.02 bcm of natural 50 year2. These are figures for both pipeline natural gas and gas expected to be consumed in Turkey in 2020 (Table 1990 1995 2000 2005 2010 2015 2016 2017 2018 liquefied natural gas (LNG), the latter of which has been 2). What, if any, the overall effects of the pandemic will be Source: ING 2020 https://think.ing.com/articles/black-sea-energy-more-to-prove/ penetrating into the Turkish market3. Turkey’s total ener- on that figure remains to be seen, though a 3.8% decrease gy import bill has ranged in recent times between $35-50 between January and June compared to the same period billion. $12 billion was spent on natural gas imports alone in 2019. For an emerging economy such as Turkey that Figure 2: Total Primary Energy Supply by Fuel (%), Turkey, 1990-2018 last year, of a total energy bill of $41.7 billion (approxi- has grown rapidly (on average 5.2% per annum between mately 5.5% of GDP). Turkey has registered year-on-year 2001-2017), but has at the same time become more vul- growth in terms of primary energy demand from 2009- nerable to external factors, footing energy import bills Coal 2019 (Table 1). A 4.2% decline in the total cost was regis- fuels the country’s current account deficit figures; an is- tered compared to 2018. In February this year, the Turkish sue that governments have long since sought to tackle government projected increases in the energy import bill including the current Turkish government with its Vision up to $45.7 billion, given estimates of benchmark Brent 2023 policy. Though the price of imports of say, a barrel Hydro Natural Gas oil prices (ibid.). Figures for 2019 are as follows: 33.61% of benchmark crude oil or spot natural gas prices, may Biofuels and waste of Turkey’s natural gas (via pipeline), came from Russia, wax and wane over time, (thereby reducing the pressure 21.20% from Azerbaijan, and 17.11% from Iran – all neigh- on the economy in times of low commodity prices), the Wind, Solar, etc. 4 bouring countries . The remaining 28.1% of demand was need to reduce dependence on energy imports more Oil met by way of LNG imports, largely from Algeria, Nigeria, thoroughly is well-established in the country, given both but now increasingly the United States as well as vari- concerns related to notions of energy security, but more ous other sources of spot LNG. The ability to diversify so economic necessity. Any economic woes can also be sources of supply reflects changes in a nowmore global the subject of geopolitical leverage. Per usual, it is very

LNG industry, namely lower LNG prices (as a function of rare for a discussion of natural resources to refer solely Source: IEA 2010 supply and demand) alongside LNG trading in terms of to natural resources. The meaning and/or significance spot transactions rather than long-term, inflexible, point- of the discovery can only be deduced through relative to-point contracts) 2020 imports thus far suggest a 44.8% means. It is “human appraisal”, in the words of the oft-cit- Figure 3: Primary Energy Consumption by Fuel, Turkey, 2019 and 41.5% year-on-year decrease in Iranian and Russian ed resource economist Erich Zimmermann, is what turns An Expected Revolution for an natural gas imports. Overall, pipeline natural gas imports the “neutral stuff of the earth” into resources. Here ques- have fallen 22.8%, whilst LNG imports increased by 44.8% tions of: energy security, local, regional, but also global Unexpected Reason7% between January and June of this year. Cheaper spot LNG dynamics of supply and demand, as well competition prices amidst what has been termed a global gas glut, between fuels for different uses, all come to the fore in a Oil have galvanised greater LNG penetration into the Turk- complex and dynamic way to meet any given country’s 12% ish gas market), allowing Turkish importers to undercut needs. The current government has overseen attempts Natural Gas 31% previous oil-indexed deals. Turkey’s Petroleum Pipeline to that effect, as now expounded upon alongside what is Company (BOTAŞ) has taken advantage of the relatively known about the Black Sea discovery thus far. Now that Coal cheaper cost of LNG imports, making the majority of im- media spectacles have somewhat abated, a more sombre ports as of late as opposed to the private sector. Turkey appreciation can ensue. 26% recently emerged at one stage as the second largest im- Hydro-Electric porter of U.S. LNG in Europe. Though still not the source Renewables 24%

1 Turkey is also 92% dependent on external sources for oil supply (European Bank of Reconstruction and Development, 2019). 2 A figure of 45.3 bcm has also been cited for Turkey’s 2019 total natural gas import by the Daily Sabah. 3 Turkey’s Energy Market Regulatory Authority (EMRA) provides more granular detail as to the nature of the country’s natural gas market. 4 The first purchase agreement was signed with Russia in 1986, whilst the first natural gas from Azerbaijan came in 2007. LNG first arrived from Algeria in 1994. Source: BP Statistical Review of World Energy 2019

2 3 POLICY OUTLOOK POLICY OUTLOOK

Figure 1: Turkey’s External Dependence for Primary Energy Demand Figure 1: Turkey’s External Dependence for Primary Energy Demand

80 80 80 76.0 76.0 75.7 76.0 74.1 75.7 75 74.1 7575 72.4 74.1 72.4 72.4 72.4 69.4 72.4 70 69.4 7070 67.2 69.4 67.2 65 6565

60 6060 57.7 57.7 55 5555 51.6 51.6 50 50 50 1990 1995 2000 2005 2010 2015 2016 2017 2018 19901990 19951995 20002000 20052005 20102010 20152015 20162016 20172017 20182018 Source: ING 2020 https://think.ing.com/articles/black-sea-energy-more-to-prove/ Source:Source: ING ING 2020 2020 https://think.ing.com/articles/black-sea-energy-more-to-prove/ https://think.ing.com/articles/black-sea-energy-more-to-prove/

Figure 2: Total Primary Energy Supply by Fuel (%), Turkey, 1990-2018 Figure 2: Total Primary Energy Supply by Fuel (%), Turkey, 1990-2018

Coal Coal

Hydro Hydro Natural Gas Hydro Natural Gas Biofuels and waste Natural Gas BiofuelsBiofuels andand wastewaste

Wind, Solar, etc. Wind, Solar, etc. Oil Wind, Solar, etc. Oil

Source: IEA 2010 Source: IEA 2010 Source: IEAIEA 20102010

AnFigure Expected 3: Primary Energy Revolution Consumption by Fuel, for Turkey, an 2019 AnFigure Expected 3: PrimaryPrimary EnergyEnergy Revolution ConsumptionConsumption byby Fuel,Fuel, for Turkey,Turkey, an 20192019 Unexpected Reason7% Unexpected Reason7% Oil Oil 12% 12% % Natural Gas 31% Natural Gas 31% Coal Coal 26% Hydro-Electric 26% Hydro-Electric Renewables 24% Renewables 24%

Source:Source: BP BP Statistical Statistical Review Review of of World World Energy Energy 2019 2019 Source: BP Statistical Review of World Energy 20192019

3 3 POLICY OUTLOOK POLICY OUTLOOK

AnTable 1:Expected Primary Energy RevolutionConsumption, Turkey, for 2009-2019 an AnTable 1:Expected Primary Energy RevolutionConsumption, Turkey, for 2009-2019 an UnexpectedYEAR 2009 2010 2011 Reason2012 2013 2014 2015 2016 2017 2018 2019 UnexpectedYEAR 2009 2010 2011 Reason2012 2013 2014 2015 2016 2017 2018 2019 Primary Energy Primary 4.28 4.50 4.81 5.11 5.07 5.23 5.72 6.01 6.37 6.29 6.49 ConsumptionEnergy 4.28 4.50 4.81 5.11 5.07 5.23 5.72 6.01 6.37 6.29 6.49 Consumption(exajoules) (exajoules) Source: BP Statistical Review of World Energy 2019 Source:Source: BP BP Statistical Statistical Review Review of of World World Energy Energy 2019 2019

AnTable 2:Expected Total Natural Gas Revolution Consumption, Turkey, for 2009-2019 an AnTable 2:Expected Total Natural Gas Revolution Consumption, Turkey, for 2009-2019 an UnexpectedYEAR 2009 2010 2011 Reason2012 2013 2014 2015 2016 2017 2018 2019 YEAR 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 UnexpectedGas Reason ConsumptionGas 36.87 37.41 44.15 45.24 45.92 48.72 48.89 46.35 55.25 50.28 46.83 Consumption(bcm) 36.87 37.41 44.15 45.24 45.92 48.72 48.89 46.35 55.25 50.28 46.83 (bcm) Source:Source: EMEA EMEA (2020), (2020), Oxford Oxford Institute Institute for for Energy Energy Studies Studies (2017), (2017), BOTAŞ BOTAŞ (cited (cited in in Hürriyet Hürriyet Daily Daily News News 2020). 2020). Source: EMEA (2020), Oxford Institute for Energy Studies (2017), BOTAŞ (cited in Hürriyet Daily News 2020). the discovery of natural gas and its possible effect on the The Black Sea settlementunresolved talks,Cyprus the Problem, series of the overlapping discovery of and natural contest gas- The Black Sea unresolved Cyprus Problem, the discovery of natural gas The Black Sea edand maritime its possible boundaries, effect on theas well settlement as regional talks, geopoliticalthe series of Discovery – – What What We We andriftsoverlapping itsdrawn possible into and effect it contested all suchon the as maritime settlement Libya, boundaries,or talks,rising the Gulf-state series as well of Discovery – What We overlappingagencyas regional in thegeopolitical and Eastern contested riftsMediterranean), drawn maritime into boundaries, it allTurkey such asand as Libya, wellthe Know ThusThus Far Far asTurkish-Cypriotsor regionalrising Gulf-state geopolitical have agency felt rifts themselves in drawn the Eastern into facing it all Mediterranean), such efforts as Libya, to os- ortraciseTurkey rising themand Gulf-state the from Turkish-Cypriots theagency region. in the In partialhaveEastern felt response, Mediterranean),themselves Turkey fac- Know Thus Far th EverEver sincesince thethe announcement announcement on on Wednesday Wednesday 19 19th August Au- Turkeyhasing effortsgone and on tothe toostracise Turkish-Cypriotsestablish them its ownfrom have offshorethe feltregion. themselves hydrocarbons In partial fac re- Ever since the announcement on Wednesday 19th August gustthat Presidentthat President Erdoğan Erdoğan would would make amake major a announcemajor an- ingexplorationsponse, efforts Turkey to and ostracise hasexploitation gone them on capabilitiestofrom establish the region. (Figureits own In 4)partialoffshore by ac re- that President Erdoğan would make a major announce- nouncementment of “good of news”, “good reports news”, suggested reports suggested Turkey had Turkey finally sponse,quiringhydrocarbons threeTurkey drillships: explorationhas gone Fatih, on and to Yavuz, establish exploitation and Kanuni.its own capabilities offshoreThere is ment of “good news”, reports suggested Turkey had finally haddiscovered finally offshorediscovered natural offshore gas natural resources gas atresources the ‘Tuna-1’ at hydrocarbonsan(Figure inclination 4) by acquiring to exploration contrast three the and drillships:state exploitation of play Fatih, in the capabilitiesYavuz, Eastern and discovered offshore natural gas resources at the ‘Tuna-1’ theexploratory ‘Tuna-1’ exploratory well in the Blackwell in Sea. the Initial Black indicationsSea. Initial indi sug- (FigureMediterraneanKanuni. 4)There by acquiring is with an inclination that three of the drillships: to Black contrast Sea. Fatih, the The state Yavuz, first of thingplayand exploratory well in the Black Sea. Initial indications sug- cationsgested thatsuggested the ultra-deepwater that the ultra-deepwater Fatih Drillship Fatih Drillship had en- Kanuni.toin thenote Eastern Thereis that is Mediterranean maritimean inclination boundary withto contrast that delimitation of the the state Black ofin play Sea.the gested that the ultra-deepwater Fatih Drillship had en- hadcountered encountered an estimated an estimated 26 trillion 26 trillion cubic cubic feet (tcf)feet –(tcf) or insemi-enclosedThe the first Eastern thing MediterraneanBlack to note Sea is is thatfor with all maritime intents that of theand boundary Blackpurposes Sea. delimi- countered an estimated 26 trillion cubic feet (tcf) – or –around or around 800 (bcm)800 (bcm) – of natural – of natural gas resources gas resources potentially poten in- Thecomplete,tation first in the thingas semi-enclosedopposed to note to isthe Black pastichethat Sea maritime ofis foroverlapping all boundary intents mar and delimi- around 800 (bcm) – of natural gas resources potentially in tiallyplace. in Still place. the Still largest the largestdiscovery discovery in the inBlack the BlackSea to Sea date, to tationitimepurposes boundaryin the complete, semi-enclosed claims as opposed that Black mirror to Sea the unsolved ispastiche for all and intents of overlap emerg and- place. Still the largest discovery in the Black Sea to date, date,the official the official figure figure was announced was announced to be toan beestimated an estimat -320 purposesingping geopolitical maritime complete, boundary fault as lines opposed claims in the to thatregion the mirror pastiche (Figure unsolved of 5). overlap and- theedbcm 320official (around bcm 11(aroundfigure tcf), the was11 discovery tcf),announced the havingdiscovery to be come an having estimated after acome total 320 pingemerging maritime geopolitical boundary fault claims lines inthat the mirror region unsolved (Figure 5). and bcmafterof nine (arounda totalexploratory of 11 ninetcf), the (orexploratory discoverydiscovery) (orhaving wells discovery) hadcome been after wells drilled. a totalhad emergingTurkish officials geopolitical have fault asserted lines inthat the further region (Figureappraisal 5). drill - ofbeenFurther nine drilled. exploratoryappraisal Further drilling (or appraisal discovery) will most drilling wellslikely will hadresult most been in likelythe drilled. revi re- ing Turkish is to come,officials as well have as asserted more exploratory that further drilling appraisal in the drill- Furthersultsion inof the theappraisal revisionfigure, drilling upwardsof the will figure, asmost Turkish likelyupwards officialsresult as inTurkish the have revi it. of- At region.ingTurkish is to Turkish officialscome, asPresidential wellhave as asserted more spokesman exploratory that further Ibrahim drilling appraisal Kalin in theasdrill- sionficialsthe moment, of thehave figure, it.at whatAt theupwards confidence moment, as Turkish atband what (possible, officialsconfidence probable, have it.band At ingsertsregion. is thatto Turkish come, further asPresidential discoverieswell as more spokesman are exploratory expected, Ibrahim drilling and Kalinthat in theas- the(possible,or proven) moment, probable, the at resourcewhat or confidence proven) exists is the unclear.band resource (possible, The exists well probable, isis saidun- region.currentserts that Turkishdiscovery further Presidential discoveriesis “just the spokesman beginning”. are expected, Ibrahim The and upward Kalin that theasre- orclear.to beproven) someThe well the150km isresource said from to betheexists some Turkish is unclear.150km coastline, from The thewellwithin Turkish is Tursaid- sertsvisioncurrent that of discovery the further Tuna-1 is discoveries “justdiscovery the beginning”. are is expected, expected, The but andupward there that revi will the- tocoastline,key’s be zonessome within of150km maritime Turkey’s from jurisdiction, the zones Turkish of maritime delimitedcoastline, jurisdiction, inwithin the Black Tur- currentinevitablysion of the discovery beTuna-1 geological, isdiscovery “just the technical, beginning”.is expected, and The butmarket upwardthere risks will revi into- key’sdelimitedSea accordingzones in of the maritime to Black UNCLOS Sea jurisdiction, according principles delimited to with UNCLOS thein the relevant princi Black- sionthenevitably ofconsider the be Tuna-1geological, in the discovery process technical, isto expected,bring and gas market tobut market. thererisks towill At then the in- Seapleslittoral accordingwith states, the relevant though to UNCLOS littoral Turkey principlesstates, is not though an with official Turkey the relevant signatory is not evitablymoment,consider be inas geological,the an processestimate technical, to the bring find gas and is tocomparable market market. risks At in the to size then mo to- littoralanto UNCLOS.official states, signatory TPAO though – the to Turkey TurkishUNCLOS. is TPAO not state-run an – the official hydrocarbonsTurkish signatory state- considerthement, 318 as bcm anin the estimateTamar process field the to findoffshore bring is gascomparable Israel, to market. and incan At size thebe toclassi mo the- toruncompany UNCLOS. hydrocarbons – saidTPAO that –company the “approximately Turkish – said state-run that 2 billion “approximately hydrocarbons barrels of ment,fied318 bcm in as the anTamar industry estimate field as the offshorea giant find field.is Israel, comparable A boldand candate in beofsize classified2023 to the was company2recoverable billion barrels – saidoil equivalent” of that recoverable “approximately was alsooil equivalent” present. 2 billion Natural barrelswas also gas of 318givenin the bcm industryfor Tamarthe commencement as field a giant offshore field. ofAIsrael, boldproduction; dateand ofcan 2023 a besymbolic classifiedwas giv- recoverablepresent.from the NaturalBlack oil Sea, equivalent” gas if commerciallyfrom the was Black also exploited, Sea, present. if commercially may Natural present gas indateen the for given industrythe commencement the ascentenary a giant field. of of the production; A Republicbold date ofaof symbolic Turkey.2023 was Then date giv- fromexploited,a source the ofBlack may supply Sea, present largely if commercially a sourceinsulated of fromexploited,supply insurgent largely may presentattacks.insulat- enagain,given for the thethe centenary commencementcountry does of the not Republic of seem production; to of shy Turkey. awaya symbolic Then from again, bolddate aedFor source from example, insurgentof supply the PKK largely attacks. terrorist insulated For organisation example, from insurgent the has PKK sabotaged terrorist attacks. giventargets,the country the and centenary doesin principle, not of seem the there Republic to shy have away of been Turkey. from offshore bold Then targets, again, natu- Fororganisationnatural example, gas pipelines thehas PKKsabotaged terrorist before natural (butorganisation with gas seeminglypipelines has sabotaged before minor theraland gas country in principle, fields does around there not seem thehave world beento shy that offshore away have from naturalbeen bold brought gastargets, fields to natural(butand temporarywith gas seemingly pipelines success). minor before With and tensions (but temporary with generated seemingly success). from minor With the andmarketaround in principle, inthe less world than there that three have years beenbeen from offshorebrought discovery. tonatural market TPAO gas in fieldslessfur- andtensions temporary generated success). from With the unresolved tensions generated Cyprus Problem, from the aroundther stated the worldthat it that had have drilled been 4,525 brought metres to marketin the Tuna-1 in less

4 4 POLICY OUTLOOK POLICY OUTLOOK thandrill site three in theyears exploration from discovery. block namedTPAO further Sakarya, stated after that the Ministerwater depth Fatih of Dönmez, 2,100 metres. was made News at of a waterthe discovery depth of is2,100 not itBattle had drilledof Sakarya 4,525 in metres the Greco-Turkish in the Tuna-1 drillWar siteof 1919-1922. in the ex- metres.only good News for ofTurkey, the discovery as it reaffirms is not only hydrocarbon good for Turkey, poten- plorationThe discovery block itself, named according Sakarya, to after the the Turkish Battle Energy of Sakarya and astial itvested reaffirms in the hydrocarbon Black Sea, potentialattention vestedupon which in the seems Black inNatural the Greco-Turkish Resources Minister War of 1919-1922.Fatih Dönmez, The discovery was made itself, at a Sea,to have attention waned upon as of which late. seems to have waned as of late. according to the Turkish Energy and Natural Resources

Figure 4:TPAO’s Fleet

DRILLING SHIPS

KANUNİ YAVUZ FATİH • 6th gen ultra-deepwater • 6th gen ultra-deepwater • 6th gen ultra-deepwater drillship drillship drillship • vJoined TPAO inventory in • Constructed in 2011 • Constructed in 2011 early 2020 • Joined TPAO inventory in • Joined TPAO inventory in • 227 meters long 2018 2017 • 60,316 gross tons • 230 meters long • Started 1st deepwater drilling • Capable of drilling to a • 51,283 gross tons in 2018 depth of 3,000 meters below • 229 meters long seabed • 51,283 gross tons • Capable of drilling to a maximum depth of 40,000 feet

SEISMIC EXPLORATION VESSELS

BARBAROS HAYREDDİN PAŞA MTA ORUÇ REİS • Launched in 2011 • Launched in 2015 • Joined TPAO inventory in • Commisioned in 2017 2013 • Capable of 2D and 3D • Capable of 2D and 3D seismic exploration seismic exploration • 4,789 gross tons • 4,711 gross tons • 86 meters long • 84 meter long • Equipped with helipad

FLOATING STORAGE REGASIFICATION UNITS (FSRU)

• Based in Aliağa, western • Based in Dörtyol, southern • Soon to be operational in İzmir province Hatay province Gulf of Saros, northwestern Çanakkale

Source:Source: Daily Sabah (2020)2020

5 5 POLICY OUTLOOK POLICY OUTLOOK

Figure 5:Turkey’s First Black Sea Discovery

Source: Bloomberg 2020 Source: Bloomberg 2020 would be needed to commence production, and that the The Long Road Ahead liondiscovery would asbe it needed stands towas commence worth $80 production, billion (though and that no The Long Road Ahead thefurther discovery details ason itthe stands pricing was mechanism worth $80 yet, billion or whether (though Commercial exploitation is, of course, not a given, nor a Commercial exploitation is, of course, not a given, nor a nothe further investment details figure on the relates pricing to mechanism full field developmentyet, or wheth -to seamless transition. There are many contingent varia- seamless transition. There are many contingent variables erplateau, the investment a phased figureapproach, relates or tofor offshorefull field production development bles that have to align. Further appraisal drilling usually that have to align. Further appraisal drilling usually oc- toonly). plateau, How aexactly phased the approach, resource or will for beoffshore developed, production mar- occurs in order to produce more accurate and probable curs in order to produce more accurate and probable as- only).keted, How and exactlyhow the the process resource will will go beon developed,to impact Turkey’s market- assessments of the total volume of natural gas said to ex- sessments of the total volume of natural gas said to exist ed,domestic and how energy the process balance will and go mix, on toonly impact time Turkey’swill tell. Butdo- ist at the site (a popular assertion within the industry is at the site (a popular assertion within the industry is that mesticfor the energymost part balance it is almostand mix, certainly only time the will case tell. that But thefor that the point in time where the most will be known about the point in time where the most will be known about any theTurkish most domestic part it is almost market certainly will be the casetarget that for the Black Turkish Sea any given discovery is at the end of the production life given discovery is at the end of the production life cycle). domesticnatural gas. market There will are bea myriad the target of moving for Black pieces Sea naturalwithin cycle). Then comes the process to establish the resource’s Then comes the process to establish the resource’s com- gas.the globalThere arenatural a myriad gas ofindustry moving (but pieces also within as it theconcerns global commercial viability which, if successful, will lead to mercial viability which, if successful, will lead to trans- naturalmore local gas industryand regional (but also factors) as it concerns that would more need local to and be transforming a prospective resource to an economically forming a prospective resource to an economically recov- regionalfavourably factors) aligned that to would commercially need to be export favourably the resource. aligned recoverable and proven reserve (as opposed to what is erable and proven reserve (as opposed to what is known as toAs commerciallyan aside, Turkey export already the resource. exports Asalbeit an aside,very modestTurkey known as a ‘stranded resource’ if the process ultimately a ‘stranded resource’ if the process ultimately fails). Here, alreadyamounts exports of natural albeit gas very to both modest Bulgaria amounts and of Greece natural. gas fails). Here, issues of: resource volume, field characteris- issues of: resource volume, field characteristics (how easy to both Bulgaria and Greece. tics (how easy is it to extract), liquids presence, climate Collateral benefits already seem to be afoot. Turkey also is it to extract), liquids presence, climate policies and how policies and how natural gas will fit into the energy mix, is near the end of a 16 bcm, 25-year contract for Russian natural gas will fit into the energy mix, price (benchmark Collateral benefits already seem to be afoot. Turkey also is price (benchmark prices, discount rates), development natural gas (long-term contracts are common in the im- prices, discount rates), development pathway, timeline of near the end of a 16 bcm, 25-year contract for Russian nat- pathway, timeline of exploitation, capital and operation- port of pipeline natural gas). There is word that Russia exploitation, capital and operational expenditures, finan- ural gas (long-term contracts are common in the import of al expenditures, financial capacity, as well as technical is now offering another contract for pipeline natural gas cial capacity, as well as technical expertise and so on, all pipeline natural gas). There is word that Russia is now of- expertise and so on, all come into play in the process to on reduced terms. According to Montel, Turkey is one come into play in the process to move gas to market. Pend- fering another contract for pipeline natural gas on reduced move gas to market. Pending these considerations and of the last places where Russia’s Gazprom still insists on ing these considerations and more, how much natural gas terms. According to Montel, Turkey is one of the last plac- more, how much natural gas Turkey will be able to pro- oil-indexed gas prices, a position bolstered by the sheer Turkey will be able to produce per year will then figure in es where Russia’s Gazprom still insists on oil-indexed gas duce per year will then figure in considerations to come reliance Turkey historically has had on Russian natural considerations to come of both the country’s energy se- prices, a position bolstered by the sheer reliance Turkey of both the country’s energy security but also economic gas. The discovery of Black Sea natural gas may of course historically has had on Russian natural gas. The discovery curityconcerns. but Speakingalso economic to Anadolu concerns. Agency, Speaking APLUS to Energy’sAnadolu have nothing to do with the new offer, but everything to of Black Sea natural gas may of course have nothing to do Agency,Volkan Yiğit APLUS boldly Energy’s reasoned Volkan that Yiğit the boldly “cost reasonedof producing that do with Turkey’s efforts to reduce imports from Russia with the new offer, but everything to do with Turkey’s ef- thenatural “cost gas of producing from the reservenatural gaswill from fall belowthe reserve our current will fall which it has done so steadily. Imports of U.S. LNG have belowcontract our prices current under contract any pricescircumstances”, under any circumstancwhilst Minis- fortsconversely to reduce increased. imports Negotiating from Russia price which cuts it has today done then, so es”,ter Dönmezwhilst Minister has stated Dönmez that has “the stated gas we that will “the produce gas we will steadily.if true, would Imports already of U.S. be a LNG blessing have for conversely the Turkish increased. econo- producebe more willeconomic be more than economic the gas thanwe import”, the gas butwe withoutimport”, Negotiatingmy. In the future, price Turkey cuts today seeks then, a fully if liberalised true, would gas already mar- butexact without clarification exact clarification of which supply of which pathway supply is beingpathway com is- beket, a to blessing pivot away for the from Turkish take-or-pay economy. contracts In the andfuture, instead Tur- beingpared comparedand contrasted. and contrasted. Again, further Again, appraisal further appraisal is needed, is keybe aseeks home a fullyto a liberalised competitive gas regional market, totrading pivot away hub, fromand needed,but given but this given caveat, this caveat,speaking speaking to Anadolu to Anadolu Agency, Agen the- take-or-payplenty of work contracts remains and to beinstead done be since a home the 2001 to a competi Gas Law- cy,head the of head the ofInternational the International Energy Energy Agency, Agency, Fatih Fatih Birol, Birol, still tivein the regional country, trading as well hub moves, and Figureplenty of5:Turkey’s work remains First Black to be stillsurmised surmised that that an investmentan investment of approximately of approximately $6 $6billion bil- done since the 2001 Gas Law in the country, as well moves

6 6 POLICY OUTLOOK

Sea Discovery Source: Bloomberg 2020 toward the po- press trends in renewable uptake, but there need not be tential unbundling of BOTAŞ. In the longrun, downturns such sensitivity between the two, given both projections in the global natural gas industry will also have to be con- of primary energy demand and the long-term commit- sidered. Tighter oil and gas markets may go on to result ment to renewables that Turkey seems to have gone for, in the sort of higher prices5 that spur on the next bout of both in the name of energy security and economic con- activity in the commodity cycle. TPAO, as a state-owned cerns. In times of suppressed oil and natural gas prices, entity, will not have the same portfolio of assets, liabili- there emerges an incentive for Turkey to stock resources, ties, or goals, as say an international oil and gas company. pending infrastructural limits in storage capacity. Howev- What may affect the process to bring Black Sea gas to the er, any effort to reduce exposure to price volatility in such market, all else equal, is how exactly Turkey will go on to commodity markets would be yet further reason to invest finance the process. in renewables, or at the very least optionality and the di- versification of supply. A recent article from the World Economic Forum posits that wind and solar in Turkey Natural Gas Amidst now accounts for 13% of the country’s electricity generation. Solar, in particular, makes up 6.5% of the country’s the Renewable power generation capacity. Still, lately coal but, more im- portantly, hydroelectric power has superseded natural Energy Scene gas use in the country for power generation. Turkey has great potential in the renewable energy sector, and has How might, if at all, the discovery impact the country’s made a number of large investments in the field over the emerging commitment to renewable energy? This is a last decade or so. Turkey is said to rank 13th in the world complex question. In any such analysis, mapping must and 6th in Europe in terms of installed renewable ener- occur between fuel and end use, as well as any future gy capacity, with a figure of 45,000 MW that constituted trends on the horizon, particularly as it comes to gas pric- nearly half of total installed power capacity in the coun- ing and inter-fuel competition, issues of capacity, efficien- try by the end of 2019. In terms of geothermal, Turkey cy, and utilisation. Briefly, much of the discussion at this is one of the 1GW plus capacity club members, with an point revolves around power or electricity generation, installed power generation capacity of around 1,526 MW both of which are sometimes unhelpfully used synony- . There will also be a limit to how many hydroelectric fa- mously with energy without much regard for other end- cilities can be built, and there is plenty of room for further use destinations such as: industry, residential heating, offshore wind and solar investment. If current trends are or transport sectors. For context, nearly half the natural any indication, the emphasis on renewable energy will gas Turkey consumes is said to be for heating purposes. continue. The government’s Vision 2023 policy aims to There is plenty of room here to improve residential effi- increase the total installed capacity of renewable energy ciency measures, though this may in turn then go on to resource supply to 30% by the centenary of the Republic. reduce gas demand. Issues of fuel competitiveness, se- How hydrogen may come to feature in the Turkish energy curity of supply, and environmental factors, will all also mix is also a question that is now being asked, with the feature in the discussion. That being said, it is likely giv- possibility of blending hydrogen and natural gas. There is en the scenario at hand that existing natural gas imports a moving aim to replace 6% of fossil fuel use with hydro- may be displaced somewhat and for some time. A large gen. The idea is to use what is termed surplus electricity and sustained influx of domestic natural gas may incen- to power the process of hydrolysis. tivise further gasification of the domestic market (if there is room to do so), raising the sort of demand that then rais- es price, which may in turn make commercial exploita- Concluding Remarks tion of Black Sea natural gas (and the gas to come), all the The weight of critical introspection on the discovery, fair more lucrative. The picture here becomes complicated. or otherwise, should not overshadow the fact that Turkey Turkey’s provinces may already be well-gasified, so the has discovered natural gas in the Black Sea, and that for a question of how to raise further demand may have to be country that has had to be so highly dependent on exter- considered in more depth. How might any insistence to nal imports, any development that helps to alleviate such raise uptake of natural gas then affect the uptake of re- a condition is good. There is of course a process, and a newables? If demand comes to raise price down the line, litany of moving pieces need to come together to ensure would gas from the Black Sea still be competitive vis-à-vis that the gas is brought to market in a competitive fashion. possible sources of gas imports abroad (assuming what Further discoveries to be had in the Black Sea will condi- is referred to as the global gas glut persists, and compet- tion the economic case all the more, as well as the inter- ing prices are comparable to today). Much may depend play between domestic demand and the nature of global here also on the exact nature of demand in the country, energy supply. and how existing renewable and natural gas trajectories are realised going forward. In the abstract, this may de-

5 For further reference, the IEA’s Key World Energy Statistics 2020 just released provides some useful context on energy prices in select OECD countries.