Energy Policy Turkey FUTURE of POLICIES and STRATEGIES JANUARY 2016 FIRST ISSUE

Energy Policy Turkey FUTURE OF POLICIES AND STRATEGIES JANUARY 2016 FIRST ISSUE

«IRAN IN THE ENERGY GAME» «ROLE OF TURKEY AS AN ENERGY CENTER» «RUSSIAN CHESS ON GAS POLITICS: EVALUATION OF TURKISH STREAM» «NORTHERN IRAQ & TURKEY»

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ENERGY POLICY TURKEY

JANUARY 2016 FIRST ISSUE

FALL 2016

ISSUE 1

EDITOR

Necdet Karakurt (TESPAM)

PUBLISHING COORDINATOR

Ali Maraşlı (TESPAM) TURKEY'S ENERGY STRATEGIES AND POLITICS RESEARCH CENTER

ENERGY POLICY TURKEY

JANUARY 2016 FIRST ISSUE

GRAPHIC DESIGN & PUBLISHING

Necdet Karakurt (TESPAM) & Onur Kabay (MEGA TEKNİK)

WEB DESIGN

Mustafa Akça (TESPAM)

RIGHT HOLDER ON BE HALF OF

TURKEY ENERGY STRATEGIES & POLITICS RESEARCH CENTER

Oğuzhan Akyener (TESPAM) INSIDE THE FIRST ISSUE

EDITOR’S VIEW

Necdet KARAKURT page 6

DID ARAB UPHEAVAL CHANGE THE ENERGY GAME OR THE WEST STILL HAVE AN EDGE ON IT? Necdet KARAKURT Serhat ÇUBUKÇUOĞLU Oğuzhan AKYENER page 8

IRAN IN THE ENERGY GAME WHILE PASSING THROUGH THE ENERGY DOOR Necdet KARAKURT Oğuzhan AKYENER Serhat ÇUBUKÇUOĞLU Mehmet APAYDIN Ali MARAŞLI page 20

COMMENTS ON THE ROLE OF TURKEY AS AN ENERGY CENTER

Oğuzhan AKYENER Mehmet APAYDIN page 32

AZERBAIJAN GAS EXPORT POTENTIAL & RELATED INFRASTRUCTURES FOR EU & TR ENERGY SECURITY ISSUES (UP TO 2050)

Oğuzhan AKYENER page 42

ENERGY SECURITY STRUGGLE IN CASPIAN REGION FROM CASPEAN THE VIEW OF IMPORTANT PIPELINE PROJECTS SEA

Oğuzhan AKYENER page 52 DOABILITY OF TRANS-CASPIAN PIPELINE AND DELIVE- RABILITY OF TURKMEN GAS TO TURKEY & EU

Oğuzhan AKYENER page 66

NORTHERN IRAQ & TURKEY: FROM THE VIEW OF ENERGY

Oğuzhan AKYENER Burak KAYAEL page 76

KEY FACTORS OF RECENT CHANGES IN CRUDE OIL PRICES

Serdar GÜRÜZÜMCÜ Mehmet APAYDIN page 90

TURKEY’S ENERGY INVESTMENTS—PROJECTS—POLICIES: AN OVERVIEW UNDER DECISION MAKING APPROACH

Ahmet Bahadır ŞIMŞEK page 96

COAL: A REALISTIC HOPE FOR TURKEY’S FU- TURE ENERGY SECURITY? Selçuk ÖZGEN Ferda BAYRAK page 102

RUSSIAN CHESS ON GAS POLITICS: EVA- LUATION OF TURKISH STREAM

Oğuzhan AKYENER Çağrı ŞIRİN page 108

SOUTHERN GAS CORRIDOR, MILESTONES AND OTHER TURKMEN GAS EXPORT OPTIONS (VIA TURKISH

Oğuzhan AKYENER page 124

STRATEGIC APPROACHES TO UNCONVENTIONAL RESOUR- CES TO MEET THE TURKISH ENERGY DEMAND

Necdet KARAKURT Oğuzhan AKYENER page 134 EDITOR’S VIEW

by Necdet Karakurt

Humanity largely depends on energy usage Europe along with its own natural resourc- as technology advances. More energy defi- es has been a royal customer to Russia with nitely equals more power in today’s world. large gas reserves. However, Russia’s unpre- However, the nature unjustly distributed dictable political affairs (especially what it energy resources around the earth that obli- did in Ukraine) disturb EU’s dependency on “It is clear that political gates some countries to acquire privileges in Russian gas. An alternative (perhaps alterna- energy industry using capital and political tives) to Russian gas is inevitable for Europe incitation require long influence. Europe and US succeeded politic and its copartner US. American intervention advancement in areas with large oil reserves in Iraq started the long and painful journey in term and contingency by colonization. Their influence in such -ar the Middle East. The Arab Spring rising from planning. Hence, the eas spread through and sustained by autoc- Tunisia would eventually hit Syria. Modern racy ruled by hypocrites over a few decades. democratic governments to provide good world meets “The Energy Autocratic hypocrites served well for the west deeds for EU and US would replace the auto- Game” that comes out until they became useless as the folks asked cratic ones in the region. Arab Spring theory for revolution. The scenario is as simple as the worked well until rebellious acts took place as the successful future west intervening to overthrow the dictators in Syria. Being economically imbalanced and and ending the turbulence. In the past, there only having partial success in Iraq (in gener- planning.“ was always a new servant hypocrite coming al, limited to Kurdish Region in Northern to power once the old one was toppled, how- Iraq) restrained US from practicing a similar ever, nowadays; the incumbents have to pass military engagement in Syria. To overthrow through a few critical international tests since Assad, they furnished the opposition groups there is a notable increase in the number of instead. However, Iran and Russia with some influencers. help from China interrupted the idea of dis- “Syria’s importance mantling Syria and kept the Assad’s regime It is clear that political incitation require long alive. comes from being the term and contingency planning. Developed countries are aware of the benefits of future It may not be wise to classify Turkish politics last circle of pipeline planning and always prefer staying ahead as successful throughout the Arab Spring but chains from Egypt, Qatar comparing to those who are on the develop- Turkey has been actively involved in current ing stage or yet to develop. Hence, the world politics and strategies in the Middle East. and Iran: A democratic meets “The Energy Game” that comes out as Turkey already had Azeri and Russian gas the successful future planning. Every country flowing along the current pipelines and there Syria would guarantee has a share from this game no matter how have been talks and agreements for build- safety of the pipelines large of reserves they have. The biggest players ing additional pipelines. At this point, Tur- in the game can be named as EU (as the con- key could be a port that connected Middle and so Turkey’s being an sumer), US (consumer & seller), and Rus- East and Caucasian gas, and become a safe “Energy Hub” deal.“ sia (seller). China might be added but their house for Europe’s gas market. The thought worldwide reputation and presence seems to of being an energy hub triggered aggressive be a follower more than a political influencer. politics during the Syrian opposition move- OPEC can be considered as the producer but ment. Syria’s importance comes from being its political efficiency seems to be unnotice- the last circle of pipeline chains from Egypt, able. Qatar and Iran: Qatari gas through Saudi

ENERGY POLICY TURKEY Page 6 Arabia and Jordan, Egyptian gas through Is- Perspicaciously connecting puzzle pieces to- “The energy game is rael and Lebanon, and Iranian gas through gether can directly answer many of the ques- never as simple as one Iraq all had to pass Syrian land. A democrat- tions regarding the energy game, and how the ic Syria would guarantee safety of the pipe- game changes. The Energy Policy Turkey, in might think. Many inno- lines and so Turkey’s being an “Energy Hub” its first and unique issue, tries to place the deal. From the day one of Syrian oppositional correct pieces together and focus on certain cent people suffer from movement, Turkey supported the opposition aspects of the “Energy Game” that has been the political decisions groups. On the other hand, Iran by having occurring in and around Turkey. A few of the the control over Iraqi government (under articles articulate the famous subject Turkey pressurized by illegiti- Shiites dominance) helped Assad to stay in to be an energy hub as the current pipelines mate leadership.” the office. At one point, opposition groups (BTC, SCP, etc.), ongoing projects (TANAP, fought each other instead that reminds how TAP, etc.) and possible future pipeline routes seriously the west and Turkey should handle and projects (Turkish Stream, South Stream, Iranian intelligence. Applying sanctions upon Northern Iraq Pipeline, etc.) are examined Iran happened to be semi-efficient. However, deeply. You might take a glimpse of the article Russia chose to defend Assad against Coali- about possibilities of Turkmen gas transport tion by proposing that it considered all the and catch a clue on the new perspectives to opposition groups as terrorist. Today, Assad is the current strategies. Azerbaijan’s export po- still the governor of Syria and Russia bombs tential up to 2050 is enunciated in a unique Turkmen territories. EU, US and Turkey hit study within the concept of Southern Gas Daesh targets. However, chaos in Syria is still Corridor. Another article explains if uncon- at high levels as millions of Syrians left the ventional reserves can be a hope for Turkey’s country and hundreds of thousands are dead. future energy needs or if Turkey can experi- “Setting international ence the shale gas revolution as well. More balance requires strong The energy game is never as simple as one articles have been specific to the evaluation might think. Many innocent people suffer of Eastern Mediterranean resources and en- nerves but energy from the political decisions pressurized by ergy policies. Analysis of Iran and Iraq from illegitimate leadership. Some leaders create a the view of energy reserves and both coun- supplies and demands chaos for their energy needs and some others tries’ role in the game grasps great attention. always tend to push the try to calm the chaos. Setting international The effects of the Arab Spring in the Middle balance requires strong nerves but energy East give a brief outlook of the major actors, limits in areas with large supplies and demands always tend to push their political advancement, and power shifts oil reserves, causing the limits in areas with large oil reserves, in the energy game. It also gives interesting causing irreparable mistakes. Now, that the ideas to what are happening differently in the irreparable mistakes.” tension increased rapidly in Turkey-Syr- Arabic Peninsula. ia-Iraq borders, every country involved must measure and act wisely for each political step that they are ready to take. Let us not for- get the fact that there are several desperate countries able to actuate their great military powers in the area. However, wiser decisions on the next and following steps is always the key to change the balance or to have the upper hand in any chaotic environment. Under current circumstances, it is better to analyze Iran’s hand. What does Iran have? What are they planning and how are they going to do?

Page 7 FIRST ISSUE DID ARAB UPHEAVAL CHANGE THE ENERGY GAME OR THE WEST STILL HAVE AN EDGE ON IT?

by Necdet Karakurt, Serhat Çubukçuoğlu and Oğuzhan Akyener

ABSTRACT politics, balance and role of key oil players in Africa and Middle East will help determine It all started in Tunisia on 18 December how global politics have been reshaped over 2010 and reordered many countries in the Arabic upheaval. To do that, all current im- Arabic Geography. Whereas some govern- port and export rates of the due countries, ments could not manage the upheaval and existing reserves, production and infrastruc- collapsed, some others had to face heavy civil ture of exports, international investors and disorder-protests and occurrences of neces- companies in the region and important proj- sary governmental reorganizations. ects will be considered. In addition, pre-Arab Spring Era situations will be compared with “It all started in Tunisia Many experts have studied and further ana- the current values and changes in energy lyzed the whole aspects of this Arab Spring games will be identified. on 18 December 2010 by the sight of economics, military, sociology, religion and global politics. Obviously, there and reordered many are definite changes in reorders of those af- ARAB SPRING AND ENERGY GEO- fected countries and so their presence in the countries in the Arabic POLITICS OF THE MIDDLE EAST globe requires new policies. As a short note, Geography. Whereas today’s world largely depends on energy pol- Middle East is the most tumultuous region itics because they seem to play a key role in in the world, plagued by sectarian and eth- some governments determining global policies. From a point no-religious violence.1 Situated in a geopolit- of view, it is unclear why nobody has yet re- ical hotspot marked by political uncertainty, could not manage the viewed results of the Arab Spring through the it is a stage of shifting power play of partner- sight of energy policies. It is a good idea to ships, where most countries of the Middle upheaval and collapsed, note that if not all, most of these countries East suffer from democratic deficiencies and are definitely oil producers and their folks weak public confidence in illegitimate lead- some others had to face crave for democracy, which indeed has taken ers. In a multipolar world with diverse na- heavy civil disorder-pro- too many lives to owe. Was it worth taking tional and transnational interests, the region the initiative and walking the democracy line seems to be more fragmented than ever with tests and occurrences of with heavy loses and uncertain future due ensuing intense confrontation from Yemen to to lack of knowledge and control over mili- Syria. Even if this so-called Arab democratic necessary governmental tia groups? Maybe, those folks had no idea movement culminates itself in responsive and about the outcome but the West knew about representative political systems, the transition reorganizations.” how hard the transition would be. Major oil will be long and painful, as seen in the now companies like to have the edge to act inde- four-year old tragic civil war in Syria. pendently or run their international affairs as smooth as possible. They would prefer sur- Perhaps, not a fully appreciated game-chang- passing governments and their laws to extract er behind assessment of the impacts of the and sell oil from known commercial reserves. Arab Spring is the rising importance of nat- Or perhaps, their preference would be caus- ural gas and the power struggle over control ing some changes that are essential as far as of energy sources around the Fertile Crescent. who controls the laws or the oil markets in Clean-burning natural gas, despite its expense such countries. and varying demand, is a major import pillar in OECD Europe, which is more eager than Understanding the causes of the Arab Spring, ever to phase out coal and undertake green- the outcome of collapses, rebuilding and house-gas emissions reduction commitments. highlighting the effective changes in energy While European natural gas consumption is

ENERGY POLICY TURKEY Page 8 projected to grow by 0.3% till 2020,2 Russia’s bility of a political resolution in Cyprus due annexation of Crimea and monopolization to unattractive returns on investment in gas of energy supply routes through Ukraine to finds. This would have been unacceptable for Europe has led energy consumers of the in- the Obama administration scrambling for dustrialized world finally to become serious foreign policy success, simply because rec- about hydrocarbon alternatives. At the G7 onciliation over Cyprus would allow U.S. oil Rome Ministerial Summit in May 2014, companies to make safer investments into gas European leaders highlighted the need to ad- exploration, substantially reduce Europe’s re- dress security challenges and ensure diversifi- liance on Russia for energy supplies – while cation of transit routes to sustain safe and un- giving Cyprus, Israel, and Egypt an edge interrupted access to energy.3 Meanwhile, the over Iran, Iraq and Syria – and help to bring Eurozone crisis since 2008 has been a severe pro-American countries together in a region impediment for Greece and Cyprus, both of that had become increasingly anti-western which found large hopes in offshore energy with the rise of Islamic fundamentalism.9 exploration projects to become net exporters Moreover, standalone production and stor- of oil & gas and recover from bankruptcy in age in an LNG liquefaction facility in Cyprus the coming decades. The Arab Spring thus would have insufficient capacity to economize intersected with Europe’s alarming economic on gas volumes in its own Exclusive Econom- slowdown, creating diverging push and pull ic Zone (EEZ), therefore desperately needing dimensions to the inter-regional relation- Israel’s stake to reach a credible volume. If ship.4 On top of this tectonic shift in ener- Turkey could be part of a brokered peace deal gy geopolitics, Turkey, with a projected use in Cyprus, this would decrease political risk of 2.5 tcf5 of natural gas per year by 2020, and increase affordability of a Cypriot-Turk- “Had the Arab Spring sought to diversify its sources of energy geo- ish pipeline project that may be linked with graphically and translate this into economic the “Southern Corridor” from Azerbaijan to not taken place, Rus- and foreign policy gains.6 Europe and by-pass Russia. sia’s plan to control the

The competition among littoral states of Meanwhile, global economic slowdown and alternative route over the eastern Mediterranean on one side and the accompanying slump in oil prices dragged the Persian Gulf on the other to exploit and down growth in oil exporting countries of Turkey to the West would monetize on rich offshore energy resources is the Gulf. Even though the Gulf Cooperation a by-product of the struggle to exert political Council (GCC) capital markets are viewed have been successfully influence for furtherance of national interests as relatively safe destinations for risk capital in the region. during periods of globally financial market accepted by its major volatility, post-Arab Spring political instabil- Had the Arab Spring not taken place, Rus- ity and a protracted downturn due to fiscal consumer market in sia’s plan to control the alternative route over deficits have negatively impacted the region’s Europe.” Turkey to the West would have been success- overall outlook. Iran’s come-back to the world fully accepted by its major consumer market stage by the prospect of lifting of internation- in Europe. On the other hand, Turkey’s plan al sanctions places it in a better position to to distribute Qatari gas to Europe would in- weather oil-price shocks, while the drop in crease Turkey’s ability to suppress Russia’s oil revenues may squeeze liquidity in the stronghold as the major supplier of Europe. GCC, putting ever more pressure on the rul- However, US$10 billion-worth Iran-Iraq- ing monarchs to carry out crucial reforms to Syria natural gas pipeline7 from Iran’s South contain their closest foe’s heightened political Pars gas field to the Mediterranean would be influence. This complex environment actual- a lifesaver for Europe to by-pass Turkey, Qa- ly presents an opportunity for emergence of tar, and Israel to become the prime supplier a sustainable and inclusive post-oil economy of the region to Europe. Such a move could for Arab states in the long run. outmaneuver Israel’s initiative to export newly found gas from the “world’s biggest deep-wa- Against this backdrop, and thanks to the ter reservoir in a decade”,8 and undermine changing landscape of the region, Turkey Turkey’s key position, and hinder any possi- viewed the Arab Spring as an opportunity

Page 9 FIRST ISSUE DID ARAB UPHEAVAL CHANGE THE ENERGY GAME OR THE WEST STILL HAVE AN EDGE ON IT?

and put itself on the map as an important tries are summarized in Table 1. Important player in energy geopolitics, acting as a tran- information presented on the table could be sit route between the Central Asia, Middle listed as follows: East, and Europe. Turkey’s soft power resting “Turkey viewed the Arab on its cultural, historical, and commercial • Only potential exporter and importer links with the neighborhood set the founda- Spring as an opportunity countries are focused. tion stone of this re-alignment. Most recent- • Iran, Iraq, Kuwait, Qatar, Saudi Arabia, and put itself on the map ly, the transport of crude oil to Israel through Turkey’s Mediterranean port of Ceyhan via United Arab Emirates are the most im- as an important player pipelines from the semi-autonomous Kurdish portant exporters in the region, that will Regional Government in Iraq, the holder of be given more attention to. in energy geopolitics, world’s fifth largest deposits,10 underscored • Israel and Syria might be accepted as the Turkey’s tactical maneuverability and keen potential future exporters after 2030. acting as a transit route interest to consolidate its influence as an eco- • The analysis of Arab Spring’s effects from nomic hub in the eastern Mediterranean. In between the Central the view of being an exporter or an im- a region polarized by prolonged conflict, au- porter confirms the following results; Asia, Middle East, and tocratic tendencies, and illegitimate sub-state actors, Turkey still represents the best model • Analysis shows no direct relation between the effect incidence of Europe.” for institutionalized democratic governance and diversified economic development in a Arab Spring and being an exporter Muslim-majority society. or an importer. • The information in the Arab Spring Effect column implies; MIDDLE EAST COUNTRIES: TODAY • HIGH means: “There is a civil (POST - ARAB SPRING ERA) war.”. To successfully evaluate the effects of the Arab • MIDDLE means: “There are spring on the due countries, energy politics, governmental changes or ruin- import and export rates, existing reserves, ous protests or attacks.”. production volumes, related infrastructures, • LOW means: “There are some international investors and active companies mild protests.”. in the region and important projects should be taken under consideration. As far as the production, reserves and export potentials of the due countries are consid- The oil & gas production - reserves - export ered, Iran, Iraq, Kuwait, Qatar, Saudi Arabia, potential volumes of the Middle East coun- and United Arab Emirates can be elected as

Oil Oil Export Gas Export Gas Oil Reserves Gas Production Country Situation Arap Spring Effect Production Potential Potential Reserves (mmmbbl) (bcma) (mbbld) (mbbld) (bcma) (tcm)

Iran EXPORTER LOW 3200 1300 158 167 10 34 Iraq EXPORTER MIDDLE 3000 2400 140 0,6 0 3,2 Israel POS. FUTURE EXPORTER NO EFFECT 0,5 0 0,011 6,4 0 0,3 Bahrain IMPORTER MIDDLE 58 0 0,13 13,6 0 0,1 Jordan IMPORTER LOW 0 0 0,001 0,3 0 0,006 Kuwait EXPORTER MIDDLE 2800 1400 104 16 0 1,8 Lebanon IMPORTER MIDDLE 0 0 0 0 0 0 Syria POS. FUTURE EXPORTER HIGH 70 0 2,5 6 0 0,25 Palestine IMPORTER NO EFFECT 0 0 0 0 0 0 Oman EXPORTER LOW 950 830 5,5 30 10 0,9 Qatar EXPORTER NO EFFECT 2050 1400 25,25 156 120 25 Saudi Arabia EXPORTER LOW 11600 6900 269 103 0 8,3 United Arab Emirates EXPORTER NO EFFECT 2800 2500 98 53 8 6,1 Yemen EXPORTER MIDDLE 130 43 3 7,7 6,7 0,5 Turkey IMPORTER NO EFFECT 50 0 0,3 0,5 0 0,007

Table 1: The chart displays oil & gas production - reserve & export potentials of Middle East countries (Production & Reserve values are adapted from CIA FACTBOOK).

ENERGY POLICY TURKEY Page 10 NECDET KARAKURT, SERHAT ÇUBUKÇUOĞLU AND OĞUZHAN AKYENER

the major exporters for the world markets. porting any oil. Syria might be added due to being a popular • The table indicates that nearly all these exporter before the Arab Spring Era. Hence a exporters are selling half of their total new list of countries can be shaped to focus supply volumes to these giant players in and taken into consideration. After select- oil market. ing the main countries in the Middle East in accordance with the importance of ener- In addition to the export rates, understand- gy export (mostly oil), destinations and the ing the relations of these exporters with the percentages of the export volumes for those 5 major players in energy game, huge inter- destinations will have to be analyzed. national ongoing upstream projects (exploration and / or production) and the number of To determine the most important destina- investors working in these exporters’ oil mar- tions, the largest oil and gas importers, their kets are important. Looking at the number of effects on the international politics and the companies from the major oil players of the largest economies in the world are to be ex- world that actively operate in the Middle East amined carefully. The result of this examina- might yield better analysis results to identify tion states that US, EU, China, Russia and the effects of major oil players in those coun- Japan could be highlighted as the first five tries. The number of operating companies is most important energy players in the world. given on Table 3. Table shows the number Table 2 displays the relation between exports

DESTINATIONS US EU CHINA RUSSIA JAPAN IRAN 0% 10% 40% 0% 7% IRAQ 14% 18% 22% 0% 2% KUWAIT 16% 4% 30% 0% 10% QATAR 2% 22% 3% 0% 20% SAUDI ARABIA 10% 10% 15% 0% 10% UAE 1% 2% 10% 0% 32%

EXPORTERS SYRIA 0% 0% 0% 0% 0%

Table 2: Middle East exports chart to due destinations.

of US - EU - China - Russia - Japan orig- of main countries in the Middle East and im- inated operating companies working in due port destinations to those defined above. countries’ upstream market. Note that companies who suspended their activities in the Certain facts can be extracted from Table 2: due country are excluded. However, “force majeure” declared companies are included. • All percentages in the table refer to the Moreover, Canadian companies are accepted ratio of export volume to due destination as US companies. over the exporter countries’ total export volume. As given on the Table 3; • Even though being an important oil exporter country, and also there may be • EU is the most active player in oil game some small volumes of trade with the in the Middle East with 27 companies. Middle East countries, Russia is accepted • US come as the second by count of 13 not importing any oil from the exporters companies. above. • Russia and China both have 7 companies • Due to current sanctions and ongoing in total. civil war inside, Syria is accepted not ex- • Japan seems to be the worst in the game

Page 11 FIRST ISSUE DID ARAB UPHEAVAL CHANGE THE ENERGY GAME OR THE WEST STILL HAVE AN EDGE ON IT?

MAJOR PLAYERS US EU CHINA RUSSIA JAPAN IRAN - - 1 1 - IRAQ 7 12 2 4 - KUWAIT - - - - - QATAR 2 5 1 - 1 SAUDI ARABIA 1 1 1 1 - UAE 2 8 1 - 1 1 1 1 1 - EXPORTERS SYRIA

Table 3: A chart displaying the number of upstream companies in due countries.

by only 2 companies but Japan’s involve- tion given on Table 3, 4 and 5, comparison ment in the consortiums is inevitable. charts are formed and illustrated on Table 6 and 7. Major shift in the export potentials Other balances such as investor tendencies, seems to hit Iran, Iraq, Kuwait and Saudi the shifts and other important key notes relat- Arabia. On the other hand, changes in com- ed to the energy markets of the Middle East pany activities are mainly in Iran, Iraq and (Post-Arab Spring Era) will be mentioned in UAE, which note that Arab Spring resulted the next sections. in an inevitable power shift between the key players.

MIDDLE EAST COUNTRIES: BE- After laying out some important facts regard- FORE 2011 (PRE - ARAB SPRING ing what has happened in the due countries’ ERA) energy markets, certain comments and analysis will be presented in the next sections. Making a logical comparison for energy market indicators of due exporters requires analyzing the whole data of the current and WHAT IS DIFFERENT IN THE MID- pre-Arab Spring Era regarding the knowledge DLE EAST: COUNTRY ANALYSIS and information from the Middle East. That’s why; production - reserves - export potentials Changes in each country in the Middle East of the major exporters in the Middle East (See are carefully analyzed to certain extents. Some Table 4) and the changes in the number of of the extents can be mentioned as influence US - EU - China - Russia - Japan originated of foreign investors, production differences, operational companies in the due countries’ political balance, etc. The information pro- upstream market (See Table 5) are prepared. vided below is extracted from IHS database. It is divided into sub categories for each coun- Analyzing Table 1 and utilizing the informa- try and the general summary is given at the

Oil Oil Export Gas Gas Export Oil Reserves Gas Reserves Production Potential Production Potential (mmmbbl) (tcm) (mbbld) (mbbld) (bcma) (bcma) IRAN 4300 2550 137 139 8 30 IRAQ 2400 1900 115 1,2 0 3,2 KUWAIT 2450 2100 104 11,5 0 1,8 QATAR 1400 1200 25,5 117 95 25,4 SAUDI ARABIA 10500 7600 263 84 0 7,8 UAE 2800 2400 98 49 0 6,5 SYRIA 401 260 2,5 6 0 0,25 Table 4: A chart that displays Production - Reserves - Export Potentials of the Middle East exporters (Production & Reserve values are adapted from CIA FACTBOOK).

ENERGY POLICY TURKEY Page 12 NECDET KARAKURT, SERHAT ÇUBUKÇUOĞLU AND OĞUZHAN AKYENER

MAJOR PLAYERS US EU CHINA RUSSIA JAPAN IRAN 1 4 5 2 1 IRAQ 1 3 2 2 1 KUWAIT 0 0 0 0 0 QATAR 3 4 2 0 1 SAUDI ARABIA 1 2 1 1 0 UAE 6 5 2 0 0 2 4 1 0 0 EXPORTERS SYRIA

Table 5: A chart showing the number of upstream companies in due countries.

Difference Between 2015 and 2010 Values Oil Export Potential (mbbld) Gas Export Potential (bcma)

IRAN -1250 2 IRAQ 500 0 KUWAIT -700 0 QATAR 200 25 SAUDI ARABIA -700 0 UAE 100 8 SYRIA -260 0

Table 6: The chart compares Oil & Gas Export Potentials of Middle East countries.

PLAYERS US EU CHINA RUSSIA JAPAN IRAN -1 -4 -4 -1 -1 IRAQ 6 9 0 2 -1 KUWAIT 0 0 0 0 0 QATAR 1 -1 1 0 0 SAUDI ARABIA 0 -1 0 0 0 UAE -4 3 -1 0 -1 SYRIA -1 -3 0 1 0 “Oman: New oil and gas Table 7: A chart displaying the changes in the number of upstream companies that operates in the Middle East. discoveries show a pos- end of this section. gas treatment facilities and allows for export of natural gas. itive outlook for Oman. OMAN Additionally, light tight oil Companies operating in Oman include Changes via Arab upheaval show some prog- American based Occidental Petroleum Corp. unconventional practices ress from democracy perspective of Oman as (OXY) and Petro Tel Inc. of), European based new ‘Petroleum and Minerals Law’ issued by DNO ASA, RAK Petroleum Public Compa- are about to add up to Oman government is taken place in 2011. ny Limited a subsidiary of DNO ASA, Fron- The new law engages the Ministry of Oil and tier Resources International Plc., Circle Oil production.” Gas in being the authority as far as oil and gas Plc. and Tethys Oil AB, and Middle East activities are concerned. New features in the based CC Energy Development SAI Ltd. and law covers environmental protection, natural several Oman companies. Oman appears to

Page 13 FIRST ISSUE DID ARAB UPHEAVAL CHANGE THE ENERGY GAME OR THE WEST STILL HAVE AN EDGE ON IT?

“Iraq plans to build oil be unattractive for large scale companies but ing influence in Iraq. Upheaval effect shows a Shell and Total prefer to be shareholders in positive outlook on the reserves but the insur- export pipeline to Aqaba some of the exploration and development gency threats make it hard to bear with. port of Jordan. Agree- contracts. YEMEN ments with Iran over Ira- Petroleum Development Oman Llc. (PDO) plans to build world’s largest solar plant to Public unrest in 2011 ended up in cabinet nian gas exports appear produce steam for use in its unconvention- change that resulted in Yemen’s ambassador to al practices. Other remarkable activities are France as new Oil Minister. Current oil pro- to be Iran’s increasing those ‘Oil Park Project’ awarded to British duction in Yemen is subject to decline steeply based Amec Foster Wheeler and development because of insurgent attacks to pipelines. Se- influence in Iraq.” of new power plants contracted to Hyundai curity threats caused many companies to halt Engineering Company Limited of Korea. their activities throughout the country and some of the operational companies happened New oil and gas discoveries show a positive to withdraw from their licensed contracts. outlook for Oman. Additionally, light tight Major actors in Yemen are a bundle of Ameri- oil unconventional practices are about to add can, European, Middle Eastern, Pakistani and up to production. Iran succeeds constructing Chinese companies. a pipeline to export gas through Oman to Far East. QATAR

IRAQ One of the main issues that Qatar has to resolve is the sharp increase in population since Democracy is at its baby steps in Iraq due the growth is about 300% in the last 10 years. to conflicts between Iraqi Government and Restructuring of Qatar Petroleum has taken diverse sects within the country. Namely place. Large scale companies such as Exxon- Kurdish Regional Government claims some Mobil, Total SA and Shell mostly operates in shares from the oil revenue, which Iraqi Gov- Qatar through downstream projects. Qatar- ernment subsequently started to approve. An gas LNG Process Trains, Pearl Gas to Liquids agreement is signed with Kuwait for the ex- Project, Al Karaana Petrochemicals Complex, ploitation of cross-border fields. Iraqi govern- new condensate refineries in Laffan are -ex “Yemen: Security threats ment establishes new state oil companies to amples of high budget downstream projects. caused many companies increase its exploration and production activ- There is no insurgency in Qatar and oil pro- ities around the country. duction follows a declining trend. to halt their activities Insurgency threats interrupt a fast steady pace SAUDI ARABIA throughout the country of work in the region. However, Kurdish Region of Iraq is able to release tension for King Salman appoints Minister of Petroleum and some of the opera- exploration practices. That is why almost all and Mineral Resources as new Chairman of companies prefer performing in the Kurdish Saudi Aramco. Main actor in Saudi Arabia tional companies hap- Region. Keeping in mind that Iraq is accept- is its own petroleum company, Saudi Aram- ed to having one of world’s largest oil reserves, co, which is also discovering and evaluating pened to withdraw from it attracts companies of all scales. ExxonMo- country’s unconventional potential. How- their licensed contracts.” bil, BP, Chevron, Total SA, DNO ASA, ENI, ever, China Petroleum & Chemical Corp. Kuwait Energy Co., Repsol SA, Talisman (SINOPEC) and Lukoil of Russia continue Energy Inc., Lukoil, Genel Energy Plc., Cres- their exploration activities in the country. cent Petroleum Co. Inc., Chinese national oil On the other hand Total SA in a joint ven- companies and several other are actively oper- ture with Saudi Aramco governs export refin- ational in the region. ery complex. Kellogg Brown & Root (KBR) agreed building billions of dollars’ worth re- Iraq plans to build oil export pipeline to Aqa- finery complex. ba port of Jordan. Agreements with Iran over Iranian gas exports appear to be Iran’s increas- UNITED ARAB EMIRATES (UAE)

ENERGY POLICY TURKEY Page 14 NECDET KARAKURT, SERHAT ÇUBUKÇUOĞLU AND OĞUZHAN AKYENER

International Renewable Energy Agency to American and European companies. The “UAE: Oil and gas re- (IRENA) headquartered in Abu Dhabi in same situation is true for engineering, pro- 2009. UAE Government placed US$136 curement, construction and commissioning serves in UAE appear to million to fund the organization in 2015. In provision. increase steadily.” December 2013, Iran and UAE reached an agreement on Tunb and Abu Musa Islands LEBANON negotiations. National Iranian Oil Compa- ny stops delivery of gas sales and purchase Lebanese government appears to be dys- agreement with Crescent Petroleum Co. Inc. functional. New ministry of Energy signs an based in UAE. Drilling activities are increased agreement with Norway to assist Lebanon in the country resulting in constructing new in oil and gas sector. Oil and gas reserves are rigs. UAE based companies are main actors questionable and Lebanon commences nego- in the country where as Japanese, European tiations with Cyprus to delimit an exclusive and American companies also practice ex- economic zone. US will provide assistance to plorational activities. Dodsal Group of In- do so and Lebanon will be able to open its dia succeeds million dollars’ worth pipeline offshore bid round. “The future of Syria is replacement construction deal. Oil refinery and LNG import facility in Fujairah are up SYRIA still cloudy as the gov- for construction by International Petroleum Investment Corp. (IPIC) based in UAE. Oil The future of Syria is still cloudy as the government and opposition and gas reserves in UAE appear to increase ernment and opposition forces are fighting forces are fighting each steadily. each other. The American and European ban over Syria is ongoing. Production rates other.” JORDAN dropped significantly due to war in the country. Russia’s Soyuzneftegaz starts exploration- Jordan has a new Minister of Energy and al activities in offshore Syria. This might be Mineral Resources as of 2015. The country is Russia’s way of holding power in the Medi- found to be unattractive for oil and gas indus- terranean. try since its reserves are small. Main actors are European companies and major events might ISRAEL be pipelines to export gas from Iraq, Gaza in Palestinian territories and Egypt. Oil shale Major operational companies are Israeli com- practices are favored in Jordan to increase its panies but American based Noble Energy hydrocarbon potential. stands out as a foreign investor in the country. Israel’s oil and gas reserves have a sharp “Israel’s oil and gas BAHRAIN increase after the offshore discoveries in 2010, when Arab Spring started. Perhaps, it is all re- reserves have a sharp The country has an investment plan in the oil lated; Israel has realized discoveries of huge and gas sector for a time range of 20 years, oil and gas reserves that might have ended the increase after the most of which will be spent on exploration power of Oil Rich Arab Era but of course, it offshore discoveries in and production. Japanese and American com- did NOT! panies are operational in the country. Bahrain 2010, when Arab Spring is evaluating its unconventional reserves and IRAN its production is rising significantly. Bahrain started.” Petroleum Co. (BAPCO) is to renew old Sanctions against Iran because of its nuclear pipelines and construct new refineries. program had been effective since 2012 but they are lifted gradually. The sanctions had a KUWAIT notable impact on Iran’s oil and gas reserves since the ban on oil and gas exports dropped Kuwait is one of the largest oil producers in the production rate and hence lowered the oil the Middle East. Kuwait Oil Co. Ltd. over- revenue. National Iranian Oil Co. (NIOC) sees all the explorational activity in the coun- is the major player along with a couple of try. Contracts to extract heavy oil are given Chinese companies since the other operating

Page 15 FIRST ISSUE DID ARAB UPHEAVAL CHANGE THE ENERGY GAME OR THE WEST STILL HAVE AN EDGE ON IT?

companies had to leave due to sanctions. Iran er but the idea was presumed by US and EU is trying to build a pipeline web to export its and that is how Syria has got agitated. natural gas by building routes to Pakistan, Iraq and Oman. An important note is that The countries with low to middle effects are EU and US push Iran to allow foreign oil mentioned as having some governmental companies to enter the country right after changes, protests and attacks. Among these lifting the sanctions that will give an oppor- countries (Iran, Iraq, Bahrain, Jordan, Ku- tunity for American and European compa- wait, Lebanon, Oman, Saudi Arabia and Ye- nies to invest in downstream and upstream men), Lebanon, Bahrain and Jordan are treat- “The acts of cold war in projects. ed as Palestine since they are believed to have Syria, which is the most limited reserves. Jordan might be an example The impact of the Arab Spring over Middle country for being unpopular due to having affected country from the Eastern countries (See Table 1) can be relat- no hydrocarbon reserves. The effect of Arab ed to the country analysis data as a result of Spring in this country might be low but un- Arabic Upheaval, have what has changed in the energy game. Several noticed. Bahrain is under American and Jap- countries listed on Table 1 i.e. Israel, Pales- anese influence. The new investment plan in resulted in an unrest that tine, Qatar, UAE and Turkey are not affected the oil and gas sector provides cash flow to from the upheaval. One reason may be they foreign investors. Its oil reserves are based on is triggered by terrorism either have no potential hydrocarbon reserves its unconventional reserves. Lebanon, on the such as Turkey and Palestine or provide safe other hand, seeks assistance from EU and US and insurgency.” investment opportunities to foreign investors to evaluate its offshore reserves and delimita- as Israel, UAE and Qatar do. Turkey has been tion of economic zone with Cyprus. investing its offshore assets in Black Sea and Mediterranean Sea but it has no luck so far. As stated on Table 1, Oman has low impact However, Turkey knows the fact that it is lo- from the Arab Spring and the country re- cated between the oil producer and the con- view approves this finding because changes in sumer countries. This fact drives Turkey to ac- Oman’s oil market are succeeded by the new complish being the energy corridor between Petroleum and Minerals Law. The outcome them. The war in Syria has set back the plans of new petroleum law is giving flexibility to to be an energy corridor. Palestine has not re- foreign investors to sign contracts for big ally attracted any investors because of the se- projects such as power plants, gas treatment curity problems and no possible hydrocarbon facilities and unconventional practices. It is reserves. The rest of the unaffected countries quite possible to imply high European and (Israel, UAE and Qatar) have political sta- US involvement in Oman and Yemen except bility that attracts foreign investors. Qatar’s that threats to pipelines in Yemen imply hard- reserves have already been assessed that there ship on the investors. Saudi Arabia resembles is unlikely a debate for conflict on possible Qatar as the fight for oil is characterized over future reserves. Instead, the debate is for bil- downstream projects such as refinery com- lion dollars’ worth huge downstream projects. plexes since Saudi Aramco is the major player UAE is another perfect environment for EU in its own country but let’s keep in mind that and US companies to overtake high stakes on US influence over Saudi Aramco is inevitable. big upstream and downstream projects. Isra- Kuwait can be accepted as the backyard of US el seems to be staying out of the conflicts in and EU. Kuwait Oil Co. Ltd. oversees all the the region but perhaps, this is because it hides exploration activities but the unconventional behind US, which acts as the main political and downstream projects are rewarded to EU dominator. Israel’s great offshore discoveries and US companies. brought out the idea that Israel could supply gas and be a port to Arab gas to Europe or Iraq has its share from the upheaval since Iraqi to Turkey. This would ease security concerns government seems unable to have control of energy routes and provide an alternative over the Iraqis but again attacks continues to for Russian gas under the stronghold of Is- threat stability since US occupation. Govern- rael over Arab gas. However, discoveries were mental changes still require more work to sta- insufficient for Israel to be the prime suppli- bilize the country. Europe and US’ absolute

ENERGY POLICY TURKEY Page 16 NECDET KARAKURT, SERHAT ÇUBUKÇUOĞLU AND OĞUZHAN AKYENER

influence is based in Kurdish Region as there insurgency and oppositions should be a must seems to be very large oil and gas reserves. to stabilize the region. On the other hand, the diversity of sectarian outlook in the region is open to interference Governmental institution has come to a halt by Iran. The acts of cold war in Syria, which in Syria since Syrian Government is unable to is the most affected country from the Arabic settle an agreement with the opposition lead- Upheaval, have resulted in an unrest that is ers and stimulate the war within its borders triggered by terrorism and insurgency. Syria’s causing a great loss of soil to Syria. Coalition “Since many of the future holds instability since Russia’s military forces formed by US and Europe have been intervention changed the game. Exploitation applying sanctions against Syria and they are tribunal masterminds of its possible offshore reserves will have to trying to dismantle a terrorist group (Daesh) wait until the country stands on its own foot. that threats both Iraq and Syria. Russia, Iran are easily manipulated and China, on the other hand, are acting Iran’s involvement in the Arab Spring is quite by money and power, for- notable in Syria. After US occupation in Iraq as supporting Syrian Government against and / or rebuilding of Iraq, Iran has spread the coalition and the rebel groups. Russia’s eign political involvement through the country due to its great influence aim towards having a share in energy game over a large number of Iraqi Shiites. US and through Mediterranean seems to be paying can easily deteriorate EU forced Iran over its nuclear program by out for good but the Middle East continues applying sanctions but Iran and Russia has to suffer from this act. In fact, the area is region’s fragile structure. gotten closer and both countries acted as al- longing for a prolonged rest. lies over the war in Syria or let’s say the war in Hence, control over energy game. The numbers on Table7 states the number of foreign companies practicing business in tremendous oil reserves, the region decreased since the start of Arab related infrastructures, RESULTS movement. Iran might be omitted because changes in the numbers are due to the sanc- and agreement deals are The unrest in the Middle East still continues tions against Iran’s nuclear program. Perhaps especially in Syria and Iraq, where there are the most important change is the fact that subject to be broken by severe disputes regarding who has the control American and European involvement in the over areas, where radical groups pose threats. Middle East is shifting towards downstream the current authority or The region is susceptible to political influence projects in calmer states since the reserves in because many countries in the region are gov- those countries are bound to decline and to insurgency attacks.” erned by Sultans and religious orientation is mention, American and European companies quite diversified since each tribe has its own already hold shares in the largest producing way of believing in God, living, and acting fields. Small and mid-size companies are by their sectarian traditions. This means if still actively running their businesses in the a Sultan’s ruling weakens, dramatic power south part of Middle East. However, Kurdish shifts and changes in the way of handling the Region of Iraq is the new target for great re- laws and living conditions are expected. Since serves, hence very attractive for major players. many of the tribunal masterminds are easily manipulated by money and power, foreign US and Europe have a direct control over the political involvement can easily deteriorate area, which is why Russia prefers interacting region’s fragile structure. Hence, control over with Syria to have a share from the abundant tremendous oil reserves, related infrastruc- oil and gas reserves. As pointed out earlier in tures, and agreement deals are subject to be this article; if Arab Upheaval had not hap- broken by the current authority or insurgen- pened, EU and US were planning to oversee a cy attacks. This is exactly what is happening pipeline from Iran to Mediterranean through in Syria, Iraq and Yemen these days. Radical Iraq and Syria, which would have been the Islamic groups occupy large areas in Syria and longest in the Middle East, with possible ex- Iraq, and cause chaotic environment to deal tensions to Lebanon and Greece. Along with with. Yemen is suffering from attacks to its Syria being listed as a potential future gas pipelines as these attacks drop the production exporter in Table 1, Iran seems to hold the rate and so weaken Yemen’s stability. Ending edge to be a prime supplier for Europe with

Page 17 FIRST ISSUE DID ARAB UPHEAVAL CHANGE THE ENERGY GAME OR THE WEST STILL HAVE AN EDGE ON IT?

its South Pars Gas Field. Syria’s geostrategic ing country and it has religious ties with Ar- location placed it on the center stage for ri- abs, which will always secure the pipelines. valry between Saudi Arabia and other Sunni Making Turkey an energy corridor to trans- political actors on one side, and Iran and its port Middle East and Caspian gas to Europe Shiite proxies on the other in a struggle for might be the key to resolve the fight over oil regional dominance. The proposed pipeline because all the oil and gas would be aggregat- “The so-called Arab would also provide flexibility to Europe as an ed in Turkey and then distributed to Europe. alternative to its main gas supplier Russia. Es- That way if any of these providers having an Spring started from pecially after Russia’s military intervention in issue with Europe decides to cut oil, Turkey Ukraine and Europe’s unsuccessful attempt to would be able to flow the oil and gas over the Tunisia in late 2010 and suppress the insurgent opposition, this new other two. Additionally, competition among pipeline would reinforce Russia’s dominance the producers would have to make noticeable brought out the hunger of the energy supply routes. For some reason, discounts, which Europe might have never The Arab Spring’s arrival at Syria to start the gotten directly. for democracy through- democracy walk for Syrians and the Russian intelligence to destroy EU and US’ genuine out North Africa and plan coincided. SUMMARY the Middle East. In fact, Attempts for possessing nuclear enrichment The so-called Arab Spring started from Tuni- many Arabs had no in- technology and dismantling of the Iraqi sia in late 2010 and brought out the hunger dictator by US gave Iran an opportunity to for democracy throughout North Africa and tentions to have the right assemble all the Shiites in the Middle East. the Middle East. In fact, many Arabs had no Perhaps, US had not counted on the fact that intentions to have the right to elect or to be to elect or to be elected Iran could to manage to build a Shiite cor- elected but they only cared about having bet- ridor from Persia to Mediterranean when it ter living conditions and grasping their shares but they only cared about invaded Iraq. US concentration on establish- from the great amount of the capital passing ing so-called Kurdish Regional Government through their soil. The resentment caused having better living con- (KRG) in the North was a genuinely de- by energy games in the region have brought ditions.” signed plan because American and European good results in some and worsened the con- companies would have control over large oil ditions in the others. At last, some countries and gas reserves in this region and that KRG learned from their mistakes and corrected would provide a gray area between Sunnis, them for better but some are still making the Shiites and Turks. Russia especially after the same mistakes over and over again. big drop in oil prices and its oil revenues decided to gain advantage in the energy game. Democracy might be a correct path to walk Russians made a pact with Iran and China through for Arabs. It might provide peace to support Syrian Government against reb- over disputed areas and calm the lives of in- el groups so that they could save the Shiite nocent people. However, there are set backs corridor to Mediterranean but they underes- since some countries’ aim such as Russia and timated American intelligence as so-called Is- Iran’s differs from that of the American and lamic State (Daesh) fighters were born in one European coalition. China’s involvement in night and appeared to control more like the the area is not as aggressive as Russia and half of Syria and Iraq. Interestingly, Kurdish Iran’s but a notable fact is that the number of Region is safe and sound as it is not disturbed Chinese companies operating in these states by Daesh. is increasing day by day due to lower costs they offer. Russia is exporting oil and gas to Europe’s attempts to find an alternative to Europe but it, with its unavoidable military Russian gas by the help of US require more power, seems to have a high-hand controlling puzzle pieces put together. All the pipeline the oil sources outside its borders. Syria serves alternatives make Turkey stand out as a bet- as the most attractive and closest place for ter option because Turkey has long been an Russia to start with because of the continuing ally of Europe and US. It will never pose a war that suits the cause. At last, Turkey has to threat to Europe since it is not an oil export- pay great attention to what is happening in

ENERGY POLICY TURKEY Page 18 NECDET KARAKURT, SERHAT ÇUBUKÇUOĞLU AND OĞUZHAN AKYENER

the neighboring states as an active war start- Rethink Institute Washington DC, Rethink ed with the energy game right outside of its Paper 09, May 2013; available from http:// southern border places an economic hardship www.rethinkinstitute.org “No matter what the due to the refugees and political disputes that 7 corrupts stability. No matter what the out- F.William Engdahl, “Syria, Turkey, Israel and outcome is, Turkey has come is, Turkey has to be in this energy game a Greater Middle East Energy War”, October and play a key role to resolve the conflict be- 2012, available from http://www.voltairenet. to be in this energy cause energy means oil & gas for the Mid- org/article176200.html dle East. Within the concept of energy and game and play a key role energy politics, Turkey is an inseparable part 8 Ibid. to resolve the conflict of the Middle East and Turkey has to be the 9 Helena Smith, “US vice-president Joe Biden controller of oil and gas markets as it is locat- because energy means ed between the producer and the consumer! pushes energy cooperation in visit to Cyprus”, The Guardian, May 22, 2014 (accessed oil & gas for the Middle September 4, 2014); available from http:// REFERENCES www.theguardian.com/world/2014/may/22/ East.” us-vice-president-joe-biden-visits-cyprus-en- 1 Nicole Leonard, “Turkey’s role as energy hub: ergy-cooperation a sustainable future?”, Your Middle East, Jan- uary 28, 2013, Column: Middle East Oil & 10 Bloomberg, “Iraq Government Condemns Gas (accessed September 4, 2015); available Kurds for ‘Illegal’ Oil Sale to Israel”, Kadhim from http://www.yourmiddleeast.co m/col- Ajrash and Nayla Razzouk, June 22, 2014 umns/article/turkeys-role-as-energy-hub-a- (accessed September 4, 2015); available from sus tainable-future_12500 http://www.bloomberg.com/news/2014-06- 22/iraq-government-condemns-kurds-for-il- 2 U.S. Energy Information Administration, legal-oil-sale-to-israel.html Oil and natural gas import reliance of major economies projected to change rapidly, January U.S. Energy Information Administration, 22, 2014 (accessed September 4, 2015); avail- “International Energy Data and Analysis”, able from http://www.eia.gov/todayinene 2015. rgy/detail.cfm?id=14691 U.S. Energy Information Administration, 3 European Commission, “Rome G7 Energy “Country Report: The Middle East”, 2015. Initiative for Energy Security”, G7 Rome En- ergy Ministerial Meeting, IP/14/530, May 6, BP Statistical Review of World Energy 2014, 2014 (accessed September 4, 2015); available “Excel Workbook of Historical Data”, 2014. from http://europa.eu/rapid/press-release_ IP-14- 530_en.htm IHS Energy, “IHS GEPS Reports – The Middle East”, July 2015. 4 Kristian Coates Ulrichsen, “A European Per- spective on the GCC Involvement in the Med- iterranean in Light of the Arab Spring”, The German Marshall Fund of the United States, December 2012, Mediterranean Policy Pro- gram.

5 Mehmet Öğütçü, “Rivalry in the Eastern Mediterranean: The Turkish Dimension”, The German Marshall Fund of the United States, June 2012, Mediterranean Policy Program.

6 Ebru Oğurlu, “Turkey Amidst the Shifting Geopolitics in the Eastern Mediterranean”,

Page 19 FIRST ISSUE IRAN IN THE ENERGY GAME WHILE PASSING THROUGH THE ENERGY DOOR

by Necdet Karakurt, Oğuzhan Akyener, Serhat Çubukçuoğlu, Mehmet Apa- ydın and Ali Maraşlı

INTRODUCTION Iran tried to achieve military self-sufficiency and re-initiated the program, casting serious The Middle East is often referred to as a pe- concerns in the west towards Iran’s hidden rennial geopolitical hotspot, the bedrock of agenda. shifting power play of partnerships, and con- stant shift of alliances – all in the midst of While Iran’s ambitious plans to reach emerging and demising local powers. Iran sits pre-sanctions oil output is welcome by keen at the epicenter of this political, economic and observes in western energy circles, the truth “While Iran’s ambitious social development in the neighborhood. On is that Iran will need years to repair the dam- one hand, as a prominent OPEC member, age on its existing infrastructure to reach that plans to reach pre-sanc- Iran quietly aims to exert influence through capacity amid sharp increase in domestic con- energy diplomacy in its relentless pursuit sumption. With oil production is at its high- tions oil output is wel- to elevate its rank from a regional to global est levels since 1960s and a world-wide excess come by keen observes power status. On the other hand, resting on output of 2m b/d, the profitability of such a young, educated population with rich ener- an investment on the scale of $200 billion5 is in western energy circles, gy reserves and vast terminal capacity on the questionable as oil markets already face a per- Gulf, Iran’s engagement in bold expansion sistent glut that has more than halved prices the truth is that Iran will policies has an underlying intention to boost in the past 16 months.6 OPEC’s published of- its hegemony in the region and to play the ficial statistical data that puts Iran’s proven oil need years to repair the role of a great power in world political affairs. reserves at 157 bb has been falsified by various researches, the average of whose estimates damage on its existing Iran is the second largest economy in the is between 30-35 bb.7 In fact, perhaps ironi- Middle East and North Africa (MENA) after infrastructure to reach cally, Iraq, OPEC’s second largest oil produc- Saudi Arabia – its main regional rival, whose er has almost the double of this amount at that capacity amid sharp economic activity and government reve- 77 bb, proven but undeveloped reserves, with nues still depend largely on oil revenues and production cost of $1 per barrel in contrast to increase in domestic therefore remain volatile.1 While the western $3-$4 in Iran.8 sanctions have reduced Iranian oil exports by consumption.” about two thirds, causing Iranian currency With the nuclear accord signed between P5+1 “Rial” constantly to depreciate its value, the and Iran in Vienna on 14th of July 2015, World Bank estimates that Iran will grow by Iran is expected to gradually lift trade barriers 1.9% in 2015.2 Iran’s current oil production and receive an influx of western technology is just over 3 million b/d3 and while this is to help modernize its aging infrastructure. “Iran is expected to grad- expected to increase after the lifting of all This will increase capital investment; enable sanctions, in reality, it can add no more than development projects, and increase spending. ually lift trade barriers 300,000 – 500,000 b/d barrels to its actual As oil prices begin to surge towards $60-$70 oil production due to fast depleting oil fields mark by 2017, Iran will expand trade with its and receive an influx of and underinvested infrastructure.4 Before partners, although it is still far over the hori- western technology to the Islamic Revolution, in 1974, Iran was a zon to see its production capacity to jump to regional ally of Israel and had received close 5.7m b/d level, or even the 4.8m b/d, as tar- help modernize its aging support of the U.S. administration to start geted by Iran’s Ministry of Energy.9 its controversial nuclear program for peaceful infrastructure.“ purposes, due to fast maturing oil fields and excessive production under the Shah regime. OIL & GAS MARKET OVERVIEW The situation met with bitter sanctions in the wake of post-revolution Iran-Iraq War, when Based on the IHS and USGS databases, with

ENERGY POLICY TURKEY Page 20 more than 400 billion boe of 2P oil and gas of Foreign Investment), especially in cost re- “Iran will expand trade reserves, Iran has a bright future in global oil covery system, income tax system (reduced to and gas industry. However, exploration and 25%), and remuneration fees. with its partners, al- production activities (E&P) has been consid- erably constrained for more than 3 decades The new IPC term effectively entered into though it is still far over force on November 14, 2015. As a result of related to Arab-Israeli War, Iraq-Iran war, the horizon to see its pro- sanctions, and so on. Vast majority of the the sanctions’ expansion, political change and development wells in Iran were drilled before financial conditions pushed Iranian govern- duction capacity to jump the 1980s; that is why, Iranian fields can be ment to establish a new contract type to at- described as undeveloped resources in oil and tract foreign investors. After the implemen- to 5.7m b/d level, or even gas sector. tation day of JCPOA (Joint Comprehensive Plan of Action, also known as the ‘’Nuclear the 4.8m b/d, as target- Agreement’’), Iran anticipates to flow 300,000 INSTITUTIONAL FRAMEWORK to 500,000 bbl. oil per day in a year period. ed by Iran’s Ministry of When compared to buy-back contracts, IPC Ministry of Petroleum is fully responsible includes incentives and investment options Energy.” for E&P policy in Iran’s oil and gas sector. that will attract foreign investors (extension The National Iranian Oil Company (NIOC) of E&P periods, payments based on re-scale plays a key role as a subsidiary of the Min- etc.). IPC also gives an option to enter into istry of Petroleum. NIOC has the option of JVs (joint ventures) with NIOC. Since it is signing contracts with the IOCs under the a new contract type, availability of all fiscal authorization of the Higher Council of the materials is not online yet. Economy.

UPSTREAM MARKET LEGAL FRAMEWORK and FISCAL TERMS Glorious days of Iran as an oil producer and exporter date back to 1979 before the Islam- Iran’s contract system can be divided into ic Revolution to throw the Shah. During two different categories; both of which can the shah regime, Iran produced nearly 6 “The new IPC term effec- be named as buy-back contracts and the new MMbo/d oil. The new republic could never IPC (Iran Petroleum Contract) respectively. manage to surpass the 6 MMbo/d production tively entered into force Iran’s legal framework initially was construct- rate due to some complications in the oil field ed with the 1987 Petroleum Act. The 1987 management. These complications might be on November 14, 2015. Petroleum Act was accepted as the initial gov- exampled as establishment of National Irani- erning law but it is not considered as sophis- an Oil Company (NIOC) to oversee all the As a result of the sanc- ticated frame for petroleum operations. 1988 exploration and production activities in the Direct Taxation Act later brought buy-back country, all the staff working in the oil indus- tions’ expansion, political contracts into the system. try being foreign, sanctions applied against Iran, and low oil prices up to 2000s. Iran change and financial In buy-back contracts, the contractor shoul- tried to compensate high costs of Iraq war by conditions pushed ders all risky investments. Return of the in- its oil revenues and kept the production rates vestment is agreed on a remuneration fee as high as possible. Being dependent on oil Iranian government to (an allocation of production remaining after revenues resulted in early maturation of the royalty -officially called Priority Percentage producing fields since Iran was not able to establish a new contract Right- and cost recovery based on a fixed fee) gain access to necessary technical equipment with a fixed rate of return negotiated at the due to sanctions. Rise in oil prices after 2000 type to attract foreign beginning of the contract. Buy-back contract notes the increase in exploration activities forbids the foreign private ownership de- since Iran again became an attractive oil rich investors.” pending upon the Sharia Law. Due to lack of country to invest for International Oil Com- investment, partially modifications happened panies (IOC). in buy-back contracts in 2003 (associated with 2002 Law on Attraction and Protection Nevertheless, Iran was able to add new discov-

Page 21 FIRST ISSUE IRAN IN THE ENERGY GAME WHILE PASSING THROUGH THE ENERGY DOOR

“Natural gas discoveries eries to its oil reserves. Natural gas discoveries by newly proposed Iran Petroleum Contracts also increased Iran’s potential for reestablish- (IPC) to favor foreign investments. After the also increased Iran’s ing its reputable power in the energy game ease of sanctions related to Iranian nuclear by the help of IOCs. However, new sanctions program by an agreement on April 2, 2015, potential for reestablish- by US and reinforced by EU troubled IOCs’ Iran introduced its new IPC at Tehran Sum- ing its reputable power in flexibility and caused them to leave Iran. Map mit in November 2015. However, Iran’s new 1 shows the operating IOCs before the latest IPC did not get enough attention by IOCs as the energy game by the sanctions. These days, none of those compa- Iran is expected to revise the proposed IPC to nies is active in Iran. Sinopec and CNPC of replace the current buyback contracts. help of IOCs. However, China are the only companies that operate in the country as it can be seen from Figure 1, in Iran’s oil and gas reserves are validated as new sanctions by US and which the displayed production amounts by one of the world’s largest reserves – second IOCs are limited to CNPC in 2015. in gas and fourth in oil (See Figure 2). Map reinforced by EU trou- 2 illustrates the distribution of oil and gas Iran’s current petroleum contracts are based fields across Iran’s basins. According to IHS bled IOCs’ flexibility and upon buyback contracts (for the last 20 Energy’s Iranian market briefing: The major- caused them to leave years), under which the government, upon ity of Iran’s remaining oil resource resides in discovery, buys the extracted oil in the pro- the predominantly onshore Zagros Fold Belt, Iran.” ducing fields. This type of contracts limits which remains Iran’s key oil producing prov-

“Iran’s oil and gas re-

serves are validated as one of the world’s largest reserves – second in gas

and fourth in oil.”

Map 1: IOCs that were operating in Iran before the sanctions.10

the profit of foreign investors, as they prefer ince. Gas resource is centered largely in the finding better deals to market oil elsewhere. offshore South Pars Field in the central Ara- Buyback contact mechanism coupled with bian Province. The Zagros Fold Belt also has the latest bans on investments made IOCs sizable remaining gas resources. leave the Iranian E&P sector but Iran prem- ises to change its current petroleum contracts Over the past decade, new oil production

ENERGY POLICY TURKEY Page 22 NECDET KARAKURT, OĞUZHAN AKYENER, SERHAT ÇUBUKÇUOĞLU, MEHMET APAYDIN AND ALİ MARAŞLI

Figure 1: A graphic display of Iran’s oil equity production from foreign investors.11

from the Central Arabian Province has par- Drilling activity in Iran has been muted since “Gas resource is cen- tially compensated for a sharp decrease in around 1980, implying that the Iranian re- production from the core Zagros Fold Belt source base has not had the benefit of the con- tered largely in the oil-producing province. New volumes during siderable advances in reservoir imaging, drill- this period are largely tied to increased pro- ing, and completion technologies over the offshore South Pars Field duction from the Persian Gulf and onshore past 35 years. Again, this suggests substantial oil fields bordering southern Iraq (both areas scope for production increases through ap- in the central Arabian which received foreign investment through plication of modern technologies, while also the Iranian buyback contract structure), pointing to the relatively unexplored nature Province. The Zagros 11 as well as condensate production from the of the Iranian resource base. Fold Belt also has South Pars gas field. sizable remaining gas

resources.”

Map 2: A map display of Iran’s onshore and offshore oil and gas fields.12

Page 23 FIRST ISSUE IRAN IN THE ENERGY GAME WHILE PASSING THROUGH THE ENERGY DOOR

“Iranian oil and gas fields’

examination states that

years of isolation and

sanctions have resulted

in an underdeveloped

resource base. “

Figure 2: A graphic display of the countries with world’s largest oil (left) and gas (right) reserves (Source: EIA).

Figure 3: A display of Iran’s onshore and offshore oil and gas fields.13 Red color means the field requires development and green means remaining resources.

“Iran’s large discoveries Iranian oil and gas fields’ examination states much of gas production added comes from that years of isolation and sanctions have re- the Central Arabian Province, where South since 2000 have been sulted in an underdeveloped resource base Pars Gas Field is located. Much of the gas as it can be seen from Figure 3. It is obvious production covers the domestic market as the concentrated on gas that many of the gas fields (red colored circles demand has grown significantly over the past reserves and oil produc- in Figure 3) require development as of those decade, which is why Iran is focusing on de- with green colored circles mean remaining oil velopment of gas fields. On the other hand, tion has declined sharply resources are currently immature. because of the aging oil reservoirs, Iran has to use much of the produced gas for reinjection because of the aging oil Iran’s large discoveries since 2000 have been to maintain its oil production levels. As a re- concentrated on gas reserves and oil produc- sult, Iran finds itself as having to import gas reservoirs.” tion has declined sharply. See Figure 4 for from its neighbor Turkmenistan to compen- the increase in Iranian gas production profile sate the Northern parts of the country’s ener- throughout the years. As it is clearly visible, gy requirements. Thus, Iran needs to attract

ENERGY POLICY TURKEY Page 24 NECDET KARAKURT, OĞUZHAN AKYENER, SERHAT ÇUBUKÇUOĞLU, MEHMET APAYDIN AND ALİ MARAŞLI

“Iran has to use much

of the produced gas for

reinjection to maintain its Figure 4: A chart display of Iran’s onshore and offshore gas production through the years from 1980 to 2014.14 oil production levels.“

foreign investors with enhanced technology Iran does not have an international oil export and equipment to develop its large oil and gas pipeline. All oil pipelines were constructed to fields. transport in-country production to the due ports, terminals and refineries.

MIDSTREAM and UPSTREAM MAR- However, from the gas pipelines side, al- KET though there are in-country gas transportation and distribution lines, as seen from Map In the concept of midstream and downstream 3, there are two gas import pipelines from markets of Iran, main oil terminals, refineries, Turkmenistan to Iran with capacities 13 and oil and gas pipelines will be perused. 6 bcma. In addition, there are two gas export pipelines from Iran to Turkey and Iraq with CRUDE OIL & CONDENSATE TERMI- capacities of 14 bcma (to Turkey) and 8 bcma NALS (to Iraq). As the future pipelines:

The list is given in Table 1. Moreover, Cyrus, • There is not an important planned oil Bahregensar, Bandar Mahshahr, Abadan, and pipeline for the future Bandar Abbas are the main terminals of Iran • For gas: to sell its refined products. • Iran to Iraq pipeline capacity is planned “Iran does not have an to be upgraded up to 12 bcma. REFINERIES & PIPELINES international oil export • Iran to Pakistan (then with a possible pipeline. All oil pipelines Storage Capacity Terminal Name Location İnfo (mmbbl) were constructed to Kharg Island 28 Persian Gulf Main crude export terminal transport in-country pro- Lavan Island 5,5 Persian Gulf Crude export terminal duction to the due ports, Siri Island 4,5 Persian Gulf Crude export terminal terminals and refineries.”

Neka 1 Caspian Sea Crude swap terminal On upgrading process, Gas / Condensate Terminal for Assaluyeh currently more than 4 Persian Gulf South Pars Field mmbbl

Table 1: The list of oil terminals in Iran.

Page 25 FIRST ISSUE IRAN IN THE ENERGY GAME WHILE PASSING THROUGH THE ENERGY DOOR

Refinery Capacity (crude mbbld) boost its gas export volumes that will be the Abadan 400 economic option for Iran. Isfahan 375 Bandar Abbas 330 THE NEW IRANIAN ERA: WITH- Tehran 250 DRAWAL OF SANCTIONS Arak 250 Borzuyeh 120 Iran, having the world’s fourth and second Tabriz 110 largest oil and gas reserves respectively, re- Shiraz 60 quires paying a great attention to its inter- Lavan Island 60 national energy politics since from the early BooAli Sina 34 19th century; its economy has been extreme- Kermanshah 22 ly built on oil sector. The sanctions –applied Aras 2 10 since the 1979 revolution- limited Iran’s ex- Booshehr 10 port capability and isolated it from the west Aras1 5 that led Iran apart from the technology, which Yazd 3 Iran definitely desires to preserve oil produc- TOTAL 2039 tion from its aging fields. Steady growth in population has become a burden on the ex- Table 2: Refineries of Iran (Source: EIA 2015 port numbers since domestic needs increased Iran report). rapidly that significantly reduced the amount of oil exports. Another negative aspect of Ira- nian oil industry is that Iran uses natural gas root to India) pipeline with a capacity (from the production of its huge gas reserves) of 28 bcma. to preserve the declining oil production rates. “Steady growth in • Iran to Oman and UAE pipelines are Thus, Iran’s current situation from the point currently on hold due to price dis- of energy window can be described as “The population has become putes. Exhaustion” due to growth in domestic con- a burden on the export sumption rates, using most of its extracted Iran currently has no LNG terminals to ex- gas to recover oil production instead of export natural gas. However, Iran is planning to numbers since domestic porting, losing its power in OPEC and not build new LNG facilities as an alternative to being able to maneuver freely under heavy needs increased rapidly that significantly reduced

the amount of oil ex-

ports.”

Map 3: Gas infrastructure of Iran (source EIA).

ENERGY POLICY TURKEY Page 26 NECDET KARAKURT, OĞUZHAN AKYENER, SERHAT ÇUBUKÇUOĞLU, MEHMET APAYDIN AND ALİ MARAŞLI

Iranian Petroleum Contract Buyback contracts (proposed terms) Hybrid service contract with some elements Contract type JVs with NIOC of PSC Approach to Separate contracts for exploration and development Integrated contract production phases Typically 3–8 years for exploration and 20–25 years (7–9 for exploration Contract length 3–12 years for production, with exceptions and 15–20 for production) Guaranteed internal rate of return agreed up front, based on: approved project capital costs; production forecast; crude market Terms to be adjusted over the Calculation of price with 2% annual escalation or agreed course of the contract according to contractor fees gas sales price; assumed operating expenses the progress made and can be paid of 3% or 5% of annual development costs in oil; fees linked to oil prices for onshore and offshore fields, respectively; and financing costs Payments to IOCs on a sliding Compensation Contractor fee calculated based on a range scale, with riskier developments for risk of factors paying more Post-2003 buyback contracts give NIOC NOC/state the right to a minimum 10% equity stake in n/a equity any project of its choosing Payment commences following the IOCs to be paid in installments completion of development operations and once production begins, with full Remuneration handover to NIOC (after a production payments only after the plateau schedule threshold is reached); payments are made target is reached; payments are over several years made over several years

Table 3: Outline of Iranian contract types (Source IHS).

economic and political sanctions. point of views to answer whether or not Iran “Iran might be able to might be able to meet its goals after the with- Current conditions push Iran to increase drawal of sanctions. Some thoughts are too meet its goals after the its exports that will help ease the economic optimistic because Iran will open the door for withdrawal of sanctions. burden the country faces these days. Iran has IOCs; however, majority thinks negatively been trying its best to market its gas reserves because Iran’s aging fields lack of investment Some thoughts are too as Iran succeeded a few gas agreements with and technology. This oil and gas reach coun- Turkey, Iraq, Oman, UAE and some Far East try keeps its attractiveness to the big inves- optimistic because Iran countries including Pakistan. However, Iran, tors as they crave for developing large reserves at first, has to provide the gas and then deliver with cheaper production costs. Iran is able will open the door for it in accordance with the agreements. There to offer large reserves but the fact that many are some troubles to overcome this issue as oil fields have been producing since the early IOCs; however, majority Iran definitely is in need of reviving its tech- 1900s, there awaits huge investment ground nology, infrastructure and political ties with to revive these aging fields. thinks negatively be- the west. Lift of sanctions is the first step to cause Iran’s aging fields take forward; however, complying with the According to Iranian oil minister, Zanganeh; international agreements is going to renounce Iran needs roughly $50 billion USD to reach lack of investment and Iranian nuclear ambitions, which, in the end, its upstream production goals by 2018. Teh- happens to be Iran’s grand plan to reign over ran’s target for oil production, condensate and technology.“ the Islamic World. natural gas are 4.7 million bod, 1 mbd and 35,000 mcf/day respectively.15 IOCs have the Many experts analyzed Iranian resources, necessary budget to meet the demand. The technology and infrastructure from their large companies will definitely provide Iran

Page 27 FIRST ISSUE IRAN IN THE ENERGY GAME WHILE PASSING THROUGH THE ENERGY DOOR

Figure 5: Iran’s remaining oil resources categorized by oil regions (Source IHS).

“It is certain that it all with the technology they have been using in reasons for domestic rush can be exampled as and around the world but they will also con- follows: depends on what Iran sider the profit gain. Iran’s current petroleum contracts are based on “Buy-back Contracts”, • Economic and population growth has to offer to foreign in- which seem to be the most important and • Gas being liquefied and used as a substi- also challenging item for Iran’s energy agenda. tute for gasoline and other transport fuels vestors or how much Iran Current and proposed contract types Iran of- • Use of gas for reinjection into maturing will be bent on its current fers is given in Table 3 as it would be detailed oil fields in order to maintain oil produc- in at a conference in London in December tion energy policies to be but the conference is delayed to be held in the midst of 2016. Iran is trying to encour- Current natural gas situation in Iran suggests an attractive investment age IOCs to invest in the country but it shies that Iran must develop its giant reserves at a away from offering international investors its rapid rate to meet its domestic demands and ground for IOCs.“ large oil and gas fields (See Figure 5). Iran’s to be able to export the extra gas to lower the aim is to get more from the west as far as tech- economic burden caused by consumption of nology and investment goes but to give less in refined products in the country. If Iran can- return. It is certain that it all depends on what not manage meeting its gas production tar- Iran has to offer to foreign investors or how gets, Turkmen gas will continue to cover the much Iran will be bent on its current energy gap for the domestic needs. policies to be an attractive investment ground for IOCs. South Pars gas field, which is the largest gas field in the world, is evidently Iran’s main gas Iran plans to hit 4 million bod oil and 35 asset. Qatar’s share of the field is under de- Bcf/d gas production in a year or two. Even velopment that provides stability as a reliable though Iran has the world’s largest oil and gas gas export source. Iran’s share of the South reserves, this unrealistic target (especially for Pars field, on the other hand, requires more gas) is subject to consideration of Iranian gas work for development and investment. A few production growth that has only increased by phases have been progressed in recent years an average of 10% for the last two decades. but completion of the whole phases requires However, Iran has only depleted 5% of its gas technology and financial investment that Iran 16 reserves. Iran’s major problem can be not- lacks. Additionally, even if Iran achieves de- ed as lagging behind its domestic needs. The veloping all the phases, it has to build nec-

ENERGY POLICY TURKEY Page 28 NECDET KARAKURT, OĞUZHAN AKYENER, SERHAT ÇUBUKÇUOĞLU, MEHMET APAYDIN AND ALİ MARAŞLI

essary infrastructure to market the produced soil has nourished its political affairs to reign “Iran is currently trying gas, which also loads extra financial burden in Iraq. Unfortunately, Iran’s political power on Iran’s economy. demonstration halted in Syria as US and EU its best to build LNG released a prescription of stronger sanctions plants and new pipelines Iran is currently trying its best to build LNG on Iran’s nuclear deal in 2012 that ended the plants and new pipelines to Iraq, Oman, Pa- rise of the Islamic State as a political domina- to Iraq, Oman, Pakistan kistan and UAE to increase its export poten- tor in the region. On another count, Russia, tial. However, Iran lacks technology to build misguided by Assad, intended to adjust a new and UAE to increase its LNG terminals and requires foreign investors balance in the Middle East by enforcing its to succeed such giant projects. As far as the military power. Russian involvement of an- export potential. Howev- pipelines go, Iran only seems to succeed Iraqi ti-terrorist propaganda in Syria complicated pipeline, which will supply the Mansuriyah the disputes over long-awaited equilibrium in er, Iran lacks technology power plant. The pipelines to Oman and the region. UAE are subject to price and volume disputes to build LNG terminals that will eventually result in cancellation of The first step, Turkey has to achieve, would and requires foreign in- the signed contracts. Pakistani pipeline proj- be thoroughly digesting the geopolitics of the ect is the only viable solution for future gas region. Being a bridge or located between im- vestors to succeed such exports as both countries insist on complet- porters and exporters have been emphasized ing the pipeline even though they experience for decades but this has not placed Turkey in giant projects.” considerable financing difficulties.17 the spotlight at all. Therefore, new relevant approaches are a necessity to counterbalance the export-import markets in and around TURKEY’S AIM: THE WITHDRAW- its borders. Turkey may not be the ultimate AL OF SANCTIONS power to resolve/settle all the conflicts in the region but it has a potential to start the fire Throughout the history, Turkey and Iran have since it has allied with the west, been brothers struggled with each other over disputed areas with the Arab world and had close ties with along their borders whereas they both have Russia. This fact states that Turkey has the supported each other to a degree due to be- advantage of being not only a geographical ing long lasting neighbors. Nowadays, there bridge in the middle but also a cultural, polit- “The first step, Turkey seems to be struggle times for both coun- ical and influential bridge at the epicenter of tries, where both countries have ambitious all these countries. Hence, Turkey can be an has to achieve, would be plans over the conflicts in the Middle East, “Energy Center” but it has to realize that its each trying to take advantage of the current importance is not based on its location. As a thoroughly digesting the situation. A misfortune; Iranian economy is result, Turkey’s priority has to be building a worsening day by day due to heavy sanctions “Think Factory”, which will carefully outline geopolitics of the region. from the west. At this point, Turkey, econom- significant factors that raise its geopolitical ically outscoring Iran, must commit to being importance. Being a bridge or located the big brother and extend its “helping hand” between importers and to Iran to be able to take the full-advantage of The crisis in Ukraine has been exposed Eu- the current situation. rope’s ambitions to secure its gas supplies and exporters have been routes. Europe’s intentions to find other al- It is evident that Iranian energy sector is vul- ternatives to Russian gas have ignited the un- emphasized for decades nerable because Iran extremely is in need of rest in Syria and Iraq, in which Turkey had financial support and technology transfer as to position itself among the coalition forces. but this has not placed they are a key necessity to develop the hydro- The scenario was simple as toppling Assad carbon resources. Additionally, safer pipeline and securing Syria for transiting gas through Turkey in the spotlight at routes to different world markets are necessary a democratic country, where there would be to complete the supply and demand chain no security threats to the planned pipelines. all.” as far as the oil exports are concerned. Iran’s Assad disobeyed the west and sought support ambition to reach out Mediterranean Sea by from Iran, Russia and China. It is obvious uniting Shiites in the region lacks credibility that he obtained such privilege as he still sits even though Iran’s notable influence in Iraqi in his office. Hence, Turkey’s efforts to be-

Page 29 FIRST ISSUE IRAN IN THE ENERGY GAME WHILE PASSING THROUGH THE ENERGY DOOR

come an energy center countered some delays gas reserves. This will also strengthen ties with in the progress, as the peace in Syria has yet Iran and positively influence its international to be settled. affairs with the west and Turkish states.

Iran’s negative contribution in the Iraqi and Syrian conflicts can be overcome if Turkey RESULTS & ANALYSIS (ALL TO- can manage to present itself as the long-await- GETHER) ed moderator for Iranian nuclear deal negotiations with the west. This might help Iran Most of Iran’s revenues come from oil and gas to fasten the removal of sanctions so that reserves. Even though it is included among Iran can obtain technology transfer and for- countries with the largest oil and gas reserves eign investment sooner. At this point, a joint in the world, it goes through economical and venture between both countries national oil technical hardship. Iran’s hydrocarbon re- companies might come in handy. And per- sources (mainly oil) have been the dynamo haps, Assad’s fall should near if he loses Iran’s for the country since the start of oil produc- support. tion in 1920s. Oil exports was even able to finance long-lasting Iran-Iraq war but the fact In compliance with being the energy center, that most of the fields have been producing Turkey has to make arrangements to find the for about a century, the production rates are seller and the buyer. The aim must be to cre- on a steady fall. Iran has added new oil and es- ate the market, where Turkey acts as a both pecially gas fields to its bulk reserves after the buyer and seller. Iran and Qatar provide a revolution in 1979. Natural gas reserves have good opportunity since both countries share been widely used for reinjection purposes to the world’s largest gas field, South Pars. The increase productivity of aging oil fields. Since best approach would be to convince these the revolution population growth gained im- countries to market South Pars gas through portance as this caused exaggerated domestic “The effects of the Qatar-Iran-Turkey pipeline. This will give an usage of refined products including heating edge to Turkey to be the main gas provider for and electricity production. sanctions implemented the biggest consumer, Europe. Turkey should make it clear to and manipulate Europe that The effects of the sanctions implemented on on Iran over its nuclear it will have an alternative to Russian gas and Iran over its nuclear deal not only troubled it will not have to deal with security problems its economy but also separated Iran from the deal not only troubled for its energy needs. Having a pipeline cross- technology and foreign investment as far as ing Turkish border will also help Iran feed its developing the aging oil fields and exporting its economy but also domestic needs in the Northern provinces. It the excess amount of oil and gas. The situ- separated Iran from the should be noted that Iranian and Qatari gas ation worsened after 2012 that is when the through Turkey to Europe has to be analyzed major oil companies left and Iranian oil ex- technology and foreign and evaluated from the economic sights of ports fall below 2 million bopd. Iran can still such project since high tariffs, unit produc- be categorized as successful since its oil pro- investment as far as tion costs and EU gas prices may not be bene- duction is still around 3 million bopd but ris- ficial for the countries involved in this option. ing domestic consumption pressures Iran to developing the aging oil However, such projects will provide Turkey find alternative solutions to increase its export with the flexibility to have more control over rates. Being vulnerable, at this current situa- fields and exporting the trafficking diversified gas supplies on the way tion, Iran has to agree on the nuclear terms to to become an energy center. get a relief from the sanctions. However, Iran excess amount of oil and wants to step forward on its nuclear practices gas.” Another important step might be initiating a and it will probably try its best to outmaneu- consortium to settle Caspian Sea’s economic ver the west. borders and make agreements to purchase all the gas in the conflicted areas. Friendly Turk- Syria is another troublesome fact that com- ish approach/influence might produce flexi- plicates Iran’s economic and political outlook. bility for all the countries bordering Caspian Iran, desperately in search of new markets to Sea and resolve their disputes over the oil and import its huge gas reserves, felt the need to

ENERGY POLICY TURKEY Page 30 NECDET KARAKURT, OĞUZHAN AKYENER, SERHAT ÇUBUKÇUOĞLU, MEHMET APAYDIN AND ALİ MARAŞLI

ally with Syrian dictator Assad. A Shiite con- 3t3eZdt5d trolled pipeline to the Mediterranean (Iran- 6 Matt Piotrowski, “Gas could trump oil in Iran’s Iraq-Syria-Cyprus pipeline) would emphasize post-sanctions world”, The Fuse, September 16, 2015; Iran’s power in the region and that Iran could accessible from http://energyfuse.org/gas-could-trump- oil-in-irans-post-sanctions-world/ also interfere Turkey’s ambitions to become 7 the “Energy center”. Perhaps, Iran’s main goal IHS Energy - Market Briefing,“Iran’s Upstream Poten- tial: A new upstream Access point?”, 4 November 2015. is to isolate Turkey from Sunni world and 8 Fareed Mohamedi, “The Oil and Gas Industry”, U.S. prevent its rise as the dominator in Arabic Institute of Peace-The Iran Primer, August 2015; acces- Peninsula. Of course, Turkey will never allow sible from http://iranprimer.usip.org/resource/oil-and- a Shiite corridor below its Southern border gas-industry and will continue to step forward on being 9 U.S. Energy Information Administration, “Country an energy center. However, Turkey definitely Report: Iran”, June 19, 2015. needs to suppress Iran’s behind-the-door-po- 10 Djavad Salehi-Isfahani, “Oil and Gas After the Revolu- litical-counterattacks so that Iran will never tion”, Iran Nameh, Volume XIII; accessible from http:// interfere with its political actions in the re- fis-iran.org/en/irannameh/volxiii/iran-oil-gas gion. The best strategy to follow should be to 11 International Monetary Fund, “Islamic Republic isolate Russia from the region and most im- of Iran”, (April 14, 2014), IMF Country Report No. 14/93, page 36. portantly to be Iran’s voice against the west. 12 Middle East Economic Survey, “Iran Beats the Odds Eliminating Russia can be as simple as con- with 20% Gas Output Hike”, (March 13, 2015), Vol- vincing Iran and the west to build Iran’s nu- ume 58, Issue 11. clear power stations by EU and US. Turkey 13 Â Facts Global Energy, “Iran’s Oil and Gas Annual can moderate the talks, the west can have a Report 2014”, (December 19, 2014). chance to control Iran’s nuclear activities and 14 BP Statistical Review of World Energy 2014, “Excel Iran, on the other hand, can finally have the Workbook of Historical Data”, 2014. nuclear technology for peaceful purposes as 15 U.S. Energy Information Administration, “IRAN, In- they have long been claiming. ternational Energy Data and Analysis”, June 2015. 16 Cameron Glenn, “After Sanctions: Iran Oil & Gas Cooperation with the west and Turkey will Boom?”, U.S. Institute of Peace-The Iran Primer, May ease Iran’s ambitions to adjust the Middle 2015; accessible from http://iranprimer.usip.org/ blog/2015/may/08/after-sanctions-iran-oil-gas-boom East on its own since Iran desperately needs “Cooperation with the the technology and investment from the west. 17 Carole Nakhle, “Iran Nuclear Deal: Unlocking Oil Turkey should not stay behind because EU & and Gas Investment Opportunities”, Crystol Energy, Oc- tober 2015; accessible from http://ww.crystolenergy. west and Turkey will US will eventually lift the sanctions and their com/iran-nuclear-deal-unlocking-oil-and-gas-invest- companies (possibly US companies by joint ment-opportunities/ ease Iran’s ambitions to ventures) will make huge investments in Iran. 18 Keith Johnson, “The Next Iranian Revolution”, Foreign And why not, Turkey shares the goods? Policy, June 2015; accessible from http://foreignpolicy. adjust the Middle East com/2015/06/25/the-next-iranian-revolution-oil-gas- opec-eu-sanctions/ on its own since Iran REFERENCES 19 David Ramin Jalilvand, “After a Nuclear Deal, What Next for Iranian Oil and Gas?”, European Policy Center, desperately needs the 1 The World Bank, “Iran: Overview”, September 29, June 2015; accessible from http://www.epc.eu/docu- 2015 (accessed November 30, 2015); available from ments/uploads/pub_5716_after_a_nuclear_deal.pdf technology and invest- http://www.worldbank.org/en/country/iran/overview 20 Christopher Adams, Najmeh Bozorgmehr and Ed 2 Ibid. Crooks, “Iran: The Oil and Gas Multibillion-dollar ment from the west.“ ‘Candy Store’”, The Big Read, July 2015; accessible 3 OPEC, “Iran Facts and Figures”, Annual Statistical from http://www.ft.com/intl/cms/s/2/92402244-2975- Bulletin (accessed November 30, 2015); available from 11e5-8613-e7aedbb7bdb7.html#slide0 http://www.opec.org/opec_web/en/about_us/163.htm 4 Dr. Mamdouh Salameh, “GCC Oil in World Energy Markets: The Return of the Traditional Oil Powers to the World Markets”, The Emirates Center for Strategic Stud- ies and Research, November 24, 2015. 5 Financial Times, “Iran vows to reach pre-sanctions oil output”, (accessed December 1, 2015); available from http://www.ft.com/intl/cms/s/0/ ea34e566-7641-11e5-933d-efcdc3c11c89.html#axzz-

Page 31 FIRST ISSUE COMMENTS ON THE ROLE OF TURKEY AS AN ENERGY CENTER

by Oğuzhan Akyener and Mehmet Apaydın

ABSTRACT ergy center will be mentioned. As a result, opinions on some necessary steps that Turkey Turkey, due to growing population and econ- shall take to become an energy center will be omy, faces increasing consumption of energy, elaborated and consistencies of Turkey being and day by day, becomes naturally a center an energy transit corridor and a real energy of demand for energy sources in a strategic center will be analyzed. geography with abundant sources, but unfortunately, all the valuable sources are discovered outside the country borders. Even INTRODUCTION though public related institutions and private sector do their best to accelerate the explora- Many researchers analyzed the energy strat- "Despite the failures in tion projects lately, the outcomes are dissatis- egy of Turkey in the last two – three decades factory and the increase in the production is over different aspects. In general, all the stud- meeting local energy always far from compensating the increase in ies declared that Turkey has advantages and disadvantages related to energy policy when needs with national energy demand. global dynamics and regional politics are con- resources, abundance of The increasing demand and unsatisfactory sidered. It is clear to see that Turkey is not exploration results lead to more energy short- an energy center or an energy hub in recent supply is fortunately not age, which means higher overdependence conjuncture because Turkey is not an energy of external suppliers. Despite the failures in exporter country, or not even a price maker in far away since geopolit- meeting local energy needs with national re- energy sector. At this point, a relevant ques- sources, abundance of supply is fortunately tion might appear; “If Turkey is dependent ical location of Turkey is not far away since geopolitical location of on Russia and other countries in the means Turkey is able to create some opportunities of energy, how will it be possible to shift from able to create some op- for its energy supplies. As clearly seen in the being the transit corridor to the energy hub portunities for its energy world map, Turkey has a position as a bridge or to the energy center? To find a sincere an- between the energy-rich area (covering the swer to the question, analysis presented in supplies." Caspian Region, the Middle East and the this study concentrates on future projects, East Mediterranean Sea) and the demand the year 2035 forecasts, regional politics, and center, Europe. This leads Turkey to become global dynamics in energy sector. an important energy corridor in the region. Today, Turkey can be regarded as an energy It is obvious that there will be enormous stra- transit corridor (actually a crude oil corri- tegic and economic benefits of becoming an dor only) between Asia and Europe. Turkey’s energy corridor between energy producing natural position can be defined as a bridge and consuming giants. However, if Turkey between energy-rich territories such as the wants to get a bigger share from global en- North-East Caspian, the East and South- ergy pie, studies shall focus on forming a real East Middle East, and Caucasia. With further energy center as opposed to being a transit political developments, Turkey wishes to be- country in this location. come an energy hub or even an energy center but it is not easy to become an energy hub In this paper, the strategic and economic ben- with current energy strategies and since Tur- efits for the situation of Turkey as an energy key requires brand new energy policies. corridor today and in the future (2035) will be analyzed. Moreover, after defining an en- In reality, Turkey hosts huge oil and gas pipe- ergy transit corridor, energy hub, and energy lines such as Baku – Tbilisi - Ceyhan (BTC), center, the difference between becoming an Kirkuk – Ceyhan Oil Pipeline or Baku – energy corridor, energy hub, and a real en- Tbilisi – Erzurum Gas Pipeline (BTE), and

ENERGY POLICY TURKEY Page 32 is a secure transit way for hydrocarbon trans- uation, she is not a gas or electricity transit "Turkey is partially an port. However, this fact does not mean Tur- country but in the new future (expected in key owns nor has a choice to sell or re-sell 2019) with the start of Shah Deniz Gas Proj- energy transit corridor the oil and gas inside its borders. Moreover, ect of Azerbaijan, Turkey will gain the statue with its recent features for being an energy center all types of ener- of being a gas transit country, too. gy resources have to be evaluated i.e. oil and (current pipelines). It gas are not the only items. As a result, Turkey has to produce, buy, store, sell & trade and BEING AN ENERGY HUB consists of a variety of transport all types of energy resources to be an energy center. This means a difficult and Technically, being an energy hub is a more hydrocarbon pipelines, long term planning and can be followed as complex system than being an energy transit a mission that has to be detailed and divided corridor. Energy hub comprises the control flowing hydrocarbons into the applicable steps. Otherwise, unde- mechanism of energy distribution through tailed and uncoherent plans will never make oil and gas pipelines, nuclear power plants, from Russia, the Middle Turkey establish successful strategies. More- hydro plants, and other energy resources. East, and the Caspian over, Turkey’s hopeful dreams may not turn Moreover, it provides the exportation or sale options in addition to domestic needs. There- in to reality. Region, and conveys fore, Turkey as a current importer shall have A new developing Turkey has the background, the diversity of resources to be an energy hub them to the European vision and capacity to follow successful energy and to rise to the exporter level. The diversity politics. That is why; the first step is to make shall include huge storage capacities and trade market via the Mediterra- accurate definitions and evaluations. The sec- centers built in the national and international ond step will include the effective planning to territories. nean Sea." shape the future. It is available to find some examples for hubs, From this point of view, Turkey’s current pop- but they partially include hub properties, ular theory of being an energy center will be such as Henry gas hub or Baumgarten gas evaluated and analyzed within this study by hub. Under current circumstances, Turkey is giving the conceptual definitions. not an energy hub due to lack of oil and gas resources, limited store facilities and restraints on current energy agreements. BEING AN ENERGY TRANSIT COR- RIDOR BEING AN ENERGY CENTER Being an energy transit corridor technically means the transition of all energy sources via In a simple way, being an energy center can be "An energy center has associated systems from one side to other, or defined as the advance level of energy hub ac- the authority and power in other words, transition of all energy sourc- tivities. In detail, an energy center needs high level of investment in energy, such as build- es such as oil, gas, and electricity from the to lead regional or global suppliers’ side to the buyers’ side via transpor- ing nuclear power plants, comprehensive oil tation systems. and gas pipeline infrastructure, increasing energy sector via pricing number of refineries, LNG terminals, natural Turkey is partially an energy transit corridor gas storage facilities, and so on. In addition, the energy market and with its recent features (current pipelines). an energy center must provide a sustainable It consists of a variety of hydrocarbon pipe- energy system and sufficient energy intensity. regulatory actions." lines, flowing hydrocarbons from Russia, the An energy center has the authority and pow- Middle East, and the Caspian Region, and er to lead regional or global energy sector via conveys them to the European market via the pricing the energy market and regulatory ac- Mediterranean Sea4. In current conjuncture, tions. Turkey plays a receiver - transmitter role in oil and gas transportation system. Some experts use ‘’energy center’’ term for Turkey’s future energy disclosure so often, However, in the concept of her current sit- but it seems impossible for the near future

Page 33 FIRST ISSUE COMMENTS ON THE ROLE OF TURKEY AS AN ENERGY CENTER due to lack of investments, strategic plans, transport Azeri crude oil to Supsa, No- nonbearing huge oil and gas reserves and hav- vorossiysk (Russia), Ceyhan and Batumi ing no suitable storage facilities. (Georgia) terminals. (BTC’s daily average transport volume is around 600 000 bbl.) • CPC carries Kazakh crude oil to Novo- TURKEY AS AN ENERGY TRANSIT rossiysk terminal. (Daily average trans- CORRIDOR: TODAY port volume is around 400 000 bbl.) • Kirkuk (Iraq) – Ceyhan transports the Initially, it has to be mentioned that Turkey Iraqi oil to Ceyhan terminal. (Daily aver- with its current properties, is not an energy age transport volume is around 450 000 transit country. Turkey is considered as an oil bbl.) transit corridor because as mentioned previ- ously, energy transit zone region must include • By the way of related terminals, oil is all the transit options for energy sources such shipped to the global market. as oil, gas, and electricity (generated from nu- • Bosporus is another strategic point of clear, renewable, biomass and other due re- Turkey as a transit zone, in which all sources). Black Sea oil is transported to the global market. First, to assess Turkey’s current situation as whether or not an energy center, existing in- After briefing the infrastructure, the current frastructures must be determined. Demand oil and gas production – consumption (sup- and supply potentials exist but infrastructur- ply / demand) volumes of the related coun- al facilities are inadequate, which means this tries (an importer or exporter) in the region equation will not be valuable. Second, poten- are listed in Table 1. Negative values in the tials of new supply and demand options must supply / demand columns point if the associ- be considered together. At last, average transit ated country is an oil or gas importer.

Figure 1: Infrastructural facilities that make Turkey an oil transit corridor.4 volumes will show the importance of Turkey As it can be observed from Figure 2 that shows to be a transit country. the supply & demand volumes on map view:

As it can be seen from the Figure 1: • EU is an important importer and there is a huge supply potential in Russia, Ka- • Turkey hosts 5 major pipelines and 1 rail- zakhstan, Azerbaijan and Iraq in the re- way in the region that are important for gion. being an oil transit center. • BTC, WREP, NREP and the railway From where Turkey stands;

ENERGY POLICY TURKEY Page 34 OĞUZHAN AKYENER AND MEHMET APAYDIN

Table 1: Current oil and gas supply – demand rates in the region.4,5,6,7

• Through the Bosporus around 3 million It will be better to transfer it by using the "Turkey is an oil transit bbl oil is transported per day. Russian system. • From the Ceyhan terminal 1 million bbl • That is why, Turkey is not a gas transit country that currently oil is transported per day. country for today, but future conditions transits 4 million barrel of and the increase in gas demand might Figure 1 and 2 prove that Turkey is an oil turn Turkey in to a new transit way. oil per day, and reaches transit country that currently transits 4 million barrel of oil per day, and reaches the re- To sum up, lack of infrastructure and lack the regional oil to the gional oil to the global market. of investment are the barriers of Turkey to become a gas transit corridor. With current global market." If Turkey’s gas options and the oil transit sit- economical inputs, it is not feasible to transit uations are evaluated, following assumptions Iranian and Turkmen gas to Europe via Tur- can be deducted from Figure 3: key because of the high costs. For such reason, Turkey can be considered as an oil transit • The European Union is an important de- corridor from a global perspective. mander for gas and the Caspian Region is the main supplier. • However, due to the lack of infrastruc- TURKEY AS AN ENERGY TRANSIT "Lack of infrastructure ture (such as pipelines or LNG terminals) CENTER: 2035 transporting gas abroad is currently not and lack of investment very economical to trade through Turkey. After the assessment of Turkey’s current situa- are the barriers of Turkey

to become a gas transit

corridor."

Figure 2: Oil supply & demand volumes in the region.4

Page 35 FIRST ISSUE COMMENTS ON THE ROLE OF TURKEY AS AN ENERGY CENTER

Figure 3: Current situation of Turkey as a gas transit country.4

tion as an energy transit center in the region, Pipeline infrastructure for crude oil trans- "Pipeline infrastructure the year of 2035’s situation is selected for the portation will be the same in 2035 because analysis. Analyzing the year 2035’s condi- for crude oil transporta- the demand will not grow substantially in 20 tions, some important assumptions are taken years. For the gas transportation system, new under consideration: tion will be the same in stand-alone pipelines will be constructed with massive investments. Figure 4 gives the new 2035 because the de- • Best scenario case considers the accepta- gas pipeline options that will be constructed tion of production – supply potentials. through Turkey: mand will not grow sub- • Oil prices are taken over 100 USD. • No sanctions on Iran are noted. • SCP transports Azeri gas to Georgia and stantially in 20 years." Turkey. • The political stability in the Middle East and Caspian region is provided. • Extended SCP (SCPX), TANAP, and TAP projects were constructed and trans- • Massive investment option is available in ports Azeri gas to the European Union related countries. via Turkey. • Terrorism is solved. • Turkish Stream is planned for trans- • Conflicts between Northern Iraq and porting Russian gas to Turkey and EU. Central Iraq governments are solved. (However, it will be too early to estimate

Figure 4: Major pipeline systems that transfer gas via Turkey to Europe in 2035.4

ENERGY POLICY TURKEY Page 36 OĞUZHAN AKYENER AND MEHMET APAYDIN

Table 2: 2035 Estimations for oil & gas export potentials in the region.1,2,3

the success of the capability of this pipe- As seen from the Figure 4, new gas pipelines line project.) will be constructed up to 2035. This will re- "New stand-alone sult in an active gas trading between suppliers pipelines will be con- After defining the infrastructures, Table 2 and buyers. Figure 6 below displays the sup- above gives the possible export volume esti- ply and demand potentials for the year 2035. structed with massive mations of the supplier countries in the region. In order to determine the transit volumes investments for the gas through Turkey, assumptions that are given The potential daily oil supply that is shown in below must be considered, also they can be transportation system." Figure 5 can be evaluates as follows: seen in Figure 7:

• Supply potential from the Caspian region • 3 bcma portion of 5 bcma Israeli gas will decrease in 2030s. This will result in reaches to Turkey. a decrease in the transit volumes through • 5 bcma portion of 8 bcma Iraqi gas reach- Bosporus. es to Turkey. • Supply potential from Iraq will increase. • SCPX and TANAP capacities are extend- Moreover, with additional transportation ed, but due to capacity limits, 31 bcma of routes, partial Iranian crude might also 40 bcma Azeri gas comes to Turkey. "New gas pipelines will reach to Ceyhan terminal. Therefore, es- • As a result of economic assessments, timated transit volumes via Ceyhan ter- be constructed up to minal will be higher than 1 million bar- transportation of Iranian gas through rels per day. Turkey to the European Union via stand- 2035. This will result in alone pipeline is not feasible (due to high As a result, from the point of view to be an oil tariffs and market conditions). On the an active gas trading transit country, the current situation will not other hand, Iran can send gas to Turkey make a considerable change in 2035. for utilizing in the Turkish gas market. between suppliers and buyers."

Figure 5: 2035 oil transit volumes via Turkey.1, 2, 3

Page 37 FIRST ISSUE COMMENTS ON THE ROLE OF TURKEY AS AN ENERGY CENTER

Figure 6: Gas supply & demand potential of 2035 in the region.1,2,3

This option will be economical. portance by comparing recent and future en- • If the construction of the Turkish Stream ergy policies. As mentioned in the previous is successfully completed, then more sections, Turkey is an energy importer coun- than 60 bcma gas will be transportable to try, mainly gets oil and gas from its neigh- EU through. bors. As an advantage of having neighbors with considerable amount of world reserves, • Turkmen and Uzbek gas transport op- Turkey is headed to become a transit center tions are not taken into consideration year by year. due to lack of facility, economic conditions, and market limitations. Gas trans- On the other hand, it is extremely hard to see portation will only be economic, if they the future of Turkey as an energy hub or an transport it to EU through Russia and energy center with current energy agreements "In 2035, Turkey will the Turkish Stream. and developments. Lack of lobby activities, • 33% of gas will be used in Turkish Mar- not being able to develop effective interna- become an energy transit ket, and the remaining portion will ditional energy politics, having only a little sup- rectly be transferred to EU considering port from the private companies, universities country for both crude the economic conditions and insufficient and civil organizations, diverts Turkey from facility properties. using her strong geographic position in re- oil and gas markets (and gional energy dynamics. actually a gas transit As a result of the assumptions made above, the estimated cumulative gas transit volume Another issue is regarded as investments. hub). Turkey will provide via Turkey will reach 65 bcma in 2035. Turkey cannot step up in the region without creating massive investments and implement- 4 million barrels of oil per To sum up, in 2035, Turkey will become an ing development plans. Beside these issues, energy transit country for both crude oil and non-governmental organizations have to take day for the global oil mar- gas markets (and actually a gas transit hub). a position to support energy investments with Turkey will provide 4 million barrels of oil feasible solutions. Unfortunately, most of ket, and gas supply rate per day for the global oil market, and gas these organizations are against to energy in- supply rate through Turkey will be around 65 vestments like nuclear power programs with- through Turkey will be bcma with the best scenario case. out creating an effective solution to generate around 65 bcma with the energy from substitution sources.

best scenario case." COMMENTS CONCLUSION This study focused on positioning of Turkey in global energy sector and examined the im- Technically, oil, gas, and electricity sectors

ENERGY POLICY TURKEY Page 38 OĞUZHAN AKYENER AND MEHMET APAYDIN

Figure 7: Gas supply to Turkey in 2035.

require separate assessments because each of Turkey should increase her storage capacity. them has different properties, market condi- This is vital for her to be a gas trader in the "Turkey will remain as an tions that require distinctive developments. future. Hence, in the new future, Turkey will oil transit country with the be a gas transit country and the volume of If the year 2015 and the year 2035 rates and Azeri gas supply will increase. In addition to supply of 4 million bar- policies are compared, there will be no signif- Azeri gas, Eastern Mediterranean, some small icant changes observed in oil sector in Turkey. portions of Northern Iraq and with a new rels of oil per day to the Turkey will remain as an oil transit country route through Russia (through new popular with the supply of 4 million barrels of oil per pipeline idea: Turkish Stream) Turkmen gas global market. However, day to the global market. However, a poten- and more Russian gas will be able to be tak- tiality option will emerge, if Iraq (Northern en into the boundaries of Turkey for utiliza- a potentiality option will Iraq) and Iran supplies more oil via pipeline tion, transition and trade. These options can emerge, if Iraq (Northern systems by using Ceyhan terminal to the Eu- only be handled with coherent, long term gas rope and other markets. strategies, investments, building new storage Iraq) and Iran supplies facilities (inside or outside Turkey), legisla- In reality, using the Persian Gulf is a more tions and agreements. more oil via pipeline sys- economical way for Iran, but new foreign policies might change the balances. For the As the nature of geography, Turkey is the tems by using Ceyhan central Iraq, Iraq to Jordan pipeline, which connector between Asia and Europe, and in is under construction, demonstrates that only many conditions, using this way for energy terminal to the Europe northern Iraq oil resources will choose the transfer is much safer and economical when Turkish root to reach the world market. compared to other options. Transition of Ira- and other markets." nian and Turkmen gas to EU is also consid- At this point, Turkey will absolutely need en- ered in this analysis, but it is not economic hancements in oil storage capacity to provide with assumed circumstances. Due to en- more trade options via Ceyhan Terminal. It is hancement planning’s, increase in gas transfer clear to note that changing the balances in re- is highly required. Therefore, if Turkey wants gional pipeline strategies and due investment to improve its great importance in the region, programs will increase the importance of Tur- limited gas storage capacity will appear as a key in oil transfer. Moreover, making Ceyhan crucial concern. Due to enhancements in gas a huge refinery and storage complex will make transit volume, Turkey might even rent places more crude be handled and be traded inside in other countries to store surplus gas. (by) Turkey. This will result in Turkey being a more important oil trading hub in the future. In 20 years, electricity generation might accelerate upward associated with possible proj- As far as future gas policies are concerned, ects. For instance, Azerbaijan can generate

Page 39 FIRST ISSUE COMMENTS ON THE ROLE OF TURKEY AS AN ENERGY CENTER

electricity from natural gas and transfer it ETGAS, 2015. to Europe through Turkey via power plants. 2 Oguzhan Akyener, “Southern Gas Corridor, Similarly, Iran, Eastern Mediterranean or Milestones and Other Turkmen Gas Export Op- Iraq can apply the same strategy, too. In re- tions (via Turkish Stream)”, Insight Turkey, gards to these projects, Turkey will need mas- 2015. sive investment in power plant construction 3 Oguzhan Akyener, “Energy Security Struggle inside or outside the country. In addition, in Caspian Region From the View of Important Turkey needs a new policy to provide diver- Pipeline Projects”, TESPAM – Energy Policy sity in electricity generation from a variety of Turkey (This Issue), 2016. sources other than oil and gas such as nuclear, biomass, hydroelectric etc.. Domestic pro- 4 Oguzhan Akyener, “Azerbaijan’s Role for Tur- duction can offset a slight ratio of oil and gas key Being an Energy Transit Hub”, Azerbaijan demand from external suppliers, which is ex- Oil & Gas Week, 2013. tremely important for Turkey. 5 SOMO Oil Marketing Companay; accessible from http://somooil.gov.iq/ To summarize, from where we stand, it is not 6 BP, “Energy Outlook”, 2035. coherent to see Turkey’s position as an energy center or energy hub for the next 20 years. 7 CIA Fact book. Hence initially to be an energy center, Tur- 8 Bilgin M., “Turkey´s Energy Strategy: What "If Turkey wants to key must produce, store, sale/trade, transit all Difference Does it Make to Become an Energy types of energy resources. Secondly, massive Transit Corrdior, Hub or Center”, UNISCI improve its great im- investments and long term energy politics are Discussion Papers, May 2010, ISSN 1696- important. 2206. portance in the region, On global scale, Turkey’s energy transfer vol- limited gas storage ume is not as important as expected. Due to economic and political reasons today, neigh- capacity will appear as boring countries slightly use Turkey as an a crucial concern. Due energy transit route. The change in Turkey’s destiny can be related to unstable political to enhancements in gas conditions and problems in the Middle East and the Caucasia. Because of increasing ter- transit volume, Turkey rorism and potential conflicts in our region, Turkey will emerge as a new option for supply might even rent places in security. other countries to store ABBREVIATIONS surplus gas." AVR: average BTC: Baku – Tbilisi – Ceyhan Pipeline SCP: South Caucasus Pipeline NREP: Northern Root Export Pipeline WREP: Western Root Export Pipeline CPC: Caspian Pipeline Consortium

REFERENCES

1 Oguzhan Akyener, “Azerbaijan Gas Export Potential & Related Infrastructures for EU & TR Energy Security Issues (up to 2050)”, IP-

ENERGY POLICY TURKEY Page 40 OĞUZHAN AKYENER AND MEHMET APAYDIN

Page 41 FIRST ISSUE AZERBAIJAN GAS EXPORT POTENTIAL & RELATED INFRA- STRUCTURES FOR EU & TR ENERGY SECURITY ISSUES (UP TO 2050)

by Oğuzhan Akyener

ABSTRACT proved gas reserves and annual production while compared with the huge gas producers Due to increasing demand, gas supply is one in the world and in Caspian Region; some of the most strategic energy security issues for geostrategic, political and commercial issues huge importers. Caspian region -where im- increased the importance of Azerbaijan in the portant gas supply potentials exist- has always regional gas politics, mainly for EU & TR. been directly related to the huge importers’ energy security issues, such as EU and Turkey. Main reasons for the increasing importance of Azerbaijan for EU & TR are: Azerbaijan as an important gas supplier country located in the Western Caspian Region, • Azerbaijan resources are convenient for and her future gas supplies become more im- commercially meeting some portions portant for the importers mentioned above. of the increasing gas demand of EU & Consequently, these importers are forming TR markets (Which is the first step of alliances together with long term plans and Southern Gas Corridor Project3). Those developing new projects to import the gas re- resources are important for TR’s & EU’s sources from Azerbaijan. As a result of this energy resource diversification strategies. alliance, politically named as “Southern Gas • EU based professional companies are op- Corridor, SGC” continues to be developed. erating the huge gas fields in Azerbaijan, "Caspian region -where In the concept of SGC, transportation of the such as BP in Shah Deniz & Shafag-Asig- Azerbaijan gas resources to TR & EU, SCPX- man, and Total in Absheron. important gas supply po- TANAP-TAP and related infrastructures are • Azerbaijan government and gas export decided to be constructed. tentials exist- has always strategies are supported by EU, US, TR In this paper, after focusing on the Azerbai- and her transit neighbor Georgia. been directly related to jan gas supply potential and gas market, the • Azerbaijan is thought to be the first step importance of this potential for European to transport Caspian resources to TR & the huge importers’ ener- and Turkish energy markets will be described EU. gy security issues, such by underpinning the annual demand values. • Due to stable political structure, legisla- Since Southern Gas Corridor is a long term tive and security issues, there is a suitable as EU and Turkey." target, 2050 Azerbaijan gas supply and export environment in Azerbaijan for invest- potential (in huge gas projects base), includ- ment. In addition to this environment ing the infrastructural limitations, will be es- there are also international investors deal- timated. ing with the future opportunities. • There are no important technical, tech- INTRODUCTION nological and logistical risks for the development of new gas projects. With 0,9 tcm proved gas reserves of total world share of 0.5% and 16.2 bcma 2013 av- AZERBAIJAN: BEING A MORE POP- erage gas production,1 Azerbaijan is the 27th country according to the proved reserves and ULAR GAS SUPPLIER 34th country according to the average annual production rate in the world.2 Due to the increasing importance of Azerbai- jan for EU & TR, her popularity in being a Also not having a significant volume of gas supplier is increasing more than that of

ENERGY POLICY TURKEY Page 42 Avr. Water Name Type Location Operator Situation GIP (bcm) Depth (m)

Shah Deniz Gas/Cond. Offshore 50-550 BP Production 1000 (proved)

200 Umid & (discovered) Gas/Cond. Offshore 50-100 SOCAR Exploration Babek + 400 (estimated)

350 Absheron Gas/Cond. Offshore 450-500 TOTAL Exploration (discovered) "Due to the increasing Shafag 1000 Gas/Cond. Offshore 550 BP Exploration Asigman (estimated) importance of Azerbaijan for EU & TR, her popu- ACG Deep No Public No & Shallow Oil & Gas Offshore 120-175 BP Data larity in being a gas sup- agreement Gas (discovered) plier is increasing more

Table 1: Important gas fields and projects in Azerbaijan. than that of any other

any other huge suppliers. This fact initially is the fields’ locations are shown on Map 1. huge suppliers." due to the political support especially by EU & US. Moreover, existing producing projects Notes: and coherent steps taken for the future development projects are important for Azerbaijan • Nakhichevan, Bahar Gum Deniz, Bulla to be successful in gas politics game. Deniz gas – condensate fields and other smaller dry gas / gas-condensate fields Before focusing on the future gas produc- will be considered as “other gas resources tion and export estimations, current ongoing of Azerbaijan” in the paper. projects and future gas prospects of Azerbai- • Associated gas produced in oil fields are jan have to be understood. Table below gives not taken into consideration. Gas pro- brief information about Azerbaijan’s import- duced from such fields are re-injected ant gas fields & projects. The prospects and - flared or used as additional supply for

Map 1: Locations and structures of important gas resources of Azerbaijan.

Page 43 FIRST ISSUE AZERBAIJAN GAS EXPORT POTENTIAL & RELATED INFRASTRUCTURES FOR EU & TR ENERGY SECURITY ISSUES (UP TO 2050)

Table 2: Existing and planned gas export pipelines of Azerbaijan.4 "Azerbaijan’s oil and Azerbaijan in winter seasons. • Having not enough drill ships in Caspi- gas fields: Shah Deniz • Fields which have political conflicts with an to continue offshore exploration, pre- well drillings and subsea completion op- Project with 3 phases, Iran and Turkmenistan due to status of Caspian are also not taken into considerations. This may result in delays in the Umid-Babek Fields, eration. development periods of some resources. • Due to general unconsolidated sand discovered Absheron In addition to these fields and projects, in- structure of AZ reservoirs, a big volume frastructures to transport the gas are also im- of sand is produced. In gas fields, initial- gas-condensate field, portant for coherent export scenarios. Table ly this is not an important concern, but 2 shows the general properties of Azerbaijan for the maturity period of the field, sand Shafag Asigman explora- (and Azerbaijan gas export related) gas pipe- management issues have to be consid- line system. tion block, and possible ered. • Due to general expected PVT properties, shallow and deep gas AZERBAIJAN GAS EXPORT POTEN- condensate blockage issues have to be taken into consideration. resources in ACG oil TIAL ESTIMATION (UP TO 2050) • There are high pressure reservoirs and production license. In order to estimate the gas export potential high pressure water zones that might re- of Azerbaijan to TR & EU up to 2050, ini- sult in drilling and completion problems. tially the existing gas producing and import- • Oil prices will affect the project econom- ant existing licenses, which are on exploration ics. Low prices will result in delay in in- or development period and expected to be vestment for AZ government and foreign taken into production up to 2050, are tak- companies. en into consideration. These are Shah Deniz Project with 3 phases, Umid-Babek Fields, • Gas sales to EU may not be economic discovered Absheron gas-condensate field, due to the unit production and transpor- Shafag Asigman exploration block, and pos- tation costs. sible shallow and deep gas resources in ACG Additionally, less than 30% of the claimed oil production license. Additionally, other reserves are proved. Being more than 70% smaller proved and possible reserves, which of the future gas resources can be accepted as are already are in production or planned to possible or probable reserves. This fact has to be taken into production are taken into con- be taken in account for the estimations. sideration as the “other gas resources of Azer- baijan”. After mentioning the issues above, estimated production profiles of the due gas projects of Moreover, to be able to make coherent esti- Azerbaijan and assumptions made in the estimations, possible risks for development of the mation process are given below: related future projects are also commentated. Which are mainly; ASSUMPTIONS TABLE:

ENERGY POLICY TURKEY Page 44 OĞUZHAN AKYENER

Topics/ Related Assumptions Gas Projects • Shah Deniz is estimated to be developed in 3 stages. (One additional stage added to have more recovery.) Shah Deniz • Production periods are taken up to the life of field (LoF). Hence current PSA’s are thought to be extended and abandonment production is assumed as 1 bcma for SD1. • Reserves in Umid field are discovered and probable and in Babek field reserves are possible. Not discovered yet. It is assumed that, enough expected volume of resources exist in place. Umid / Babek • For the reservoir properties, production capacities, decline rates, development schedules and strategies, public data taken from Shah Deniz1 and SOCAR’s management performance in her other offshore gas fields are benchmarked. • Reserves in Absheron field are discovered and probable. Not proved. It is assumed that, enough expected volume of resources exist in place. • For the reservoir properties, production capacities, decline rates, development schedules and strategies, public data taken from Shah Deniz1 and TOTAL’s Absheron management performance in her other offshore gas fields are benchmarked. • Some delays for the development of the field are assumed due to the lack of enough drill ships in Caspian, low oil prices and decreasing interest of TOTAL in AZ oil & gas market. • Absheron is estimated to be developed in 2 stages. • Reserves in Shafag Asigman field are not discovered and all possible. It is assumed that, enough expected volume of resources exist in place. • For the reservoir properties, production capacities, decline rates, development Shafag schedules and strategies, public data taken from Shah Deniz1 and BP’s Asigman management performance in her other offshore gas fields are benchmarked. • Some delays for the development of the field are assumed due to the lack of drill ships and subsea technologies in Caspian and low oil prices. • Shafag Asigman is estimated to be developed in 2 stages. • Reserves in Deeper and Shallower sections of ACG field are discovered and probable. But not proved. More tests have to be completed in order to model the structures better. It is assumed that, enough expected volume of resources exist in place. • For the reservoir properties, production capacities, decline rates, development schedules and strategies, public data taken from Shah Deniz1, ACG’s oil bearing sections and BP’s management performance in her other offshore gas ACG Deep & fields are benchmarked. Shallow • Hence there is not an existing agreement with SOCAR and ACG partners to develop and produce gas from shallow and deep sections of ACG, a service or a PSA agreement is assumed to be signed as soon as possible. According to the assumed agreement, shareholders will not change and BP will remain the operator. • Some delays for the development of the field are assumed due to the lack of drill ships and subsea technologies in Caspian and low oil prices. • All other smaller offshore-onshore gas producing fields are taken under consideration together. • Hence most of the existing fields are mature and there are important Other production problems (such as, sand production, low pressure, old wells and Gas Fields completions) a soft decline in the total gas production of Azerbaijan from other Production fields is assumed. • New discoveries, developments of fields in the border of conflicted areas, unexpected increase in oil prices and by this effect new investments in current resources will change the scenarios. AZ • Gas consumption is Azerbaijan is assumed as to increase 1% annually. Consumption Nakhchivan • Gas consumption is Nakhichevan is assumed as to increase 1% annually. Consumption Russia Export • According to the increasing demand in Russia Caucasian region, export is Volume assumed to be increased up to 3 bcm levels and will continue up to 2050. Table 3: Assumptions for production estimations.

Page 45 FIRST ISSUE AZERBAIJAN GAS EXPORT POTENTIAL & RELATED INFRASTRUCTURES FOR EU & TR ENERGY SECURITY ISSUES (UP TO 2050)

Table 3 below shows the general assumptions taken into consideration, before estimating the future production profiles of the due Note that all estimated production profiles fields and the consumptions and other relat- given in the following graphs are technically ed issues to calculate Azerbaijan export po- and economically producible volumes, to the tential. end of LoF. Production profiles are extracted by evaluating due assumptions given in the PRODUCTION PROFILES: Table 3.

Graph 1: Estimated Shah Deniz Project production profile up to 2050.

Graph 2: Estimated Umid & Babek Projects production profiles up to 2050.

Graph 3: Estimated Absheron Project production profile up to 2050.

Graph 4: Estimated Shafag Asigman Project production profile up to 2050.

ENERGY POLICY TURKEY Page 46 OĞUZHAN AKYENER

"Having only the re-

source export potential

and the market demand

is not enough for gas

projects to be actualized, Graph 5: Estimated ACG deep and shallow gas projects production profiles up to 2050. therefore commercial

transportation structures

have to be planned and

constructed."

Graph 6: Estimated Azerbaijan’s all other gas fields’ production profiles up to 2050.

Graph 7: Estimated total gas production profile of Azerbaijan up to 2050.

Graph 8: Estimated Azerbaijan’s gas balance including production, exports, imports and consumptions up to 2050.

Page 47 FIRST ISSUE AZERBAIJAN GAS EXPORT POTENTIAL & RELATED INFRASTRUCTURES FOR EU & TR ENERGY SECURITY ISSUES (UP TO 2050)

tions to Iran or Russia can be put on the FUTURE INFRASTRUCTURE LIM- table. ITATIONS AND EVALUATIONS (UP TO 2050) • The purpose of selection SCPFX capacity as 34 bcma, while TANAP Expansion Having only the resource export potential is announced as 31 bcma (by SOCAR), and the market demand is not enough for is the additional gas will be exported to gas projects to be actualized, therefore com- Georgia. mercial transportation structures have to be After recalculating the gas volume on Azer- planned and constructed. After estimating baijan border to export her gas to GEO & TR the future production profiles and export & EU, including the limitations of SCPX, potentials of Azerbaijan in the section above, Graph 10 below is prepared. in this section, by considering the technical and commercial issues, existing capacities According to the Graph 10; and possible capacity extensions of the export structures will be evaluated. • Georgia sales are assumed to start with 1,6 bcma in 2018 and increase up to 2,2 To start with the initial step of the root, bcma in 2050. (Moreover, there will be (which is SCP and expanded SCP: SCPX) as some little free portion in SCPFX for ex- seen in the graph below; tra supplies to Georgia) • SCP has a capacity of 8 bcma and is • Again, the red lines show the limitations enough up to the first commercial proof SCPX and SCPFX. duction of SD2. Then SCP’s capacity will • Contracted parts of EU & TR are the be expanded up to 24 bcma to handle ad- public announced data. Additionally, due ditional 16 bcma of SD2 gas. to the nature of development of gas proj- • With the new developments and new ects, an increase at start volumes and a resources SCPX capacity will not be decrease at the end volumes are assumed. enough after 2023. Then, a new upgrade • For the uncontracted portions to EU & of the capacity up to 34 bcma is assumed TR, after benchmarking with announced to be done in 2023. Totally 60 bcm gas SD2 sales, 45% of the extra volume will not be able to be transported due to (which is equal to total export minus lack of extra capacity of expanded SCPX GEO sales minus contracted volumes of (SCPFX) between years 2032-2039. TR and EU) is assumed to be sold to TR However, hence the production expecta- and 55% portions is assumed to be ex- tions are declining after 2034 and it will ported to Italy market. not be economic to construct a bigger capacity expansion for only 7 years, 34 While the gas is now in the eastern border of bcma is assumed to be commercially the Turkey, as shown on the graph11 below; best selection. For those 7 years, Azerbai- jan may decrease the production in her • 16 bcma capacity of TANAP and around own operating fields or other export op- (estimated after due maintenance and

Graph 9: Transportation limits of expanded SCPX to future AZ export to GEO-TR-EU.

ENERGY POLICY TURKEY Page 48 OĞUZHAN AKYENER

Graph 10: New AZ gas export balance to GEO-TR-EU after the limitations of SCPX and SCPFX capacities.

small expansions) 8 bcma capacity of of Turkey for EU, as shown on the Graph 11 Eastern Turkish gas pipeline system will above: be enough for transportation of Azeri gas to mid-Turkey and EU border up to • 10 bcma capacity of TAP is enough to 2023’s. transport Azeri gas to Italy market up to • Then in 2023 the announced plan of SO- 2023. CAR to expand TANAP capacity up to • In 2023, as announced by the authori- 31 bcma has to be completed. ties of EU to increase TAP capacity up to 20 bcma, capacity of TAP will have to be While the gas is now in the western border expanded up to 20 bcm. Then there will

Graph 11: Transportation limits of TANAP, Turkish gas network and expanded TANAP for Azeri gas export to TR & EU.

Graph 12: Transportation limits of TAP and TAP expansion for future Azeri gas exports to Italy.

Page 49 FIRST ISSUE AZERBAIJAN GAS EXPORT POTENTIAL & RELATED INFRASTRUCTURES FOR EU & TR ENERGY SECURITY ISSUES (UP TO 2050)

"Long term gas planning

is an important issue,

which has many effec-

tive criteria to consider. Table 4: Estimated expanded capacities of AZ export pipelines to GEO-TR-EU. Reserves, structures, be no capacity limitations for the future • She has to find additional resources to agreements, politics, export potentials. infill the free capacities of SCPFX (after 2043), TANAPX (after 2043) and pipeline capacities, As a result of these capacity limitations, esti- TAPX (after 2036). (The expected free mated capacity expansion years and the new capacities can be seen on the graphs economics, markets and capacities are given in the Table 4. above). other regional factors • For Turkey: RESULTS & ANALYSIS • She has to focus on the possible extra have to be analyzed uncontracted volumes of Azeri gas up to 2050. together." As seen on the graphs and evaluations above, long term gas planning is an important issue, • She has to make estimations for addi- which has many effective criteria to consid- tional supplies from Russia - Iran - Iraq er. Reserves, structures, agreements, politics, - Eastern Mediterranean and LNG op- pipeline capacities, economics, markets and tions up to 2050. other regional factors have to be analyzed to- • She has to make agreements with Azeri gether. gas supplier companies by considering these scenarios. As a result of this study, while focusing on the Azerbaijan gas supplies to TR & EU up to • For price negotiations, she has to keep 2050, these items below can be listed. in mind that, some portion of Azeri gas has to be sold in Turkey for eco- • For Azerbaijan: nomic considerations. This clue and other possible supplies will strengthen • Azerbaijan has to develop new resourc- her hand in the due deals. "For price negotiations, es and increase the planned gas production volumes from due projects. • For EU: Azerbaijan has to keep in • Initially, she has to successfully com- • She has to continue to support politi- mind that, some portion plete the SD2 project and gas export cally Azeri gas export to EU. roots with her partners. • Hence, there is an increasing demand of Azeri gas has to be • She has to make plans to organize the for gas in EU; there will be no market problem. sold in Turkey for eco- expansion of SCPX and TANAP in 2023. • Azeri gas volume will be so small while nomic considerations. • She has to resolve current export ca- considering the total EU demand sce- pacity issues as it limits transportation narios however, for diversification of This clue and other via SCPFX due to lack of free capacity, resources, this root has to be successful. between years 2032 and 2039. possible supplies will • She has to focus on the exploration ABBREVIATIONS strengthen her hand in and development of new fields to continue to be a gas supplier after 2050. EU: European Union the due deals." (Gas export potential to GEO-TR-EU RUS: Russia root and Russia will be below 15 bcma TR: Turkey after 2050 and this will continue to AZ: Azerbaijan decrease, if there will be no new additional supplies added). SCP: South Caucus Pipeline

ENERGY POLICY TURKEY Page 50 OĞUZHAN AKYENER

SCG: Southern Gas Corridor TS: Turkish Stream Pipeline TANAP: Trans Anatolia Pipeline GEO: Georgia GR: Greece IT: Italy TAP: Trans Adriatic Pipeline “X” after pipeline name: Means extension of the related pipeline (Ex: SCPX: Expansion of SCP) “FX” after pipeline name: Means forward extension of the related extended pipeline (Ex: SCPFX: Expansion of SCPX) Tcm: Trillion cubic meters Bcma: Billion cubic meters annually SOCAR: National Oil Company of Azerbaijan BP: British Petroleum SD: Shah Deniz Gas Project LoF: Life of Field GIP: Gas in Place

REFERENCES

1 BP Statistical Review, “World Energy”, 2014; accessible from http://www.bp.com/content/dam/bp /pdf/Ener- gy-economics/statistical-review-2014/BP-statistical-review-of-world-energy-2014-full-report.pdf 2 CIA Fact Book; accessible from https://www.cia.gov/ library/publications/the-world-factbook /geos/aj.html 3 Oguzhan Akyener, “Southern Gas Corridor, Milestones And Other Turkmen Gas Export Options (Via Turkish Stream)”, Insight Turkey, 2015. 4 Oguzhan Akyener, “Energy Security Struggle In Caspian Region From The View Of Important Pipeline Projects”, Pipeline Technology, 2014. 5 BP Azerbaijan, “Shah Deniz Stage 2”, 2015; accessible from http://www.bp.com/en_az/caspian /opera- tionsprojects/Shahdeniz/SDstage2.html 6 BP Azerbaijan, “2015 First Quarter Results”, 2015; accessible from http://www.bp.com/en_az /caspian/press/ businessupdates/2015-first-quarter-results.html

Page 51 FIRST ISSUE ENERGY SECURITY STRUGGLE IN CASPIAN REGION FROM THE VIEW OF IMPORTANT PIPELINE PROJECTS

by Oğuzhan Akyener

ABSTRACT gy-demanding markets such as Europe and China-India increases the geo-political im- Caspian Region encloses the countries having portance of the Caspian Region. CASPEAN important energy resources (oil & gas), which Hence, having an attractive geo-political im- SEA attracts all major energy players in the world. As a result of this appeal of the energy re- portance due to the existing energy resources sources; from the view of supply and demand of the region, Caspian magnetizes nearly all security, there is a critical balance and a very of the important energy players of the world. complex struggle among these major players.

To analyze the oil and gas supply-demand IMPORTANT PLAYERS IN ENERGY balances in the field of energy security poli- STRUGGLE IN CASPIAN REGION cies: in the first place, it is better to define the main players in the region. Furthermore, in To elect important energy players in Caspi- order to evaluate the long-term development an Region; potential suppliers in the region, "Having an attractive plans; it is very important to examine the huge consumers importing from the region planned and existing transferring infrastruc- and other politically dominant governments geo-political importance ture in the region (pipelines, ports, transfor- have to be studied. mation facilities, railroads, etc.). due to the existing Interests of these players in the region can be In this study, initially, by mentioning the im- observed from oil/gas import – export values, energy resources of the portance of Caspian Region for world energy private E&P or service companies working in markets, portfolios of the important players the region and political attitudes. region, Caspian mag- who are active and who want to be active in this region will be analyzed. Secondly, defini- Russia, Azerbaijan, Iran, Turkmenistan, Ka- netizes nearly all of the tions of the energy security for each import- zakhstan & Uzbekistan are the countries that have existing important energy resourc- important energy players ant player in the region will be determined and possible targets for each player’s energy es potential in the region. India-China and of the world." security definitions will be estimated. For European Union (EU) can be accepted as analyzing these targets and the struggle ob- the important energy demander (importers) served for these targets, after mentioning the countries from the region. US & Japan are relevant resource development plans and the other important energy players which are also supply/demand potentials, the situations of active in Caspian Region with their private the existing and planned transportation ca- oil & gas companies (other than important pacities of the pipelines will be described. By levels of oil/gas imports like EU-China and this way, the results of the struggle in energy India). security in the region will be predicted. Hence, not being an importer or exporter, being located far from the region and other INTRODUCTION geographical conditions, US and Japan will not be considered as important players in the Geographically, by involving the countries energy struggle in Caspian Region. Indeed, that have important portion of oil and gas re- from the sight of parallel political attitudes, serves of the world, Caspian is an important US can be accepted as standing at EU’s side. region from the sight of energy. In addition US are one of the main dominant countries to having huge oil and gas reserve potential, in the region. By the way, from the energy standing in between two important ener- politics side; US directly support EU’s ben-

ENERGY POLICY TURKEY Page 52 "Russia, Azerbaijan, Iran,

Turkmenistan, Kazakh- Map 1: Important players in energy struggle in Caspian Region. stan & Uzbekistan are efits in order to weaken Russia and China’s GDP dependencies of each players of oil and involvement.) gas production is given in Table 1 above. the countries that have existing important energy Note: Due to very few activities and interests For the future estimations; in the region, some important internation- resources potential in the al energy players such as Canada, Australia, Table 2 below shows the future gas consump- Saudi Arabia, Iraq, South Korea etc. are not tion estimates of important gas consumers. region. India-China and taken into account. The increasing gas demand of China and In- European Union (EU) As a result, as shown on Map 1; Russia, Azer- dia can be observed in Table 2 above. Graph 1 baijan, Iran, Turkmenistan, Kazakhstan, Uz- below shows the changes in oil import values can be accepted as the bekistan, India, China & EU can be accepted of the biggest consumers in 2035. as the main important players in the energy important energy de- struggle in Caspian Region. Again, from Graph 1, the huge increase expectations in India and China’s oil exports in mander (importers) coun- Table 1 gives brief information about today’s 2035 in contrast to the decrease in EU, US tries from the region." energy statistics of these players. and Japan are observed.

The reserves, productions, consumptions, de- From the suppliers’ side in the Caspian re- mand value (consumption-production), one gion, Table 3 below shows the oil and gas year total production/reserves values (which export potential estimates of the Caspian en- will give information about the development ergy suppliers in 2035. and investment rate on the resources) and the

Table 1: Energy statistics of the main energy players in Caspian Region.1

Page 53 FIRST ISSUE ENERGY SECURITY STRUGGLE IN CASPIAN REGION FROM THE VIEW OF IMPORTANT PIPELINE PROJECTS

"For both import and

export to be continuous, secure and economic, diversification of resources and markets, decreasing

transportation costs, ob- Table 2: 2035 World gas consumptions2 (units are bcma). taining political-economic

stability are important."

Graph 1: 2035 World oil imports.3

Oil (bbld) Gas (bcma)

Azerbaijan 250 000 40 Turkmenistan 250 000 140 Uzbekistan 0 80 Kazakhstan 2 100 000 60

Iran No Estimation Due To Sanctions No Estimation Due To Sanctions

Russia 6 000 000 350

Table 3: 2035 Caspian energy suppliers’ export estimations.

ENERGY POLICY TURKEY Page 54 OĞUZHAN AKYENER

As seen from Table 3, in 2035, there will be a • To access to European gas markets via decrease in Azerbaijan and Russia’s oil export the planned pipelines capacities (mainly due to production decline • To be an important gas supplier for in maturing fields). For gas export potentials, EU and by this way get EU & US’s all the players will increase their supplies. political supports • To continue to securely access existing ENERGY SECURITY DEFINITIONS markets: for gas - to Turkey and Geor- FOR EACH PLAYER gia; for oil - to Ceyhan, Supsa & No- vorossiysk Generally, for an exporter country, energy se- • To get more production with the new curity means to be able to continue economi- investments and development plans cally and safely for exporting her resources. In from the most important oil field ACG the opposite side, for an importer country, to • To have more control over the existing be able to economically and safely continue and future projects in Azerbaijan to import demanded resources. • To construct more offshore drilling For both import and export to be continu- platforms for continuous development ous, secure and economic, diversification of activities in Caspian Sea resources and markets, decreasing transporta- • To reach gas export capacity of 50 tion costs, obtaining political-economic sta- bcma in 2035 bility are important. That is why; these factors • To solve conflicting claims over the are important energy security issues for all maritime and seabed boundaries of players. To briefly describe main energy secu- Caspian Sea with Iran & Turkmeni- rity definitions for each player in the region: stan AZERBAIJAN • To be an energy hub in the coming 30 years by transporting Turkmenistan • An important oil and gas exporter in the and Kazakhstan oil & gas resources via region: existing and planned pipelines • Today having an oil exporting capacity • To construct the region’s biggest refin- of more than 750 000 bbld ery and become an important oil products supplier in the region "Azerbaijan becomes the • Today having a gas exporting capacity of more than 7 bcma • To construct gas power plants and be- energy gate of Caspian come an electric supplier in the region • Due to existing & planned pipeline proj- Energy Resources to ects and geopolitical conditions, Azerbai- TURKMENISTAN jan becomes the energy gate of Caspian Europe due to existing & Energy Resources to Europe (Although it • An important gas exporter in the region: is more economical to transport some en- planned pipeline projects ergy resources in Caspian Region to Eu- • Today having an oil exporting capacity rope through Iran or Russia, due to EU of more than 100 000 bbld and geopolitical condi- & US strategies, Azerbaijan is the unique • Today having a gas exporting capacity political choice). of more than 40 bcma tions." • New resource potentials are mainly gas • A lack of sufficient foreign investments. and all are usually deep offshore (Means: • Being located far from the important not easy to develop). markets. • International huge oil companies are in- • Lack of sufficient oil export pipeline interested for investment. frastructure. • Main energy security targets are: • Majority of gas is exported to Russia and • To develop new offshore gas fields with some portion of gas is exported to China the foreign investors and Iran.

Page 55 FIRST ISSUE ENERGY SECURITY STRUGGLE IN CASPIAN REGION FROM THE VIEW OF IMPORTANT PIPELINE PROJECTS

"Majority of Turkmen gas • Important portion of gas reservoirs are • Majority of gas is exported to Russia and high pressure and temperature reservoirs some portion of gas is exported to China is exported to Russia and have high percentages of H2S and and Iran. and some portion of gas CO2; means not easy to develop due to • Important portion of gas reservoirs are economical & technical aspects. high pressure and temperature reservoirs is exported to China and • Due to important gas reserves, having at- and have high percentages of H2S and traction of all other players in the region. CO2; means not easy to develop due to Iran." • Main energy security targets are: economical & technical aspects. • To get attraction of new foreign inves- • Due to important gas reserves, having at- tors and develop more gas fields traction of all other players in the region. • To continue to securely access to Rus- • Main energy security targets are: sia, Iran and China’s gas markets • To get attraction of new foreign inves- • To increase the capacity of transporta- tors and develop more oil and gas fields tion to access China’s gas markets • To continue to securely access to Rus- • To access to Pakistan, India and Euro- sia, Kazakhstan & Kyrgyzstan’s gas pean gas markets via planned pipelines markets • To complete the construction of these • To increase the capacity of transporta- relevant pipelines (TAPI & Trans Cas- tion to access Russia’s gas markets pian) • To access to China’s gas markets via • To reach gas export capacity of 230 Central Asia-China Pipeline after ca- bcma in 2035 (expected to be more pacity extension than 140 bcma) • To reach gas export capacity of 80 • To reach oil export capacity over 1 mil- bcma in 2035 lion bbld in 2035 (expected to be more • In the short term; increase gas to liquid than 250 000 bbld (due to expected converting process capacities to reduce increasing condensate production; but oil imports new infrastructures to transport will be • To explore and develop possible oil needed) shale reserves • To complete East-West pipeline inside • To construct new facilities to decrease Turkmenistan and have the ability to flaring of associated gas and increase transport South East resources to the usage (Today nearly 2 bcma gas is Caspian Sea markets (Then from Trans flared) Caspian to EU (also seems uneconomic)) KAZAKHSTAN • To solve conflicting claims over the maritime and seabed boundaries of • An important oil exporter in the region: Caspian Sea with Iran & Azerbaijan • Today having an oil exporting capacity of more than 1,4 million bbld UZBEKISTAN • Today having a gas exporting capacity of more than 10 bcma • An important gas exporter in the region: • International huge oil companies are in- • Today having a gas exporting capacity terested for investment but also there are more than 9 bcma some obscurities on legal regulations. • A lack of sufficient foreign investment. • An important oil exporter for Europe- • Being located far from the important an Markets (with more than 50% of oil markets and land locked in all sides. production) and also China (more than • A lack of sufficient export pipeline infra- 15%). structure. • All gas exports are transported to Russia

ENERGY POLICY TURKEY Page 56 OĞUZHAN AKYENER

(Mainly for gas processing plants). Gulf Countries. "International huge oil • Geographically important dependency to • International sanctions negatively af- companies are interested Russia for oil exports. fected all parts of the oil and gas market • More than 85 percent of gas produced in Iran including; the export & import for investment in Kazakh- in Kazakhstan is associated gas. Nearly 5 movements, development of new fields, bcma part of gas production is reinjected. new transportation projects, foreign in- stan but also there are vestments and etc. (For example: In spite • Main energy security targets are: of the above oil export capacity, today some obscurities on legal • To continue to securely access to exist- Iran can export less than 800 000 bbld). regulations." ing oil markets through Russia, Azer- • If Iran cannot find a peaceful solution to baijan and also China’s oil markets stop the sanctions and change all scenar- • To develop the giant oil field Kasha- ios, then the main energy security targets gan and continue developing of new can be: phases of other 2 giant fields; Tengiz & • To continue to securely access to exist- Karachaganak ing oil markets, which are 50% China • To reach oil export capacity of 2,5 mil- & India, 20% Japan & N. Korea and lion bbld in 2035 20% Turkey & Spain & Italy & Greece • To have more control over the existing • Find some back doors to perforate the and future projects in Kazakhstan sanctions such as: • To increase the capacity of transporta- • More swap agreements in oil & gas tion to access China’s oil markets trade movements • To complete the construction of Es- • To increase the swap capacity; mak- kene-Aktau Pipeline for domestic oil ing investments in anti US & EU transportation, and domestic natural countries gas pipeline system for gas distribu- • Prepare suitable legal legislations for tion and for meeting the gas import foreign investors to make investment demand from Uzbekistan and Russia in development projects in Iran • To construct Trans Caspian and Ka- • Develop shared reservoirs as specially zakhstan-Turkmenistan-Iran Oil Pipe- South Pars Field: lines for market diversification of oil exports • By developing gas fields, export the "International sanctions gas as LNG by constructing rele- • To reach gas export capacity of 60 vant facilities negatively affected all bcma in 2035 • Make agreements with Turkey to parts of the oil and gas IRAN sell extra gas, develop the transportation capacities and make Turkey market in Iran includ- • Iran holds the world’s second largest to construct an LNG facility if proven gas reserves and world’s fourth needed ing; the export & import largest proven oil reserves. • Make suitable agreements with Pa- movements, develop- • Very important oil & gas exporter in the kistan for gas export region: • Assist Pakistan for her internal ment of new fields, new • Today having an oil exporting capacity gas distribution system transportation projects, of more than 1,7 million bbld • Develop the construction of Iran- • Today having a gas exporting capacity Iraq-Syria Gas Pipeline foreign investments and of more than 10 bcma (Only Turkey is importing gas from Iran) RUSSIA etc."

• Is a member of OPEC. • Russia holds the world’s largest proven • Holds the Strait of Hormuz, which is an gas reserves and world’s eighth largest important route for oil exports of Persian proven oil reserves.

Page 57 FIRST ISSUE ENERGY SECURITY STRUGGLE IN CASPIAN REGION FROM THE VIEW OF IMPORTANT PIPELINE PROJECTS

• Very important oil & gas exporter in the Central Europe, avoiding Ukraine’s region: territory, construct south stream gas • Today having an oil exporting capacity pipeline of more than 7.4 million bbld • Make investments to explore new oil • Today having a gas exporting capacity & gas resources of more than 175 bcma • Use the technology, some enhanced • In addition, an important gas importer recovery methods and make invest- in the region. ments for new phases of development • Russia – EU’s largest energy resources to avoid decreasing production trends importer (2009).4 in the important maturing oil fields • 36% of the EU’s total gas imports INDIA originate from Russia • 31% of the EU’s total crude oil im- • India is the fourth largest energy con- ports originate from Russia sumer in the world after US, China and 7 • 30% of the EU’s coal imports originate Russia. from Russia • Very important oil & gas importer: • The EU – Russia’s largest trade partner • Today having an oil importing capaci- for the energy goods.5 ty of more than 2.7 million bbld • 80% of all Russian oil exports go to • Today having a gas importing capacity "Caspian region -where the EU of more than 14 bcma • 70% of all Russian gas exports go to • Most of the oil imports are supplied from important gas supply po- the EU the Middle East countries (64%) and • 50% of all Russian coal exports go to only lower than 6% rate is coming from tentials exist- has always the EU Iran. been directly related to • Most of Russian parts of the Caspian Sea • All natural gas demands are met by (usu- are unexplored and undeveloped but may ally long term) LNG imports and the the huge importers’ ener- hold large hydrocarbon reserves. internal gas production (In 2011, India was the 6th largest LNG importer in the gy security issues, such • Most important oil producing fields in world). Russia are mature and having a declining as EU and Turkey." production trend. • There is an important incremental rate in oil and gas demand for India. • Russia has an extensive domestic and export pipeline network.6 • In addition, India is an important oil importer, due to the refinery capacity; she • Main energy security targets are: is a net exporter of petroleum products. • To continue to securely access to ex- • Up to 2.6 tcm unconventional gas re- isting oil and gas markets (mainly EU, sources (coalbed methane) potential is China, Japan, Turkey) estimated to exist in onshore and offshore • To continue the market share volumes, India. dominance and influence on EU oil & • Main energy security targets are: gas markets • Meet the increasing energy demands • By importing oil or gas from Turk- menistan – Kazakhstan & Uzbeki- • Make India an energy independent stan, increase export capacity (also buy country; cheaper and sell with higher prices) • Development and exploration of • Get prepared for oil & gas supply in- unconventional resources (such as frastructure for the increasing demand coalbed methane and shale gas) in China • Investment on new exploration • For having an alternative gas route to and development projects

ENERGY POLICY TURKEY Page 58 OĞUZHAN AKYENER

• Decrease the usage percentage of • Investment on new exploration and "Most of Russian parts motor fuels development projects by mostly focus- of the Caspian Sea are • Energy efficiency ing on western interior provinces and offshore fields • Make investments on gas pipeline unexplored and undevel- infrastructure to meet the increas- • Apply enhanced recovery methods for ing gas demand maturing fields oped but may hold large • Energy efficiency • Construct TAPI pipeline and im- hydrocarbon reserves." port Turkmen gas • Make investments on construction • If there is a solution for the US and integration of domestic oil & gas sanctions on Iran; construct IPI pipeline infrastructure (Iran-Pakistan-India) Pipeline to • Increase the oil supply capacity from import Iranian gas Russia & Kazakhstan and gas supply • Increase LNG terminals import ca- capacity from Turkmenistan (also add pacities and make more long-term Uzbekistan to the supplier list) agreements with the sellers • Make relevant agreements and build • With the Indian oil and gas compa- pipelines for gas supply from Russia to nies, take part in important oil and China (two pipelines with total capac- gas E&P projects all over the world ity of 80 bcma + Altai Pipeline with capacity 30 bcma) CHINA • Construct an oil import pipeline from Myanmar to bypass the potential • China is the world’s most populous choke point of Strait of Malacca country and the largest energy consumer • In the short term, complete the con- in the world. Rapidly increasing energy struction of gas pipeline from Myan- demand has made China extremely influ- mar (with a capacity of 12 bcma) ential in the world energy markets.8 • With the Chinese oil and gas compa- • Very important oil & gas importer: nies, take part in important oil and gas • Today having an oil importing capaci- E&P projects all over the world "India is the fourth larg- ty of more than 6,4 million bbld • Increase gas storage capacity up to 32 • Today having a gas importing capacity bcm est energy consumer in of more than 40 bcma • Solve territorial disputes with Japan • Most of the oil imports are supplied from the world after US, China the Middle East countries (50%) and EU from Caspian suppliers; 10% from Iran, and Russia." 7% from Russia, 4% from Kazakhstan. • EU is the largest energy consumer struc- • There is an important incremental rate in ture in the world. oil and gas demand for China. • Most important oil & gas importer in the • Up to 10 tcm unconventional gas re- world: sources (coalbed methane) potential is • Today having oil importing capacity of estimated to exist in onshore and offshore more than 10 million bbld prospects. • Today having a gas importing capacity • Main energy security targets are: of more than 300 bcma • Meet the increasing energy demands • 36% of the EU’s total gas imports orig- • Diversify supply sources, make long inate from Russia and around 28% is term contracts from Norway, and other important portion is from Algeria, Qatar, Nigeria and • Development and exploration of un- Libya. conventional resources • A central gas import system and policy • Set domestic wholesale energy prices

Page 59 FIRST ISSUE ENERGY SECURITY STRUGGLE IN CASPIAN REGION FROM THE VIEW OF IMPORTANT PIPELINE PROJECTS

"Rapidly increasing en- exists for the union. sustainable energy supplier for EU ergy demand has made • 31% of the EU’s total crude oil imports • Decrease gas imports, increase efficien- originate from Russia and around 10% cy, use more renewables China extremely influen- from Norway and other imports are orig- • Develop and implement common en- inate mainly from Libya, Saudi Arabia, ergy policies with all EU members tial in the world energy Kazakhstan & Iran, Nigeria, Azerbaijan, Iraq and other middle east countries. markets." • Some members of EU is directly depen- IMPORTANT PIPELIES IN THE RE- dent on Russian gas import, this situ- GION & CAPACITIES ation becomes a strategic constraint for the union’s energy security issues. Pipeline capasities and regional energy players are listed in Table 4. • Main energy security targets are: • Continue to meet the energy demand ANALYSIS in a sustainable, competitive and secure way To check all the players’ 2035 extra supply • Less greenhouse gas and carbon emis- and demand potentials on Map 2 & 3 (2035 sions value – today’s value): • Use more biofuels In 2035: • Increase market competition • Focus on the Caspian gas market and • EU does not need extra oil supply so; work on potential supply possibilities main item for EU energy security is gas. for diversity of resources; • China and India need very important • For the initial step, transport Azer- amount of oil supply and they will not baijan gas to EU (with SCPX- meet their demand only from the Cas- TANAP-TAP) pian Region. Moreover, oil supply in the Caspian region will decrease (as 1.2 • For the second step, transport Azer- million bbl/d) in spite of the expected baijan’s future gas to EU (after ex- production increase in Kazakhstan. (The tending the capacities of existing assumption is made by considering that pipelines and also construct IAP) there will not be a solution for the sanc- • For the third step, transport Iraq tions on Iran. If a solution to the sanc- or/and East Mediterranean Sea gas tions can be addressed, Iran will change to EU (after the extension of con- all the oil supply potential in the region. structed infrastructure in the previ- Otherwise, India and China will have to ous steps and also construct Nab- find oil supplies from the Middle East- ucco West) North America or Africa). • For the fourth step, transport Turk- • From this view, meeting both oil and gas men gas to EU (Trans Caspian) demands are the most important energy (but seems not-economic) security issues for India & China. • Check for other gas supply potentials • There is totally 428 bcma extra gas sup- via pipeline or LNG ply with the Caspian Region players and • Develop a Strategic Energy Technolo- 895 bcma extra demand from the region. gy Plan to develop technologies in ar- This means struggle in gas demand secu- eas including renewable energy, energy rity will be deepened. conservation, low-energy buildings, • For logical analysis of this struggle, some fourth generation nuclear reactor, other items also have to be considered clean coal and carbon capture such as: • Develop an Africa-Europe Energy • Other gas demanding markets those partnership for the continent to be a can get supplies from this region such

ENERGY POLICY TURKEY Page 60 OĞUZHAN AKYENER

Table 4: Caspian energy players and existing & future pipeline capacities.

Page 61 FIRST ISSUE ENERGY SECURITY STRUGGLE IN CASPIAN REGION FROM THE VIEW OF IMPORTANT PIPELINE PROJECTS

In addition to the suitable capacities of the as Turkey, Japan, Korea and etc. pipelines, the tariff estimations, transporta- • Other supply potentials from Afri- tion costs and the market prices also have to ca-North America or Middle East (but be considered in analysis. more extra LNG capacities have to be After checking the future available transpor- constructed for such an option) tation capacities of pipelines in the region (as • EU policy to diversify gas supply re- assuming future pipeline constructions will sources and mitigating gas dependency successfully be completed), Map 4 below is to Russia prepared, which is showing each suppliers’ • There is going to be a struggle among transport capacity available in 2035. the gas suppliers in the region (Mainly "EU is the largest energy between Russia and others) As a result of Map 4: • Effects of unconventional resources in consumer structure in the • Both China & India do not have enough supply and gas prices planned gas transportation capacities in world." • Long and short term gas prices effects 2035 to meet their demands. Both coun- • Pricing, sale & contract mechanisms tries can negotiate on having more supplies from Turkmenistan & Uzbekistan. • Success possibilities of planned pipe- For China, always there will be a possi- lines & development projects bility to have more gas from Kazakhstan • Iran and the sanctions and Russia, however, range of extra investments and gas prices are important. After shortly analyzing supply-demand balances in the region between the energy play- • EU also will not have enough transpor- ers in 2035, it is observed that the struggle is tation capacities in 2035. New LNG going to be mainly on the gas resources and projects, Azerbaijan – North Africa and gas supply securities. Eastern Mediterranean gas resources will be important for EU’s gas security future. Subsequent to selecting gas for evaluating the • Russia will have huge amount of extra supply-demand balances, the other most im- supply transportation capacity and to EU portant factor that is going to determine the (Assuming South Stream with 63 bcma results of this struggle and the changes in the will be agreed with EU and completed). balances are the transportation capacities of However, it will be better for Russia to the gas pipeline projects. agree with China, develop new trans-

Map 2: 2035 Extra gas supplies and demands.

ENERGY POLICY TURKEY Page 62 OĞUZHAN AKYENER

Map 3: 2035 Extra oil supplies and demands (unit: million bbl/d).

portation facilities and export her gas to • For Uzbekistan and Kazakhstan, both huge demander southern neighbor (Also have to decrease gas exports to Russia and today’s sanctions and political problems make better sale agreements with China have to be taken into consideration). and increase their pipeline capacities to China. • For Turkmenistan, it will be better to "In 2035, EU does not increase the transportation capacities to • Russia, have to secure her dominancy in India and China and make extra exports all markets and continue to import Cas- need extra oil supply so; to those countries. In the EU side; there pian gases to export to the other import- are important political and economic ers. main item for EU energy problems waiting for solutions (economic problems will be more difficult to solve security is gas." due to the pricing regulations of EU and SUMMARY high tariffs), that is why gas supply of Turkmenistan to EU does not seem to be Energy supply-demand balances in the Cas- logical. pian Region are very important and should

Map 4: Available pipeline capacities in 2035 (including open volumes of existing lines + new pipelines, units are in bcma).

Page 63 FIRST ISSUE ENERGY SECURITY STRUGGLE IN CASPIAN REGION FROM THE VIEW OF IMPORTANT PIPELINE PROJECTS

"Suitable capacities of be very carefully followed by the main players in the region. It is very important to analyze the pipelines, the tariff today’s and future supply-demand potential scenarios to be able to absorb these balances estimations, transporta- correctly. In addition to the supply-demand tion costs and the market potentials, transportation capacities in the region are also very important. prices also have to be As a result of this study, it is observed that considered in analysis." there are struggles and even more important struggles are expected to happen on gas supply balances between all energy players of Caspian Region. Pipeline capacities and politics are important determining key factors among these balances.

REFERENCES

1 BP Statistical Review & CIA Fact Book. 2, 3 International Energy Outlook, 2012. 4,5 The Directorate-General for Energy, “Rus- sia”, European Commission; accessible from http://ec.europa.eu/energy/international/russia/russia_en.htm 6,7,8 US EIA, “Russia Country Report”, Septem- ber 2012.

ENERGY POLICY TURKEY Page 64 OĞUZHAN AKYENER

"Pipeline capacities and

politics are important de-

termining key factors for

the gas supply balances

between all energy play-

ers of Caspian Region."

Page 65 FIRST ISSUE DOABILITY OF TRANS-CASPIAN PIPELINE AND DELIVERABILI- TY OF TURKMEN GAS TO TURKEY & EU

by Oğuzhan Akyener

ABSTRACT over, since being clean & easy to use and shale gas effect on prices, natural gas is expected to Due to increasing demand, gas supply is one be the second world’s leading consumed fuel of the most strategic energy security issues in the future. for huge importers. By taking that into consideration, Caspian region, where important Caspian, including Russia, Turkmenistan, gas supply potentials exist is related directly Kazakhstan, Uzbekistan, Azerbaijan and with the huge importers' energy security is- Iran, is the most important region accord- sues, which are mainly EU, China, India and ing to her proved gas reserve potential in the Turkey. world (46,7% of world share1). Moreover, due to the geographical properties (located As an important gas supplier country locat- in the middle of the important consumers; "One of the most popular ed in the Caspian Region, Turkmenistan and China, India, EU and Turkey), importance of her future gas supplies are becoming more Caspian region for the world gas politics is projects that are related important for the importers. As a result, each increasing. importer is preparing long term plans and to Turkmen gas resourc- developing new projects to import the gas re- Table 1 gives numerical information about es is the Trans Caspian sources from Turkmenistan. the reserves, production and consumption values of Caspian and Caspian gas demand- gas pipeline, which is One of the most popular projects that are re- ing countries. lated to Turkmen gas resources is the Trans planned to transport Caspian gas pipeline, which is planned to It is observed from Table 1 that; there is an transport Turkmen gas through Caspian Sea important volume of gas supply potential Turkmen gas through to Azerbaijan, and then with other available (such as 250 bcma) in Caspian region and pipelines to Turkey and Europe. Naturally, an important demand volume (such as 400 Caspian Sea to Azerbai- this pipeline is an important energy security bcma) in nearby areas. issue for Turkey, Azerbaijan and EU. Howev- jan, and then with other er, there are important political, technical and Due to difficulties faced during transportation, storage and marketing procedures of available pipelines to economic challenges to overcome. natural gas, long term plans and forecasts are Turkey and Europe." In this study, after a short outlook into the gas a lot more important than any other energy politics in the Caspian Region (mainly Turk- resources. That’s why, for coherent gas poli- menistan related issues); importance of Trans tics, long term estimations are very import- Caspian gas pipeline project will be described. ant. Forecasts for the 2035 supply and de- Then, doability of this popular project will be mand potentials of these countries are given evaluated from the technical, political, and in the Table 2. economic perspectives. Additionally, Iran's claim to transport Turkmen gas through Iran In this scenario to focus on Turkmenistan; to Turkey instead of Trans Caspian project she has the 3rd important gas reserves and will be compared economically. 2nd (except Iran-no logical estimations due to sanctions) supply potential for the demand markets. Besides, India, China, Turkey and CASPIAN REGION GAS POLITICS & EU are the possible future buyers. IMPORTANCE OF TURKMENISTAN A brief insight into the Turkmenistan energy After oil and coal, natural gas is the most im- market; portant energy resource in the world. More-

ENERGY POLICY TURKEY Page 66 TR EU Iran India China Russia Azerbaijan Uzbekistan Kazakhstan Turkmenistan Proved Gas Reserves tcm 0,9 17,5 1,1 1,3 33,6 32,9 1,3 3,1 1,9 0,006 Gas Production bcma 15,6 64,4 56,9 19,7 160,5 592,3 40,2 107,2 153 0,6 Gas Consumption bcma 8,5 23,3 47,9 9,5 156,1 416,2 54,6 146,6 456 39 Demand Volume bcma -7,1 -41,1 -9 -10,2 -4,4 -176,1 14,4 39,4 303 38,4 1 year Prod/Reserves 0,017 0,004 0,052 0,015 0,005 0,018 0,031 0,035 0,081 0,100 RESULT SUPPLY SUPPLY SUPPLY SUPPLY SUPPLY SUPPLY DEMAND DEMAND DEMAND DEMAND

Table 1: Energy statistics of the main energy players in Caspian Region (Current data). TR EU Iran India China Russia Azerbaijan Uzbekistan Kazakhstan Turkmenistan Gas Supply bcma 40 140 80 60 No Est. 350 Gas Demand bcma 190 500 560 84

Table 2: 2035 Gas supply-demand potentials of main energy players in Caspian Region.

• An important gas exporter in the region 5. To complete the construction of these (2nd). relevant pipelines (TAPI & Trans Cas- • Having an oil exporting capacity more pian) than 100 000 bbld. 6. To reach gas export capacity of 230 • Having a gas exporting capacity more bcma in 2035 (expected to be more than 40 bcma. than 140 bcma) 7. To reach oil export capacity over 1 mil- • Lacking of sufficient foreign investment. "Turkmenistan has the lion bbld in 2035 (expected to be more • Located too far from the important mar- than 250000 bbld (due to expected in- 3rd important gas re- kets (China-India-EU-TR). crease in condensate production; but • Lacking of sufficient oil export pipeline new infrastructures for transportation serves and 2nd (except infrastructure. will be needed) • Majority of gas is exported to Russia and 8. To complete East-West pipeline inside Iran-no logical estima- some portion is exported to China and Turkmenistan and to have the ability tions due to sanctions) Iran. to transport South East resources to • Important portion of gas reservoirs are the Caspian Sea markets (Then from supply potential for high pressure / temperature reservoirs Trans Caspian to EU) and have high percentages of H2S and 9. To resolve conflicting claims over the the demand markets. CO2, which means not easy to develop maritime and seabed boundaries of due to economical & technical aspects. Caspian Sea with Iran & Azerbaijan Besides, India, China, • Main energy security targets are: Turkey and EU are the Note that items 4, 5, 8, and 9 are related di- 1. To attract new foreign investors and rectly with the Trans-Caspian pipeline project develop more gas fields possible future buyers." 2. To continue to securely access to Rus- sia, Iran and China gas markets GAS EXPORT INFRASTRUCTURE OF 3. To increase the capacity of transporta- TURKMENISTAN tion to access China gas markets Table 3 summarizes existing and planned gas 4. To access Pakistan, India and Europe- export infrastructure of Turkmenistan. As an gas markets via planned pipelines highlighted with yellow, Trans-Caspian gas

Page 67 FIRST ISSUE DOABILITY OF TRANS-CASPIAN PIPELINE AND DELIVERABILITY OF TURKMEN GAS TO TURKEY & EU

pipeline project is the planned infrastructure and Turkey via SCPFX and TANAPX and to transport Turkmen gas to TR and EU. will carry 30 bcma gas annually.

MILESTONES OF THE PROJECT "Resolving conflicting TRANS-CASPIAN GAS PIPELINE PROJECT Before the investment decisions of Trans-Cas- claims over the maritime pian pipeline project, there are important milestones and risks to be considered. If these and seabed boundaries INTRODUCTION milestones cannot be overcome then this of Caspian Sea with Iran The idea to transport Turkmen gas to Europe project will not be realized. continues to be popular since the start of the & Azerbaijan must be Turkmen independence. This idea has devel- POLITICAL oped as the Trans-Caspian gas pipeline proj- a priority for Turkmeni- ect. Many changes occurred in the structure The delimitation of the economic zone be- and strategies of this pipeline. For instance, tween Caspian countries negatively affects stan." the plan used to include NABUCCO and the investment possibilities in the region. SCPX pipeline, however political and com- As seen from Map 1, Turkmenistan has dis- mercial decision makers have changed the agreements with both Azerbaijan and Iran roots of the projects. but Trans-Caspian pipeline project is affected directly by the conflicts between Azerbaijan With the last updates, Trans-Caspian gas and Turkmenistan. This is the first issue that pipeline is planned to run under the Caspian has to be overcome. Sea (See Map 1) from Türkmenbaşy to the Sangachal Terminal, then to connect to EU This issue is also related with the sharing of

GAS EXPORT PIPELINES

From (Supply Through To Capacity Name of Pipeline Country) (Countries) (Markets) (bcma)

CAC TURKMENISTAN TURK-UZB-KAZ RUSSIA 100 KORPEZHE KK TURKMENISTAN TURK IRAN 13 DAULETABAT-KANGIRAN TURKMENISTAN TURK IRAN 6

EXISTING CENTRAL ASIA-CHINA TURKMENISTAN TURK-UZB-KAZ CHINA 40 BUKHARA-URALS TURKMENISTAN TURK-UZB-KAZ RUSSIA 20 EAST-WEST TURKMENISTAN TURK CASPIAN 30

TURKMENISTAN TAPI TURKMENISTAN TURK-AFG-PAK INDIA 34 TRANSCASPIAN TURKMENISTAN AZ TURKEY-EU 30 FUTURE CENTRAL ASIA-CHINA X UZBEKISTAN UZB CHINA +18

Table 3: Gas export pipelines of Turkmenistan.

Map 1: Proposed Trans-Caspian Pipeline.2

ENERGY POLICY TURKEY Page 68 OĞUZHAN AKYENER

"Trans-Caspian Pipe-

line to be reasonable a

pipeline, production costs

of the fields, tariffs of

related pipelines and EU

& TR gas market prices

become important."

Map 2: Caspian Sea border problems.

some important oil and gas fields around the Map 3 shows the extra gas supply & demand borders such as ACG & Kepez, therefore the potentials of the related countries in 2035. solution will not be easy (also EU&US sup- According to the estimations, there seems to ports to have a solution). be enough market potential in EU & TR for 30 bcma (max. capacity of Trans-Caspian) COMMERCIAL Turkmen gas. However, market potential can change due to other supply possibilities such Commercial milestones may be the most as Russia, Iran, Iraq and Western Mediterra- difficult steps to overcome. Hence, the com- nean. The most deterministic factor in the merciality of a pipeline is related directly with market share will be the gas prices. Naturally, the commerciality of gas production projects. Azeri gas is one step forward than the Turk- Not increasing or decreasing gas prices (due men gas in the struggle due to less tariff costs. to the changes in agreement types and shale Moreover, if the political situations and sanc- gas affects); huge tariffs are the main elements tions in Iran changes, then due to average gas for gas development projects to be commer- production unit costs and gas quality param- cial. eters; Iran and Iraq will be one step forward than the Turkmen gas in TR & EU markets. Trans Caspian gas pipeline is planned to As a result, market is another risky milestone transport Turkmen gas to EU & TR markets. for the doability of the Trans Caspian pipe- "The most determinis- Trans-Caspian Pipeline to be reasonable a line project. pipeline, production costs of the fields, tar- tic factor in the market iffs of related pipelines and EU & TR gas FINANCIAL market prices become important. If a more share will be the gas economical way is found for transportation of The owner of the project will probably be prices. Naturally, Azeri Turkmen gas (such as India-China or Russia) Turkmenistan and EU and WE support the then there will be no need for Trans-Caspian project. This shows that both Turkmenistan gas is one step forward pipeline project. can finance such an investment with her own resources and easily find credit from western than the Turkmen gas in MARKET RELATED funds. As a result, financial milestones do not contain any risks for the project. the struggle due to less Hence, gas and pipeline projects require long term plans and projections before the devel- Note: Azerbaijan may possibly be a partner of tariff costs." opment of investment decisions for the eval- this project but this is a weak probability due uation of Trans-Caspian pipeline’s preferred to SOCAR’s investment projections around markets (TR & EU), the earliest 2035 pro- the region. jections have to be studied.

Page 69 FIRST ISSUE DOABILITY OF TRANS-CASPIAN PIPELINE AND DELIVERABILITY OF TURKMEN GAS TO TURKEY & EU

"Financial and technical milestones of the project do not place any obsta-

cles for the doability of

the Trans Caspian gas

pipeline project."

Map 3: EU-TR-Caspian-Middle East 2035 gas supply and demand potentials.

TECHNICAL that will be used to reach TR & EU markets have to be studied. Technical milestones are not too crucial to overcome. Caspian Sea and the planned TECHNICAL PROPERTIES OF Trans-Caspian pipeline route’s water depth TRANS-CASPIAN (ESTIMATION) is not so much (i.e. maximum 300 meter in the deepest point). Although more studies • Start Point: Turkmenbasy / Turkmenistan have to be done to handle the topographic • End Point: Shangachal Terminal / Baku and geological risks of Caspian subsurface / Azerbaijan (mud volcanos) generally, geographical struc- • Total Length: 338 km tures and climate effects are not so difficult to • Max. Water Depth: 300 m overcome. As a result, there are no important technical and technological milestones to • Operating Capacity: 30 bcma overcome. • Inlet Pressure: 10 bar • Outlet Pressure: 90 bar After the Azerbaijan/Shangachal Terminal point, the transportation of Turkmen gas will • Pipe Diameter: 60” be another question and again, will be eval- • Thermal Isolation Material Quality: uated technically and commercially. Hence, Middle Quality SCPX, which is going to transport SD2 gas • Estimated CAPEX (MOD): 7 billion to TR, and TANAP (through Turkey to EU) USD capacities and extension possibilities have to be studied technically and commercially. • Estimated Tariff (MOD) (10% IRR based): 75 USD/1000 m3 EVALUATION OF THESE MILESTONES POSSIBLE ROUTES FOR TURK- As described in the previous chapter, finan- MEN GAS AFTER SHANGACHAL cial and technical milestones of the project do TERMINAL not place any obstacles for the doability of the Trans Caspian gas pipeline project. FROM AZ TO TR

To evaluate the political, commercial and the Hence, Azerbaijan is not a market for Turk- market issues, initially some technical aspects men gas and all gas will have to be transport- of the pipeline and the other possible roots ed to TR and then to some portion of EU.

ENERGY POLICY TURKEY Page 70 OĞUZHAN AKYENER

30 bcma gas will directly be transported to capacity to accept 12 bcma gas in the eastern Turkish border. border of Turkey, so BOTAŞ also has to make an investment for such an option. Moreover, The only gas transportation facility from TANAP is going to be constructed with an Azerbaijan to Turkey is SCP and new extend- operating capacity of 23 bcma. Then in ed looped version SCPX pipeline. Total ca- 2026 this capacity is planned to be extended pacity of SCP & SCPX is around 26 bcma (TANAPX) up to 31 bcma. This extra volume and with some extension works capacity can will be devoted for extra Azerbaijan gas sup- be increased. However, for 30 bcma gas trans- ply potential. So, this option will not be the portation, a new standalone pipeline will be most probable choice.) a better solution. Moreover, Azerbaijan estimated to have extra gas supply potential for • Start Point: Western Turkish Border SCPX after 2025. So, for any SCPFX option, • End Point: Eastern Turkish Border Azerbaijan is going to use that capacity. • Total Length: 1000 km From Shangachal Terminal to Turkish border • Operating Capacity: 18 bcma a new standalone gas pipeline construction is • Inlet Pressure: 90 bar planned. With technical properties; • Outlet Pressure: 10 bar • Start Point: Shangachal Terminal • Loop Pipe Diameter: 54” • End Point: Turkish Border • Thermal Isolation Material Quality: • Total Length: 690 km Middle Quality • Operating Capacity: 30 bcma • Estimated CAPEX (MOD): 10 billion USD "Azerbaijan is not a • Inlet Pressure: 90 bar • Estimated Tariff (MOD) (10% IRR market for Turkmen gas • Outlet Pressure: 10 bar based): 110 USD/1000 m3 • Pipe Diameter: 58” and all gas will have to • Thermal Isolation Material Quality:TR to EU Option2: Middle Quality be transported to TR and Similar to TANAP a new 30 bcma capacity • Estimated CAPEX (MOD): 8 billion standalone gas pipeline is constructed and then to some portion of USD TR’s portion is transported to the western • Estimated Tariff (MOD) (10% IRR Turkey and EU’s portion is transported to EU. 30 bcma gas will based): 85 USD/1000 m3 western Turkish border. This seems the most probable scenario. directly be transported FROM TR TO EU • Start Point: Western Turkish Border to Turkish border. A new In the Turkish border there are 2 options; • End Point: Eastern Turkish Border standalone gas pipeline • First: Due to commercial and political • Total Length: 2000 km construction from Shan- issues 40% of 30 bcma gas is sold in Tur- • Operating Capacity: 30 bcma key and 60% is transported to EU. • Inlet Pressure: 90 bar gachal Terminal to Turk- • Second: All gas sold in TR market or • Outlet Pressure: 10 bar transported and sold in EU market. ish border is planned." • Pipe Diameter: 48” TR to EU Option1: • Thermal Isolation Material Quality: Middle Quality 12 bcma is transported & distributed in- • Estimated CAPEX (MOD): 12 billion side TR market via BOTAŞ’s own facilities USD and other 18 bcma is transported to EU via looped TANAPFX. • Estimated Tariff (MOD) (10% IRR based): 130 USD/1000 m3 (However, today BOTAŞ do not have enough

Page 71 FIRST ISSUE DOABILITY OF TRANS-CASPIAN PIPELINE AND DELIVERABILITY OF TURKMEN GAS TO TURKEY & EU

"Similar to TANAP a TR to EU Option3: All gas is sold to Turkey will not be so much exciting for Azerbaijan.

new 30 bcma capacity For this option, all gas being sold to BOTAS Moreover, Turkmenistan may have other in the Turkish border is planned and all in- more commercial options to sell her own gas standalone gas pipeline side Turkey transportation investments will (as India & China). is constructed and TR’s belong to Turkey. However, situation of Turk- ish market, demand potential and BOTAŞ’s Russia and Iran’s effect to the solution of the portion is transported to infrastructure are other unknowns that make border problem in the Caspian Sea is also this choice non-probable. important. They may not let such a solution, the western Turkey and which will be in favor of EU. TR to EU Option4: All gas is sold to EU EU’s portion is transport- MARKET EVALUATION Similar to TANAP a new 30 bcma capacity ed to western Turkish standalone gas pipeline will be constructed Due to higher estimated tariffs and unit pro- all gas is transported to EU. Technically this duction costs, Turkmen gas cannot compete border." option is similar with the second option, only with other gas suppliers in Turkish and EU the average tariff is estimated as 5 USD less gas markets. All Azeri, Russia, Iraq and Iran (due to transportation of all volume up to the gas supplies will be cheaper for those mar- western point of Turkey) kets. Moreover, the supply potentials of these countries are estimated to meet the demand • Start Point: Western Turkish Border in such markets. • End Point: Eastern Turkish Border COMMERCIAL EVALUATION • Total Length: 2000 km • Operating Capacity: 30 bcma To start the commercial evaluation, an average • Inlet Pressure: 90 bar gas production cost for western Turkmenistan region has to be estimated. Hence, important • Outlet Pressure: 10 bar portion of gas reservoirs in the western Turk- • Pipe Diameter: 48” menistan are high pressure and temperature • Thermal Isolation Material Quality:reservoirs and have high percentages of H2S Middle Quality and CO2; the unit costs to develop and produce the fields will be high. That is why an • Estimated CAPEX (MOD): 12 billion average of 150 USD / 1000 m3 will be taken USD as the unit cost. • Estimated Tariff (MOD) (10% IRR based): 125 USD/1000 m3 Condensate & gas ratios and condensate sales will not be included into the estimations. EVALUATION Hence usually in condensate rich gas reservoirs, condensate sales are more profitable POLITICAL EVALUATION than gas sales. Sometimes it may be better to inject gas to produce more condensate, so this While transportation of Turkmen gas to EU issue is not included in the scenarios. contains market and commercial risks and this volume of gas is not a vital issue for EU For average commercial evaluations, all values energy security strategies, political border are as MOD. conflict between Azerbaijan and Turkmeni- stan cannot be solved only for Trans-Caspian For average market prices; for EU: 400 USD pipeline project. /1000 m3 and for TR 450 USD / 1000 m3 is estimated. Azerbaijan’s aim to be a gas transit country is understandable. However, hence the solu- The calculated netback prices (without tax) tion of the border conflict affects the share of for only gas sales are given in Table 4. As seen the offshore oil & gas fields such as ACG and from the Table 4, the only commercial option Kepez, this aim (being a gas transit country) is Option 3, which will not be possible due

ENERGY POLICY TURKEY Page 72 OĞUZHAN AKYENER

to Turkish market demand profiles. The most TRANS-CASPIAN VS. TRANS-IRAN probable scenario is option2, whose net back PIPELINE value is -55 USD/1000 m3 gas sales. This means it is better to either inject gas for more As seen in the chapter above, doability of condensate production or find another mar- Trans Caspian gas pipeline project is not pos- ket or not to make any investment. sible due to commercial, political and market related obstacles in the current projections. A MORE OPTIMISTIC SCENARIO However, some Iranian specialists claim that transportation of Turkmen gas through Iran If the average gas prices for EU is taken as to Turkey instead of Trans Caspian project 3 420 USD / 1000m and the unit gas produc- will have better economics. In this chapter, tion cost for western Turkmenistan is taken this claim will be briefly evaluated. as 120 USD / 1000m3, without changing the tariffs (hence the total investment costs of TECHNICAL PROPERTIES OF TRANS- "Important portion of gas each pipeline are already optimistic values); IRAN PIPELINE (ESTIMATION) then the new commercial summary is given reservoirs in the western in Table 5. According to the results given in • Start Point: Turkmenbasy / Turkmenistan the table, netback values are better than the • End Point: Agrı / Turkey Turkmenistan are high previous scenario however, for an investor it seems better to take part in a pipeline proj- • Total Length: 1442 km pressure and tempera- ect instead of an E&P project. Moreover, for • Operating Capacity: 30 bcma ture reservoirs and have the most probable option (Option 2), again • Inlet Pressure: 10 bar netback is minus. This means no positive de- • Outlet Pressure: 90 bar high percentages of H2S cision for the investment on Trans-Caspian. • Pipe Diameter: 56” and CO2; the unit costs RESULTS OF THE EVALUATION • Thermal Isolation Material Quality: Middle Quality to develop and produce As a result, the doability of Trans Caspian pipeline is not possible although the gas pric- • Estimated CAPEX (MOD): 16 billion the fields will be high." es and EU demand will increase unexpected USD levels. • Estimated Tariff (MOD) (10% IRR based): 180 USD/1000 m3

OPTIONS TRANSCASPIAN AZ-TR PIPELINE OPTION1 OPTION2 OPTION3 OPTION4 75 85 110 130 0 125 REVENUE 420 420 450 400 NETBACK 0 -55 60 -5 * All values are USD/1000m3 MOD prices

Table 4: Evaluation of commerciality - netback prices of the scenarios.

AZ-TR OPTIONS TRANSCASPIAN PIPELINE OPTION OPTION OPTION OPTION 1 2 3 4 75 85 110 130 0 125 REVENUE 432 432 450 420 NETBACK 42 -13 90 45 * All values are USD/1000 m3 MOD prices

Table 5: Evaluation of commerciality - netback prices of the scenarios (More optimistic scenario).

Page 73 FIRST ISSUE DOABILITY OF TRANS-CASPIAN PIPELINE AND DELIVERABILITY OF TURKMEN GAS TO TURKEY & EU

"Some Iranian specialists

claim that transportation

of Turkmen gas through

Iran to Turkey instead of

Trans Caspian project

will have better econom-

ics."

Map 4: Trans Caspian and Trans Iran Pipelines from Turkmenistan.

COMMERCIAL COMPARISON supply potential is the shining star of the region. That is why all huge consumers are Hence, the gas production price unit in planning and developing projects to meet Turkmenistan and scenarios after the eastern some part of their gas demand from Turkmen border of Turkey are the same, total tariff val- resources. Such as extension of CAC Pipeline ues and total investments will be enough for Project of China, TAPI Pipeline Project of In- comparison. dia and Trans-Caspian Project of EU.

As the calculation shown in Table 6, Iranian For such huge pipeline project investments, transit of Turkmen gas will not be an eco- long term projections, commerciality, poli- nomic choice. TRANS-CASPIAN + AZ-TR TRANS-IRAN PIPELINE PIPELINE Tariff @ TR Eastern Border 180 75+85 =160 (USD/1000m3) Total CAPEX @ TR Eastern 16 7+8= 15 "Gas politics and Cas- Border (bUSD)

pian gas resources are Table 6: Evaluation of commerciality - netback prices of the scenarios.

very important energy POLITICAL-MARKET-TECHNICAL-FI- tics, market views, and etc. are very important security issues for huge NACIAL COMPARISONS items to consider.

consumers around the On the other side, all political, financial and There may be gas resources; however, if those market related issues will be more risky and resources cannot be transported to the market region. Turkmenistan by problematic than the Trans-Caspian scenario via a safe, sustainable and commercial way, due to sanctions on Iran. Only the technical those resources do not mean anything up to having the 3rd reserves milestones may be easier than the rest. the changes in the current conditions. potential and 2nd supply That’s why in this paper, with the risks SUMMARY potential is the shining and milestones, doability of the popular Trans-Caspian pipeline project is evaluated As described in the related chapters, gas pol- star of the region." and as well as an alternative route to transport itics and Caspian gas resources are very im- Turkmen gas to TR and EU through Iran is portant energy security issues for huge con- also compared. sumers around the region. Turkmenistan by having the 3rd reserves potential and 2nd As a result, for the current situation, Trans

ENERGY POLICY TURKEY Page 74 OĞUZHAN AKYENER

Caspian pipeline project does not seem to be a logical choice for investment.

ABREVATIONS

TR: Turkey EU: European Union CAC: Central Asia China TAPI: Turkmenistan Afghanistan Pakistan India CAPEX: Capital Expenditures IRR: Internal Rate of Return ACG: Azeri Chirag Guneshli Oil Field

MOD: Money of the Day "There may be gas TANAP: Trans Anatolia Pipeline TANAPX: Trans Anatolia Pipeline Extension resources; however, if TANAPFX: Trans Anatolia Pipeline Forward Extension those resources cannot SCP: South Caucasus Pipeline SCPX: South Caucasus Pipeline Extension be transported to the SCPFX: South Caucasus Pipeline Forward Extension market via a safe, sus-

REFERENCES tainable and commercial way, those resources 1 BP Statistical Review, “World Energy”, 2013. 2 Wikipedia. do not mean anything

up to the changes in the

current conditions."

Page 75 FIRST ISSUE NORTHERN IRAQ & TURKEY: FROM THE VIEW OF ENERGY POLITICS

by Oğuzhan Akyener and Burak Kayael

INTRODUCTION partners.

Northern Iraq, with the popular name Kurd- As described above, oil and gas resources are ish Region, by having an estimated 40 billion the vital elements for KRG and her relations bbl oil and 8 tcm gas reserves (according to with Turkey. In addition, possible cheaper OPEC reports), is a strategic region for Tur- gas import potential for Turkey from KRG key. In addition to oil and gas reserves, other can be important in the future. That is why, key factors such as historical background, ter- in this study, current position of Turkey in rorism, ethnical properties, existing disputes Kurdistan will be specified and future possi- with the central Iraqi government, Iran and bilities will be analyzed after making an over- "Northern Iraq, with the other countries’ strategies in the region affect view of KRG, Iraq and the oil and gas market the positioning of Kurdish Regional Govern- in Kurdish Region. popular name Kurdish ment (KRG) in Turkish foreign affairs. Region, by having an es- In the last decade, new Turkish strategy on HISTORICAL BACKGROUND timated 40 billion bbl oil improving the social, commercial and political relationships with the KRG made Turkey Iraq is more important to Turkey than being and 8 tcm gas reserves the most important strategic partner for the just a neighbor in the South East with a 331 Kurds in Northern Iraq. Hence, by neglecting km long border. It owns 150 billion barrels of (according to OPEC the illegal or unofficial revenue items, sale of proven oil reserves, which brought the rank oil and gas resources is the vital element for of being the world’s fifth oil rich country. This reports), is a strategic KRG budget. In addition to this fact, by sur- rank makes Iraq a high potential trading part- passing the Central Iraqi Government (CIG), ner for Turkey. Although the relationships be- region for Turkey." today the only way for KRG to sell her pro- tween two countries are undulating according duced oil to the markets is going through to the due time, historical background, other Turkey, via the new built KRG pipeline or via strategic items and mutual economic advan- trucks. tages force both countries having strong in- terrelations. As a result of the partnership, today, KRG is exporting around 600 mb/d oil from Ceyhan It is a known fact that social and cultural "In the last decade, port of Turkey. Furthermore, many Turk- relationships between Turks and Iraqis have ish companies (mostly on construction and been continuing since the Ottoman Empire new Turkish strategy food services) are continuing their business- conquered the Arabic Peninsula and ruled es in KRG governed areas. By estimating the area for over 400 years. Although, in the on improving the social, the increasing export volumes of oil and by mid-1920’s, newly founded Turkish Repub- completing the related infrastructures in the lic claimed that the area known as Kurdish commercial and political upcoming years, gas volumes will result in a Region today should be ruled by her because stronger KRG and more solid relations with of historical, social and cultural relationships. relationships with the Turkey. However, situation of Syria, and oth- League of Western Nations decided that this KRG made Turkey the er effects such as Iran’s influence in the re- area to be ruled by Great Britain. Iraq gained gion, continuing disputes of KRG with CIG, its independency in 1932 and was ruled by most important strategic terrorism and ethnical risks for Turkey may monarchy and republican governments re- change and challenge all the scenarios that spectively. Kurdish society in Northern Iraq partner for the Kurds in have been written. That is why all the items struggled for independency from Iraq but mentioned above also have to be taken into could only gathered autonomous administra- Northern Iraq." consideration while estimating the future tion after the first Gulf War. Today, Kurdish partnerships and interactions between the Regional Government, which is officially a

ENERGY POLICY TURKEY Page 76 part of the federal government in Bagdad, land and income shared between both par- "Today, Kurdish Region- governs the region and Kurds have some eco- ties. KRG seized some areas including Kirkuk nomic and political rights in Iraqi constitu- city, whose legal status should be determined al Government, which tion. However, there are important conflicts with a plebiscite according to Iraqi constitu- is officially a part of the with the two governments, which seem im- tion, and started selling the oil that KRG had possible to resolve. Main conflicts between been producing without central government’s federal government in the central government and the KRG are approval. territorial conflicts (in Kirkuk, Ninawa, Sala- Bagdad, governs the haddin and Diyala Provinces) and the right As the Iraq’s economy shrank 6.4% in 2014, of KRG to sign independent oil/gas explo- oil and gas sales and the economy created by region and Kurds have ration and export contracts. Hence, both of the sales become more vital for both KRG these two items are vitally and commercially and the central government. Despite Iraq has some economic and strategic that makes it hard to find peaceful 8.8% of world’s proven oil reserves it has a solutions. share of only 3.8% worldwide production. As political rights in Iraqi hydrocarbons are Iraq’s first income source, constitution." oil and gas will be surely number one top- CURRENT STATUS IN KURDISH ic for Iraq-KRG relations especially with the REGION AND IRAQ fight against ISIS.

Iraq’s unity is no more valid through its all Already stretched relations between Iraq and legal territory. This is caused mainly by sec- KRG became more inextricable with the bud- tarian and/or ethnical differences among get crisis. Despite KRG has 17% budget share Iraqi people and impotency of CIG. After the according to Iraqi constitution, central Iraqi fall of the dictator, Saddam Hussein, by US government is delaying or canceling the pay- military intervention, an authority gap had ments showing budgetary problems as rea- occurred in Iraq. Certain terrorist groups like son. KRG announced that it will market its ISIS filled that gap in some regions. Today own production to compensate budget defi- "As the Iraq’s economy ISIS is controlling almost 1/4 of Iraq’s legal cit. In addition, federal Iraqi government and territory and hold the control over important KRG agreed on December 3 that KRG will shrank 6.4% in 2014, oil oil and gas reserves and facilities, including supply 250,000 b/d oil to federal government some of both KRG’s and CIG’s areas. Chaos and will facilitate the export of an additional and gas sales and the environment created by ISIS deepened the 300,000 b/d from the fields in Kirkuk op- economy created by the abyss between KRG and CIG, especially for erated by the North Oil Company (NOC). sales become more vital

for both KRG and the

central government."

Map 1: Oil/gas fields and latest authority situation in Iraq.1

Page 77 FIRST ISSUE NORTHERN IRAQ & TURKEY: FROM THE VIEW OF ENERGY POLITICS

Map 2: KRG & Kirkuk-Ceyhan pipelines.2

"As the Iraq’s economy Federal government will share the 17% of the to international markets in 2013 and almost stopped crude oil sales to SOMO (State Or- shrank 6.4% in 2014, oil total crude sales budget in return. However, this agreement has not activated yet. ganization for Marketing of Oil/Iraqi NOC). and gas sales and the According to KRG Ministry of Natural Re- KRG started selling her produced oil directly sources’ production reports, oil amount economy created by the sales become more vital

for both KRG and the

central government."

Figure 1: Oil production and marketing process in Kurdish Region.3

ENERGY POLICY TURKEY Page 78 OĞUZHAN AKYENER AND BURAK KAYAEL

exported via SOMO decreased from 24.5 export amount. million barrels/year (2012) to 8.5 thousand (2013). The massive difference was directed It will be beneficial to explain how oil in- "KRG is using Production to local refineries, KRG pipeline ending in dustry is working in Kurdish Region before Ceyhan/Turkey and trucks mainly heading to stepping into Turkey’s energy politics in the Sharing Contract (PSC) Turkey. area. KRG is using Production Sharing Con- tract (PSC) system to make agreements with system to make agree- Iraqi central government sued KRG in USA International Oil Companies (IOC). Under and some other countries to cease crude oil PSC arrangements, the exploration and pro- ments with International trade without their control. Despite it had duction (E&P) companies bear the financial been ceased for a while, hence the KRG Min- risk until such time a discovery is made. If Oil Companies (IOC). istry of Natural Resources taken their ships there is no discovery made, the E&P compa- Under PSC arrange- away from Texas and relinquished waiting for nies recover no cost. However, if a discovery sale, the existing lawsuit in the due court in is made and the field begins to produce, the ments, the exploration Texas naturally lapsed. However, KRG an- company is permitted to use the money from nounced that there remains no legal obstacle produced oil to recover capital and operation- and production (E&P) to market and sell its own produced oil as the al expenditures, known as "Cost Oil". The court in Texas dismissed the lawsuit of the remaining money is known as "Profit Oil", companies bear the central government. This misleading propa- and is split between the government and the ganda eased KRG’s oil marketing process and company, typically at a rate of about 85% for financial risk until such paying its debts to IOCs acting in Kurdish the government, 15% for the company. The time a discovery is Region. government’s share gets closer to 90% according to the due agreements in the Kurdish Re- made." According to some international news agen- gion. This mechanism is summarized in the cies, main customers for Kurdish oil are Is- Figure 2. rael and China. During April – September 2015, KRG exported around 500-600 thou- According to KRG Ministry of Natural Re- sand barrels of oil daily via KRG pipeline and sources, 50 billion barrels of (proved) oil (al- Kirkuk-Ceyhan (Turkey section) pipeline most 1/3 of total Iraqi reserves) is available in system ending in Ceyhan/Turkey, as shown their region. KRG is planning to boost dai- in Map 2. Pipeline performance, which is ly production to 1 million barrel in the first sometime halted by sabotages and hot-tap step and to 2 million in 2019 with the help attempts, are the main causes that affect the of 45 companies from 30 countries. Some of

Figure 2: How PSCs work in Kurdish Region (85/15 percentage example).3

Page 79 FIRST ISSUE NORTHERN IRAQ & TURKEY: FROM THE VIEW OF ENERGY POLITICS

Discovery Production Reserves Oil Field Operator Summary Info Time (b/d) (mmbbl) Production is planned to reach 200,000 b/d (26-46°API). Completed development program Taq Taq 1961 150,000 541 TTOPCO in field. Production is directed to Khurmala and then KRG pipeline. Production is planned to reach 200,000 b/d (24-27°API). Tawke 2006 160,000 680 DNO Production is directed to KRG pipeline. Current production is carried with trucks to Habur (17- Gulf 36°API). Production is planned Shaikan 2009 43,700 300 Keystone to reach 250,000 b/d. Planned pipeline to connect field to KRG pipeline. Production is planned to reach 40,000 b/d (23-40°API). Current Demir Dagh 1960 11,000 200 ORYX production is transferred with trucks to Habur. KAR & One of the supergiant oil fields in Kirkuk 1927 300,000 8,700 North Oil the world. Co. Reserve: 2,000 mmbo & 3 tcf. Production is directed to KRG North Oil pipeline. Field very close to Khabbaz 1976 29,000 2,000 Co. Kirkuk city and has very high potential. Field is out of KRG’s license system Production is directed to KRG pipeline. Field very close to North Oil Jambur 1929 36,000 3,000 Kirkuk city and has very high Co. potential. Field is out of KRG’s license system Production is planned to reach 190,000 b/d (34°API). Production is directed to KRG pipeline. Field is 30 km away from Erbil city. Next to field there exists one of the main metering Khurmala 1950 150,000 N/A KEPCO stations of KRG pipeline system (next one on Turkey-Kurdistan border). Gas pipeline is planned to connect field to 1,500 MW Erbil gas power station. Another 1,200 MW gas power station (Khurmala) is planned. Current production is transferred Western Sargala 2011 6,500 300 with trucks to Habur (32- Zagros 43°API). North Oil Oil production is directed to Ain Zalah 1936 2,000 100 Co. Iraq-Turkey pipeline. Current production is transferred Chia Surkh 1903 N/A 250 Genel Energy with trucks to Khurmala.

Table 1: Current Kurdish Region oil production and due fields.

ENERGY POLICY TURKEY Page 80 OĞUZHAN AKYENER AND BURAK KAYAEL

Discovery Production Reserves Gas Field Operator Summary Info Time (mmcf/d) (bcf) One of the biggest oil/gas fields in Iraq. Gas production Khurmala 1950 100 N/A KEPCO is planned to be directed to Erbil gas power station. Gas production is directed North Oil Jambur 1929 120 9,000 to Taza gas power station Co. (belongs to CIG). KAR & One of the supergiant oil Kirkuk 1927 N/A 2,700 North Oil fields in the world. Co. Gas production is directed Pearl Khor Mor 1928 340 N/A to Chemchemal gas power Petroleum station.

Table 2: Current Kurdish Region gas production and due fields.

Est. Oil Est. Gas Type (Oil/ Discovery Reserves Reserves Operator Summary Info Gas) Time (mmbbl) (bcf) Peshkabir 2012 32 N/A DNO Not producing now. Summail 2011 N/A 300 DNO Minor gas production exists. Simrit 2011 157 N/A Hunt Oil Not producing now. Barda Rash 2009 247 N/A Afren Not producing now. Benenan 2007 70 N/A DNO Not producing now. Topkhana 2011 N/A 1,700 Repsol Not producing now. Turkish Pulkhana 1956 113 N/A Not producing now. Energy Co. Gazprom Shakal 2009 45 N/A Not producing now. Neft Not producing now. Oil pipeline is planned to Chemchemal refinery Kurdamir 2010 600 2,250 Repsol and gas pipeline is planned to Bazian power plant. Not producing now. One of the Genel Miran 2009 30 4,300 main gas resources for Turkey-KRG Energy gas agreement. Not producing now. One of the Genel Bina Bawi 2006 17 7,100 main gas resources for Turkey-KRG Energy gas agreement. Bijeel 2010 41 N/A Kalegran Not producing now. Production is planned to start by Chiya Khere 2011 300 N/A TAQA mid-2016. Gulf Sheikh Adi 2012 152 N/A Not producing now. Keystone

Genel Ber Bahr 2013 23 N/A Not producing now. Energy

Table 3: Current Kurdish Region discoveries.

Page 81 FIRST ISSUE NORTHERN IRAQ & TURKEY: FROM THE VIEW OF ENERGY POLITICS the companies are mentioned as ExxonMobil PIPELINES (USA), Chevron (USA), Gazprom (Russia), Repsol (Spain), Total (France), Gulf Keystone Pipeline related information is listed in Table (USA, UAE, and Kuwait), OMV (Austria), 4. Marathon Oil (USA) Turkish Energy Com- pany (Turkey) and Genel Energy (Turkey). REFINERIES

Current and planned refinery capacities are KURDISH REGION UPSTREAM given in Table 5. MARKET OVERVIEW POWER PLANTS In this chapter, before giving the current situation of Turkish – Kurdish Region relations Outlook of power plants is displayed in Table and analyzing the future expectations, Kurd- 6. ish Region upstream market is overviewed in the cases of existing oil & gas production fields, newly discovered fields and due infra- E&P COMPANIES IN THE UP- structures related to the market. STREAM MARKET OF KURDISH REGION OIL PRODUCING FIELDS Giving the summary of the current ongo- From the basis of oil producing fields, current ing activities of the E&P companies in the oil production in Kurdish Region and sum- upstream market will be beneficial to un- mary information about the due fields are derstand the situation of the whole market. given in Table 1. Below is the explanation of main ongoing upstream activities in Kurdistan: GAS PRODUCING FIELDS • Gulf Keystone Petroleum Co. is willing Current gas producing fields and summary to sell its 20% share in Akri-Bijeel Block. information regarding the due fields are given The potential of the block was tested by in Table 2. Bijeel-1 well with a combined flow test of two production intervals bringing DISCOVERIES ~3.700 b/d of 13°API. Summary of the discoveries in Kurdish Re- • Tigris i Sverige Co. is looking for farm-in gion is presented on Table 3. partners for their project in Salahaddin Province. The project is in exploration INFRASTRUCTURES phase which includes 70 km 2D seismic Type Situation Name From To (Oil/ (Active, Planned, Diameter Capacity Gas) Underconstr.) Kirkuk/ Ceyhan/ Active in Turkey 40” 500,000 b/d ITP Oil Iraq Turkey side, idle in Iraq 46” 1,000,000 b/d Taq-Taq Khurmala Oil Active 20” 200,000 b/d KRG Khurmala Habur Oil Active 36” 720,000 b/d Kor-Mor Chemchemal Gas Active 24” 350 mmscf/d Tawke Habur Oil Active 100,000 b/d Khurmala Habur Gas Planned Indefinite Indefinite Duhok Summail Gas Active Power Plant Erbil Power Khurmala Gas Planned Indefinite Indefinite Plant Table 4: Current Kurdish Region pipelines.

ENERGY POLICY TURKEY Page 82 OĞUZHAN AKYENER AND BURAK KAYAEL

Name Const. Time Capacity 1st Phase: 2009 Erbil Refinery 2nd Phase: 2011 185,000 b/d 3rd Phase: 2014 1st Phase: 2010 34,000 b/d (50,000 b/d to be added Bazian Refinery 2nd Phase: 2012 in 2017) 3rd Phase: 2017 Tawke Refinery N/A 5,000 b/d

Table 5: Current Kurdish Region refineries.

and one exploration well, which should be drilled in 2016. Genel Energy’s part- be completed before September 2018. ners are Gulf Keystone (40%) and KRG Tigris i Sverige Co. has 60% share while (20%). Salahaddin Governorate has 40%. • Genel Energy is planning to drill Ber • Repsol SA informed KRG that it wants Bahr-2 well to identify water-oil con- to relinquish from Piramagrun and Qala tact in the field. Ber Bahr-1 well was Dze blocks. Company completed 915 successfully tested and flowed 2.100 b/d km and 139 km 2D seismic in the men- 15°API oil and commerciality of field was tioned fields respectively. Repsol also proven. Gulf Keystone (40%) and KRG drilled Binari Servan-1, a dry well in Qala (20%) are accompanying Genel Energy Dze field. Other partners are Maersk Oil in the field. and KRG with 40% and 20% share re- • Genel Energy sold its 20% share in Chia spectively. Surkh block and handed over operator- • Western Zagros is planning to transfer ship to Petoil. Petoil is planning to spud the operatorship of Garmian block to Chia Surkh-12 appraisal well by Q1 Gazprom Neft. The field consists of two 2016. Genel Energy will keep 40% share oil fields, Sarqala and Mil Qasim. West- in block with Petoil at 40% and the KRG ern Zagros and Gazprom Neft have 40% at 20%. share while KRG only has 20%. • Hunt Oil is planning to spud apprais- • Chevron continues its 2D seismic project al well Jebel Simrit-5 in Q1 2016. The in Qara Dagh block, where the opera- well is in Ain Sifni block. Afren PLC and tions were suspended in August 2014. KRG have both 20% share in the block. • Gazprom Neft continues its 2D seismic • ExxonMobil has plugged and abandoned studies in Halabja block where it has 80% its well Maseif-1 in the Pirmam block. share. The total amount of completed 2D The well was spudded in August 2013 seismic lines is expected to be around 870 and continued until August 2014, when km by the end of 2015. Gazprom Neft’s it was suspended. Well testing operations partner is KRG with 20% share. started in early 2015 and seemed to end • Genel Energy announced that it acquired negatively. ExxonMobil also temporarily 36% share of OMV in Bina Bawi field suspended Al Qush-1 well in Al Qush for a price of total 150 million $. By do- block which was spudded in February ing so Genel Energy now has 80% share 2014. ExxonMobil’s partners are Turk- in the block while KRG has 20%. ish Energy Company (20%) and KRG (20%) in both blocks. • Genel Energy has completed 160 sq km 3D seismic in Ber Bahr block where the • Gazprom completed drilling two explo- company spudded the exploration well ration wells, Shakal-2 and Shakal-3, in Ber Bahr-1 in 2011 and explore oil. An Shakal block, where the company holds appraisal well, Ber Bahr-2 is planned to 80% share. No test results released about

Page 83 FIRST ISSUE NORTHERN IRAQ & TURKEY: FROM THE VIEW OF ENERGY POLITICS

Name Const. Time Capacity 1st & 2nd Phase: 2008 Erbil Gas Power Station 1,500 MW 3rd Phase: 2012 1st Phase: 2013 Khurmala Gas Power Station 1,000 MW 2nd Phase: 2015 1st Phase: 2010 Suleimaniah Gas Power Station 2nd Phase: 2012 1,500 MW 3rd Phase: 2014 1st Phase: 2010 1,000 (500 MW to be added in Duhok Gas Power Station 2nd Phase: 2013 2016) 3rd Phase: 2016

Table 6: Current Kurdish Region power plants.

the mentioned wells. The other share- the field. holder in block is KRG with 20% share. • Western Zagras has suspended well test- • Korea National Oil Corp. successfully ing operation in Hasira-1 well existing in completed and tested its well Massoyi-1 Garmian block. The flow test was end- in Sangaw South block, where they have ed due to influx of reservoir formation 32% share. Company is planning to spud debris. The preliminary test results were a new well Massoyi-2. showing 40°API without H2S. • Marathon Oil has completed its drilling • DNO is planning to drill an appraisal activity in Mirawa-2 well and temporar- well Peshkabir-2 in Tawke block. Pesh- ily suspended the well to produce in the kabir-1 well was proven to have oil in future. Company also tested Mirawa-1 2012. DNO, Genel Energy and KRG well in 2013 and the result was positive have 55%, 25% and 20% share respec- with 11,000 b/d production. Marathon tively. has 45% of block while Total has 35% • OP Hawler Kurdistan Ltd. is planning and KRG has 20% share. to drill appraisal well Zey Gawra-2 in • Oil Search Ltd. has abandoned its two Hawler block. Company announced a appraisal wells Taza-2 and Taza-3 because successful oil discovery in Zey Gawra-1 of excessive water flow during well test. well. The well was flowed at full open Company suspended Taza-1ST2 well as choke and recovered around 4.800 b/d a possible oil producer in 2013. Il Search oil. OP Hawler has 65% share in Hawl- has 60% share with partners Total (20%) er block while KRG has 20% and Korea and KRG (20%). NOC has 15%. • Hunt Oil temporarily suspended well • Abu Dhabi National Energy Co (TAQA) Maqlub-1 for well testing. Logging, cut- announced test results from Chiya Kere- tings and gas data has shown hydrocar- 8 well at Atrush block. Test results show bon presence. Afren PLC and KRG have 4.200 b/d 24°API oil and 4.200 b/d both 20% share in the block. 26°API oil from two different forma- • Kalegran Ltd., which is subsidiary of tions. TAQA has 39,9% share while MOL, finished testing of appraisal well KRG, General Exploration Partners and Bijeel-4 and Bijeel-6 in Akri-Bijeel block. Marathon Oil have 25%, 20,1% and Block wells ended with non-movable hy- 15% respectively. drocarbons in Jurassic age formations. • DNO doubles its production capacity The field was known with discovery in in Tawke field by building a 44 km long Bijeel-1 well with around 3,000 b/d pro- 24” pipeline ending in Fishkhabour ex- duction. Company continues drilling port facility. Field produced ~160,000 well Bijeel-10, another appraisal well in b/d oil in 2015, while it was ~90,000 b/d

ENERGY POLICY TURKEY Page 84 OĞUZHAN AKYENER AND BURAK KAYAEL

in 2014. tion to encourage CIG’s Iraq unity policies. • Gulf Keystone announced that oil pro- As a result of this position, Turkey states that duction capacity in Shaikan field has she will not let KRG to be split from the cen- increased up to 40,000 b/d and total tral government. However, on the other side, commercial production has exceeded 15 with her permission of the KRG’s oil export mmbo. Company plans to increase field’s route through her boundaries, without the production capacity to 150,000 b/d by permission of CIG, Turkey make KRG to 2016 and 250,000 b/d by 2018. Gulf gain commercial independency and give her Keystone is also planning to commence an opportunity to conciliate CIG. sour gas injection project in the field. By the help of such permission, Turkey took • TTOPCO completed development-drill- advantage of KRG to pacify terrorist sources ing program at Taq Taq field. Taq Taq in Kurdish Region and continued the Kurd- 14-28 (total 15 wells) were drilled and ish evolution processes in Turkey. In addition, "Iraq’s political unity is completed between 2011 and 2015. The Turkey also increased her commercial inter- oil production increased up to 150,000 actions with Kurdish Region, a kind of gain an important strategic b/d. The structure was proven to bear oil – gain situation. in 1978 by INOC. The field was award- item for Turkish foreign ed to Genel Energy in 2002 and Addax From the sight of oil markets, Turkish Na- politics. That is why; Petroleum farmed in to PSC and formed tional Oil Company (TPAO) has four assets TTOPCO. in the CIG’s territories, Turkish Energy Min- Turkey holds her position istry (TEM) tried to follow a gingerly route in her steps in Kurdish Region (blacklisting pol- to encourage CIG’s Iraq TURKEY’S POSITION IN KURDISH icy for the E&P companies working in Kurd- REGION ish Region is continuing to be applied by the unity policies." central government). However, discourses of Initially, it has to be mentioned that, Turkey the authoritative of TEM were contradictory does not have a stable political position, from by comparing the governmental statements. the window of CIG, for Kurdish Region in TEM assured the central government all the the last decade. Iraq’s political unity is an time and mentioned she would not let KRG important strategic item for Turkish foreign to follow independent strategies without cen- politics. That is why; Turkey holds her posi- tral government approval but the actions tak-

Map 3: Major oil companies and licenses in Kurdish Region (Turkish flag refers to TEC).4

Page 85 FIRST ISSUE NORTHERN IRAQ & TURKEY: FROM THE VIEW OF ENERGY POLITICS

en and the results were different. As a result tomers for oil and possible future gas exports. of these conflicts, TPAO was dropped out after winning the tender of block 9, where Another major milestone in Turkey-Kurdish Kuwait Energy was awarded to explore the oil Region relationship is “Turkey-KRG Gas and is going to start oil production soon. In Sales Agreement”, which was signed in No- addition, Turkish Energy Company (TEC)’s vember 2013. According to this agreement; attempts in the Kurdish Region resulted with KRG wishes to provide Turkey with an initial unsuccessful gains without any privileges as 4 bcma of gas in 2018 and this volume is es- just exploration blocks open to any company. timated to extend up to 10 bcma by 2020. However, in order to make coherent analysis, In the other way, two Turkish nongovern- Kurdish Region consumption, gas produc- mental companies Genel Energy and Petoil tion profile, and central government’s role have also existed in the region since early on doability of such an export policy are the 2000’s. Then, state owned TEC also bought key determining factors. By the way, current- some licenses in 2012 and 2013. TEC has ly while Iraq is importing an average 8 bcma thirteen, Genel Energy has seven, and Petoil gas from Iran -with such a high price of 400 has one PSC partnerships in Kurdish Region. USD/1000 m3- and this volume is agreed to be increased up to 11.5 bcma, it will not be Genel Energy was the first company to invest politically and commercially possible to sup- in Kurdish Region. They started working in ply such gas volumes from Kurdish Region Kurdish Region by signing PSC for Taq Taq to Turkey, by a cheap price. Secondly, gas ex- field in 2002. Petoil followed them by enter- port to Turkey can only be possible if only ing the region in 2003. Both used the flexi- Genel Energy’s planned gas production (from bility of being private companies for signing Miran, Dohuk and Bina Bawi fields, which contracts with KRG while TEM is still being are undeveloped) and due infrastructures are confused about governmental investing in successfully completed. However, in the near upstream market Kurdish Region. In 2013, future this option also seems to be difficult Turkish Energy Company signed seven PSCs to compromise under current conditions to consolidate good relations between Turkey because of increasing political instability in and KRG. Following that, Turkish Energy Kurdistan, ISIS effect, low oil prices, conflicts Company farmed in to six ExxonMobil (ex- with CIG, and due gas fields being unde- "Genel Energy was the ploration) licenses, increasing its share and veloped. 2 – 4 bcma of gas export to Turkey first company to invest partnership in Kurdish Region’s energy indus- may only be possible after Turkey and KRG try. Turkish flag in Map 3 shows the current overcomes difficult milestones. And this vol- in Kurdish Region. They EPSA (exploration & production) licenses of ume is expected to be maximum 4 bcma after TEC in Kurdish Region. 2020’s, which will be able to be sold in Turk- started working in Kurd- ish gas market, but not to be exported to EU. Beyond these oil/gas licenses, Turkey has a ish Region by signing very important role in Kurdish Region. The From another view, for all companies, it may newly build pipeline (in 2013) from Kurdis- be more economic and politically encouraged PSC for Taq Taq field tan to Turkey, also involving in the disputes option to produce electricity from the pro- on intra-Iraq politics, is the main role player duced gas, if new power plants constructed in 2002. Petoil followed in oil exports to international markets and in Kurdistan, and meet the huge electricity them by entering the buyers. This pipeline, with a capacity of 720 demand in Iraq. mb/d & 36” diameter, which is planned to region in 2003." be expanded up to 1 million b/d capacity, Moreover, Map 4 shows the gas fields and due is carrying over 600 thousand barrels of oil infrastructures of Kurdish Region. As it can daily to Ceyhan and fueling Kurdish Region’s be observed from Map 4, in the current situ- economy continuously. As legal obstructions ation, produced gas in Kurdish Region is uti- around the world are dismissed, it is now eas- lized in Erbil, Dohuk and Chemchemal pow- ier and more suitable for KRG to build an in- er plants. Associated gas produced in Kirkuk dependent economy based on hydrocarbons. field is transported to other power plants in Turkey will be surely one of KRG’s prior cus- the territories of CIG. One other clue that

ENERGY POLICY TURKEY Page 86 OĞUZHAN AKYENER AND BURAK KAYAEL

can be extracted from the map is that KRG and economic power and developed positive is importing diesel to produce electricity. relations with KRG. This can be accepted as This situation states that KRG will upgrade an advantage for the Turkish cabinet for fu- the power plant as a gas utilizing power plant ture ventures. only and her gas demand will naturally increase. In addition to this clue, while average Today, upstream market in Kurdish Region is 1/6 of Erbil’s electricity is supplied by these suffering due to increasing political instabili- power plants and other portion is produced ty, ISIS effect, low oil prices, and the conflicts by personal diesel generators, future gas con- with the central government. Dropping oil sumption of Kurdish Region is expected to be prices halts upstream activities in the region, more than the existing estimations. This fact which ends with economic downfall for KRG. may be able to result in high gas consumption This may be the best time to make more up- in Kurdish Region and no extra gas to supply stream investments especially in the existing in the future. producing fields in the region (not in the un- "Produced gas in Kurdish explored areas). With such ventures, Turkey, with her own governmental structures, will Region is utilized in Erbil, FUTURE POSSIBILITIES & ANALY- become both the supplier and the demander SIS in the game. Only with some private compa- Dohuk and Chemchemal nies (like Genel Energy) which only have eco- power plants. Associated As it can be understood from the informa- nomic concerns for the investments, will not tion presented above, Turkey has changed the manage and rule the interchangeable games gas produced in Kirkuk game rules by reverting her approach to the in Kurdish Region. Kurdish Region. KRG frankly knows that field is transported to Turkey is her only chance to be a part of the In addition to the upstream market, it may international energy market, which exact- be a good choice to make investment in gas other power plants in the ly means commercial independence of her. power plants in Kurdish Region as far as po- Global and regional political circumstances litical and economic considerations are made territories of CIG." allow KRG to act independently to sell her re- for Turkish governmental and private compa- sources and build an independent economy. nies. Hence, if gas production is expected to Turkey stepped forward using her political increase in the region and there is a lack of

Map 4: Kurdish Region gas reserves.5

Page 87 FIRST ISSUE NORTHERN IRAQ & TURKEY: FROM THE VIEW OF ENERGY POLITICS

electricity production to meet the demand, potential. Then, there are not enough inves- such investments will be economic and en- tors and a good environment to make rap- couraged by both KRG and CIG. In the id developments. In addition, oil has to be worst case, Turkey shall also use her construc- transported through the safest and econom- tion experience in the mid or downstream ic route, which is the already existing KRG facilities in Kurdish Region. KRG plans to Pipeline through Turkey. KRG’s unofficial build 2 new refineries and 3 new gas power support on the Kurdish groups in Syria has plants in the near future (within 5 years). to be evaluated from the sight of regional politics. Of course, Barzani in the midterm "Turkey shall also use All such new commercial ventures will in- might have dreamed about being the leader of crease the influence of Turkey in the region. the huge Kurdistan, including the Northern her construction ex- And when these investments are in the energy Syria, while the oil prices are high. However, market, they will be vital for the due govern- he must have understood the international perience in the mid or ments. balances in the region are a bit different than downstream facilities in In addition to the activities in Kurdish Re- it may seem. Therefore, a Kurdish government had better have the support of Turkish Kurdish Region as KRG gion, Turkey also has to increase her commercial ventures in central Iraq. Besides, as her government to be able to survive among the wolves but on the other hand, Kurds should plans to build 2 new priority she has to maintain and support the political unity of Iraq. But a question has to understand that Turkey would never allow refineries and 3 new gas be asked: “How can it be possible to be an a Kurdish Corridor to the Mediterranean. active player in both central Iraq and Kurdish In addition to the greater Kurdish utopia, power plants in the near Region?”. The answer seems cloudy! Turkey Kurdish Region’s energy resources will not be has to follow a strategic and diplomatic role enough to feed the utopic country. As a pop- future (within 5 years)." in such relationships. By the way she also has ular Turkish proverb: “There is only one gray to protect the rights of the Turkmen groups donkey for the nine hungry wolves”. in Northern Iraq. The equation has many As a result, KRG needs Turkey and so Turkey, unknowns. But the new Turkey, who plans as the inheritor and the ex-governor of the to be prevalent in the region, has to find the region, has to increase her influence in the resolution. gion, by mostly taking place in new ventures Most of these new commercial ventures in in the so-called energy games. central Iraq will have to be in the oil and gas market. This means to be able to be accept- REFERENCES ed as an influential investor in Iraqi market, in addition to our relations with Kurdish 1 Luay Al Khatteeb, “The UN Strikes Back at ISIL's Black Region, Turkey’s performance in the current Economy”, 2014; accessible from http://www.huffing- ongoing projects will be an important deter- tonpost.com/luay-al-khatteeb/the-un-strikes-back-at- miner. That is why; TPAO has to successfully isil_b_5702240.html complete her promises in the projects where 2 U.S. International Energy Agency she acts as the operator. Otherwise, relations 3 KRG Ministry of Natural Resources might close the doors for future investments. 4 GKPIF, “Kurdistan Oil and Gas Activity Maps”, 2013; accessible from http://gkpinvestor.proboards.com/ Furthermore, while giving the expectations page/map about the pipeline politics in the region, 5 Western Zagros, Kurdish Region Base Gas Infrastruc- today’s one of the most popular paranoiac ture, 2015; accessible from http://www.westernzagros. opinion, which is “Kurdish corridor through com/wp-content/uploads/2015/01/141202-Kurdis- tan-Base-Gas-Infrastucture.jpg Syria”, has to be clarified. It is thought that all the turbulence in Syria is for the Kurdish oil to be able to flow to Mediterranean through the northern Syria. This idea can be accepted as delusional since Kurdistan Region does not initially have such huge volumes of oil export

ENERGY POLICY TURKEY Page 88 OĞUZHAN AKYENER AND BURAK KAYAEL

Page 89 FIRST ISSUE KEY FACTORS OF RECENT CHANGES IN CRUDE OIL PRICES

by Serdar Gürüzümcü and Mehmet Apaydın

INTRODUCTION will be higher interest rates in U.S and that will cause a powerful U.S Dollar. There is a As a well-known fact by millions of people, stubborn fact that is an inverse proportion more than hundred and fifty years ago, Colo- between being powerful U.S. Dollar Index nel Drake in Titusville, Pennsylvania did the and oil price decline as shown in Figure 1 and first oil discovery. From 1859 to 2015, the 2 below. Accordingly, it can be said that pow- use of oil and its market concept has dramat- erful U.S Dollar Index forms main oil price ically changed by producers and consumers. decline trend and vice versa. The reasons be- First oligopoly market initiatives can be ex- hind oil price decline is almost the same as plained by the dissolution of the Standard Oil the reasons for commodity price decline, with the accusation of illegal monopoly in which result from pricing of commodity and 1911. Dissolution served as an opportunity oil price by U.S Dollar. Such pricing forces to the rise of the multi-national oil compa- commodity and oil prices to decline while nies. Until the 1970s, these large multi-na- U.S Dollar Index is getting powerful, which tional companies administrated crude oil can be easily seen in Figure 3. The other rea- prices. Then, in 1973, the Arab-Israeli War son is that the expectation of U.S Dollar in began and the Organization of Petroleum all over the world return to U.S to gain more Exporter Countries (OPEC) had gained the interest, which leads the expectation that control over crude oil prices. OPEC brought world growth and investment rates decline in the market-related pricing system, and still, it the following years, so oil need and demand is widely used as the main crude oil pricing are decreasing. Similarly, the beginning of the mechanism. With the developments in pric- FED quantitative easy policy in 2008 led U.S es and markets, crude oil trading has become Dollar to be weaker with expectation of low globally available for the access of traders at interest rate and thus, oil price declines. any time. "In 1973, the Arab-Is- SUPPLY AND DEMAND RELATED FAC- Current oil market is more complex, market TORS raeli War began and the fundamentals are never known with certain- ty and physical dimension of oil has become On a global scale, supply and demand relation Organization of Petro- important in pricing associated with static is the main factor to shift oil price. The declination of production rates and the failure of leum Exporter Countries reserve index (Fattouh, B., 2011). There are many factors that can be effective on daily oil new discoveries increased oil price in the his- (OPEC) had gained the prices (benchmark prices) in different time tory, and as opposed to this, market currently periods. In this analysis, economic, techno- encounters oversupply of oil and oil price has control over crude oil logical, and political factors were analyzed been accelerating downward since the uncon- with the current market conditions. ventional oil phenomena emerged. Especially, prices." the Americans’ great endeavor and success introduced the shale oil production from shale ECONOMIC FACTORS reservoirs by using new techniques in drilling. Due to high flow rate of shale oil into mar- U.S. FEDERAL RESERVE BANK (FED) ket, oil price has been declining since 2014. POLICY For instance, domestic crude oil production of the U.S. was about 4.6 million barrels per The end of U.S. FED quantitative easing pol- day in 2008, and it jumped to 9.2 million icy and thus, the U.S Dollar being powerful barrels per day in 2015, which is doubled with the expectation of subsequent interest in 7 years. As a result of this extraordinary rate increase explicitly play an important role increase in oil supply, U.S. became the larg- on oil price decline, which means that there est crude oil producer in the world in 2014.

ENERGY POLICY TURKEY Page 90 "The market currently

encounters oversupply of

oil and oil price has been

accelerating downward

due to high flow rate of

shale oil into market, oil

price has been declining Figure 1: Brent Spot Price Change between July 2014 and May 2015 (Energy Information Administration). since 2014."

Figure 2: U.S Dollar Index Change versus Euro, Yen, British Pound, Canadian Dollar, Swiss Franc, Swedish Krona between July 2014 and May 2015. OPEC has also increased its production rates TECHNOLOGICAL INNOVATION to struggle against the American oil supply. AND CHANGE IN COSTS Therefore, with the oversupply, benchmark oil prices quickly dipped at $35 / bbl. at the The most important approach for the petro- "Shale oil and rock oil end of 2015. leum economics is the investment feasibility. production via uncon- It is roughly calculated by comparing the es- Another point that shifts the supply-demand timated total production multiplied by the ventional methods made balance is the seasonal consumption rates. unit oil price versus total costs including the Residential and industrial oil use rises in cold time value of invested amount. Recent tech- substantial changes in periods of the year (during winter) and falls nological developments become competitive in summer. In addition, winter conditions are to make costly operations cheaper. the industry." harder to pump out oil. That brings a huge oil consumption difference between winter and Shale oil and rock oil production via uncon- summer, which will volatile the market, too. ventional methods made substantial changes in the industry. Horizontal drilling and hy-

Page 91 FIRST ISSUE KEY FACTORS OF RECENT CHANGES IN CRUDE OIL PRICES

Figure-3: Brent Price versus U.S Dollar Index between 2004 and May 2014.

"Horizontal drilling and draulic fracturing technologies created a new the benchmark prices went down. In reality, hydraulic fracturing tech- era in upstream industry. Especially, the U.S. cumulative costs of unconventional wells are and Canada enhanced their domestic oil pro- relative higher than conventional wells, but nologies created a new duction by using new methods. As mentioned it provides higher rate of return and shortens before, from 2008 to 2015, US domestic oil the payback period due to high initial pro- era in upstream industry." production is doubled, mostly supply came duction rates. from the unconventional resources due to decrease in operational costs. POLITICAL FACTORS (SUPPLY SE- For example, the North Dakota Bakken Field CURITY) drilling and well completion costs were accounted for $13 million in 2012, as a result Majority of oil producer and exporter coun- of technological innovations and competi- tries were formed in a strategical area, in which tion, it fell down to $7 million at the end of internal and external problems obstruct oil the 4Q of 2014. Decrease in costs increased supply, especially in the Middle Eastern Re- the attractiveness of industry, even though gion, where supply security has become a "In reality, cumulative

costs of unconventional

wells are relative higher

than conventional wells, but it provides higher rate

of return and shortens

the payback period due

to high initial production

rates."

Figure 4: U.S. Field Production of Crude Oil (thousand barrels) between 2008 and 2015 (monthly), (Source: Energy Information Administration).

ENERGY POLICY TURKEY Page 92 SERDAR GÜRÜZÜMCÜ AND MEHMET APAYDIN

Figure 5: World Daily Oil Supply between the 1Q 2013 and 3Q 2015 (MM bbl. /day). (Source: International Energy Agency). global threat. The existence of terrorism, lack These problems stimulate high oil price and "The existence of ter- of authority, religious and denominational lack of supply. Currently market faces over- issues hamper oil production and directly in- supply, but this will end up soon because shale rorism, lack of authority, crease oil prices in both short-term and long- oil production will reach its plateau level and religious and denomina- term. These kinds of problems were observed then sharp decline might occur. American oil many times in history as listed below: supply will decrease up to 400,000 bbl. / day tional issues hamper oil at the end of the first half of 2016, which is • Dissolution of Standard Oil mentioned in global reports. Additionally, production and directly • World War I some projections (including OPEC) claim that oil price will rise up to $70 bbl. in 2017. increase oil prices in both • Great Depression Era • World War II short-term and long- • 1973 Arab – Israeli War and market CONCLUSION term." shortage Due to FED policies, the United States Dol- • OPEC Price Control Mechanism be- lar raised in value. Since oil transactions are tween 1973 and 1985 done with dollar, oil price dropped. • Iran Islamic Revolution • 1985 Saudi Oil Supply against the OPEC The growth rates of developing economies’ system has been declining due to FED & regional "Due to FED policies, monetary policies. As a result of this, con- • Iraq – Iran war sumption of oil (demand) started to decrease, the United States Dollar • Invasion of Iraq and Afghanistan after which negatively impacted oil price. 11/9/2001 raised in value. Since oil • 2008 Global Economic Crisis (Domino Shale oil boom and new field discoveries transactions are done Effect) stimulated low oil prices. • Arab Spring OPEC and US competition decreased oil with dollar, oil price • Russian attacks on Ukraine prices and narrowed oil profits. dropped." • Threats of ISIS and Boko – Haram on refineries Escalating tensions between Saudi Arabia and Iran might change the movement of oil future • Denominational civil war of Yemen (It market and this might be concluded with up- turned to Saudi – Iran War) ward acceleration of benchmark prices.

Page 93 FIRST ISSUE KEY FACTORS OF RECENT CHANGES IN CRUDE OIL PRICES

On the other hand, if the competition between the US and OPEC continues, market will encounter oil prices less than $35 per barrel in the following months associated with oversupply.

REFERENCES

U.S. Energy Information Administration; accessible from http://www.eia.gov/ Trade Economics; accessible from http://www.trading- economics.com/united-states/currency MacroTrends; accessible from http://www.macrotrends. net/1335/dollar-gold-and-oil-chart-last-ten-years Fattouh, B., “An Anatomy of the Crude Oil Pricing Sys- tem”, The Oxford Institute for Energy Studies, January 2011. International Energy Agency; accessible from http:// www.iea.org/ Platts; accessible from http://www.platts.com/commodity/oil

ENERGY POLICY TURKEY Page 94 SERDAR GÜRÜZÜMCÜ AND MEHMET APAYDIN

Page 95 FIRST ISSUE TURKEY'S ENERGY INVESTMENTS – PROJECTS - POLICIES: AN OVERVIEW UNDER DECISION MAKING APPROACH

by Ahmet Bahadır Şimşek

INTRODUCTION eign dependence, to get rid of political pressure, and to protect its strategic importance. One of the never-ending discussion topics For these reasons, Turkey currently faces a in today’s modern time is doubtlessly energy multi-objective-decision-making-problem. supply. Energy gained even more value with the industrial revolution; nowadays it main- Cases that deal with many conflicting ob- "By advances in technol- tains its importance as an element of strate- jectives to reach the most appropriate deci- gic balance. Although energy resources are sion-making are described as multi objective ogy, economical usage not dispersed homogeneously of the earth's decision problems. For the solution of these surface, global demand for energy supplies is problems, at first, objectives are determined, of alternative energy constantly increasing that allows energy to be and then alternatives that serve those objec- used as a strategic weapon. Countries, which resources has been a tives are evaluated. The conflicting objectives are dependent on foreign energy, are on the are balanced by a set of alternative solutions glimmer of hope for en- target of this weapon. Unfortunately, Turkey that maximize total benefits. is one of those countries. ergy-strapped countries. Assessing the energy investments, projects By advances in technology, economical us- and policies with decision-making method- The overall interest for age of alternative energy resources has been ologies can be useful for revealing and inter- a glimmer of hope for energy-strapped coun- preting the energy dynamics of Turkey. energy systems, produc- tries. The overall interest for energy systems, producing energy just with the costs of in- ing energy just with the stallation and maintenance (without incurred ENERGY OBJECTIVES OF TURKEY resource costs), is increasing. Considering the costs of installation and fossil energy resource limits, the importance KYOTO PROTOCOL: maintenance (without of renewable energy sources can be better understood. It is an international agreement that sets incurred resource costs), targets to industrialized countries to reduce Turkey is not rich in fossil energy resources emissions of gases causing global warming. is increasing." but has high potential for renewable energy On February 17, 2009, Turkey joined offi- sources. On the other hand, it has a geo- cially by signing this protocol and accepted political location that serves as a bridge be- the objectives. Protocol aims to keep a bal- "Turkey joined officially tween producer and consumer countries in ance of the levels of greenhouse gas concen- terms of fossil energy resource transmission. tration in the atmosphere so that they will not by signing Kyoto Pro- It currently hosts various in-use and ongoing affect the climate. In this context, it is crucial tocol and accepted the oil and natural gas pipeline projects. Turkey to take control of environmentally harmful holds a unique position between Europe and gas emissions, to reduce them if possible, and objectives on February Asia that has been playing a critical role for to provide the energy needs from renewable centuries. It should eliminate dependency energy sources in Turkey. 17, 2009. Protocol aims on foreign energy for several reasons, for instance, survival in energy sector, increasing European Union: to keep a balance of the the power in energy domain, becoming a regional dominator. Three main objectives guide the EU's ener- levels of greenhouse gy policy. These objectives are to contribute Turkey should establish stable policies and to the competitiveness of the community, to gas concentration in the develop new investments and projects to pro- ensure security of energy supply and to contribute to environmental protection on the atmosphere." vide the low-cost energy. That way, Turkey will have the chance to thrive, to reduce for- sustainable development basis. In "Energy

ENERGY POLICY TURKEY Page 96 2020 Strategy" that is a document published out compromising the quality of life and pro- on 10 November 2010, the EU declared pri- duction. Other main objective is to establish orities as energy efficiency, integrated energy energy efficiency policies that contain many market, strengthened consumers, consumer benefits such as reducing dependence to for- rights to choose the supplier, being a leader in eign countries, environmental protection, en- energy technology and innovation, strength- suring security of energy supplies and reduc- ened external dimension of energy market. In ing energy costs. this context, Turkey, which strives for being a member of the Union, should also adapt RENEWABLE ENERGY: these priorities and objectives. Energy obtained from resources that are ca- "Renewable energy ENERGY CHAPTER: pable of refreshing their selves, is classified as renewable energy. Fossil energy resources resources are a useful The opening of the energy chapter for Turkey will supposedly run out in near future and attempts to fulfill the necessary investments renewable energy sources will be crucial in alternative to high cost and regulations. In a part of the Turkey’s the long term. Renewable energy has some external energy sup- 2015 Progress Report that deals with the en- features that make it very attractive. These ergy, some issues are stated as urgent. These are costless source, harmless to the environ- plies. In this field, Turkey are creating a competitive market in natural ment, alternative sources of energy, and sus- gas sector working with the EU acquis, im- tainability. Renewable energy resources are a should increase installed plementation of transparent and cost-based useful alternative to high cost external energy pricing system in gas and electricity market, supplies. In this field, Turkey should increase power and incentives, creating a legal framework necessary for the installed power and incentives, eliminate the planning and installation of nuclear plants infrastructure requirements and provide uni- eliminate the infrastruc- and compliance with EU legislation in the versity- industry cooperation. ture requirements and field of nuclear energy. ENERGY HUB: provide university- indus- ENERGY SUPPLY SECURITY: A large part of the reserves of fossil energy try cooperation." Another important issue in energy is the sup- sources is located in the immediate vicinity of ply security. Supply security is a multidimen- Turkey. This situation provides a significant sional concept that includes obtaining low- advantage in the elimination of Turkey’s ener- cost energy, obtaining from sustainable and gy needs and also gives a strategic mission in various sources, meeting variable demand terms of these resources that can be transferred structure and transportation safety. The im- to international markets. Currently operating portance of energy supply security is under- Baku-Tbilisi-Ceyhan and Kirkuk-Ceyhan/ stood more clearly with the energy crisis. The Yumurtalık crude oil pipeline, Baku-Tbili- fall of production, increasing costs, disrup- si-Erzurum and The Blue Stream gas pipeline tions in energy transport and other negative and Trans-Anatolian (TANAP) gas pipeline experiences in crisis times have triggered the projects illustrate the importance of the stra- development of policy for security of supply. tegic position and mission of Turkey in the As it is known, the Russia-Ukraine crisis has energy field. Turkey, while becoming an en- revealed new energy transportation routes. ergy hub, is not contented with only carrying Therefore, another objective is taking a po- the energy, at the same time it should play sition to ensure the security of energy supply. a role in determination of energy prices. At this point, Turkey should create an efficient ENERGY EFFICIENCY: energy market, which includes all energy resources. Rising energy problems have brought the necessity of efficient use of energy. Especially in developed countries, energy efficiency studies ALTERNATIVES and policies are gaining importance. Energy efficiency is an issue of reduced energy with- So far, we attempted to describe objectives

Page 97 FIRST ISSUE TURKEY'S ENERGY INVESTMENTS – PROJECTS - POLICIES: AN OVERVIEW UNDER DECISION MAKING APPROACH

in general framework. Hereafter, alternatives PIPELINES that relate to mentioned objectives are presented. Each alternative is thought to be as- SAMSUN-CEYHAN OIL PIPELINE: sociated with several objectives stated above. About 3.7% of the world's daily oil con- NUCLEAR POWER PLANTS: sumption is transported through the Turkish Straits. Traffic of oil and petroleum products Turkey plans to establish two nuclear power were 60 million tons in 1996, exceeded 150 plants. The total installed capacity of these million tons in 2008. Samsun-Ceyhan Oil nuclear plants is 9280 MW and total cost of Pipeline, which would by-pass the straits, and these plants is about $ 40 billion. When they has a vital importance to prevent the danger- are active, they will generate 80 billion kWh ous and heavy traffic through the straits. As equivalents to annually 16 billion cubic me- the ending points of this pipeline, Samsun ters (7.2 billion dollars) natural gas imports. and Ceyhan have significant specifications. Nuclear power plants consisting of about 550 Samsun is close to the other terminals in the thousand pieces will make significant contri- Eastern Black Sea that reduces oil transporta- butions to the domestic industry. The most tion to minimum. The presence of the Cey- intense period of construction is planned han terminal will reduce the need for new operational with about 10,000 workers. The construction and investments. Moreover, the contribution to employment is also obvious. project stands out as the most suitable proj- In the light of this information, Turkey’s nu- ect for the environment. With this project, clear power plant projects are offering a direct Ceyhan will be an important energy hub and contribution to the objectives within the con- will turn into the biggest oil terminal in the "In the scope of the Re- text of energy supply security, and indirect Mediterranean. In this direction, the Sam- contribution to the objectives under the EU sun-Ceyhan Oil Pipeline provides a direct newable Energy Action Energy Chapter. contribution to the objectives of Turkey’s being an energy hub and Kyoto protocol. Plan, a large number of RENEWABLE ENERGY ACTION PLAN: policies developed at the TRANS-ANATOLIAN PIPELINE According to the electric data of 2013, 29% (TANAP): micro and macro scale. of the production provided from renewable sources, out of which 25% is obtained from The objective of TANAP is to transport the The action plan provides hydropower and the remaining 4% is ob- natural gas, which is produced in the Cas- tained from the other renewable energy re- pian Sea, firstly to Turkey and then to Eu- a direct contribution sources. Since 2010, strategies that followed rope. TANAP is going to achieve a connec- in order to increase the share of renewable en- tion between the South Caucasus Pipeline to objectives of Kyoto ergy have been useful. In the scope of the Re- (SCP) and the Trans-Adriatic Pipeline (TAP). newable Energy Action Plan, a large number Thus, the production costs will decrease be- Protocol, energy supply of policies developed at the micro and macro cause TANAP will be built along Southern scale. These policies can be grouped under le- security and renewable Gas Corridor in the Eastern parts of Turkey. gal, technical and financial titles such as fixed TANAP provides a direct contribution to the energy; and indirect con- price guarantee system, investment incentives objectives of EU, energy supply security, and program, financial guarantees for renewable energy hub. tribution to the objectives energy projects and promoting land-use fee. Some of them are applied and some of them ARAB GAS PIPELINE: of energy hub." are in the planning stage. In this direction, Renewable Energy Action Plan provides a di- It is a pipeline planned to carry Egyptian gas rect contribution to objectives of Kyoto Pro- to Europe. A part of The Arab Gas Pipeline is tocol, energy supply security and renewable completed and currently providing Egyptian energy; and indirect contribution to the ob- gas to Jordan, Syria and Lebanon. Türkoğ- jectives of energy hub. lu-Kilis Pipeline, which links Arab Gas Pipe- line to Turkey’s natural gas transmission sys- PETROLEUM AND NATURAL GAS tem, is under construction. This project has

ENERGY POLICY TURKEY Page 98 AHMET BAHADIR ŞİMŞEK

vital importance for the diversity of Turkey's to the objectives of renewable energy and to energy supplies. Arab Gas Pipeline provides those of EU. Turkey carries out numerous re- direct contribution to objectives of EU, ener- search and development projects in the energy supply security, and energy hub. gy field. Some of them are listed below. "Turkey carries out ENERGY MARKET: 1. Development of the National Wind numerous research and Energy System (MİLRES): The main objec- On March 12, 2015, Energy Market Man- tive of the project is to build infrastructure for development projects in agement Company (EPİAŞ) was established the establishment of the original and world- as the successor of the official energy market. class competitive wind industry which has a the energy field: The main objective is to operate energy mar- design and a technology that belong to Tur- kets efficiently and in a more transparent and key. 1. Development of the reliable way. In this context, EPİAŞ provides a 2. Development of the National Solar National Wind Ener- direct contribution to the objectives of energy Power Plant (MİLGES): It is an R&D project chapter and energy hub. aiming to produce locally necessary compo- gy System (MİLRES) nents for the production of electricity based NATIONAL ENERGY EFFICIENCY AC- on solar energy. TION PLAN: 2. Development of the 3. Development of the National Hy- National Solar Power In order to improve the energy awareness in droelectric Power System (MİLHES): Project aims to develop the local power components the society, to utilize the renewable energy re- Plant (MİLGES) sources and to increase the energy efficiency to use efficiently the existing hydroelectric and support, “Energy Efficiency Law” was potential of Turkey. 3. Development of the enacted in 2007. The Energy Efficiency Strat- egy Document published in 2012 puts this National Hydroelec- law into practice. In this document, actions CONCLUSION are grouped under six categories as follows: tric Power System Energy problems are multi-objective and 1. To reduce energy losses and energy multi-criteria decision problems. An alterna- (MİLHES)" intensity in industry and services sector tive may help to achieve more than one objective. For example, TANAP provides direct 2. To expand eco-friendly buildings contribution to Turkey’s energy supply secu- 3. To provide market transformation of rity, EU, and energy hub objectives. Similarly, the energy efficient products each objective can be matched with alterna- 4. To improve efficiency of electricity tive that contribute to itself. generation, transmission and distribution; re- "The main objective is duce energy losses and harmful environmen- Following strategies should be adapted as tal emissions state policies rather than governmental ones. to eliminate the energy In this direction, energy strategies should be 5. To reduce fossil fuel consumption, addressed in a long-term planning. The main dependence of Turkey. increase the share of public transport in trans- objective is to eliminate the energy depen- portation, avoid unnecessary fuel consump- Another important ob- dence of Turkey. Another important objective tion in city transportation is to protect and improve Turkey’s regional jective is to protect and 6. To promote effective and efficient strategic position and to be a powerful play- energy use in public institutions er on the regional energy market. To be suc- improve Turkey’s region- cessful, Turkey should sort the objectives in National Energy Efficiency Action Plan pro- terms of importance, economics and applica- al strategic position and vides a direct contribution to objectives of bility. This sorting varies according to deci- energy efficiency, Kyoto Protocol and energy sion-makers’ evaluation criteria and relative to be a powerful player supply security. importance. on the regional energy RESEARCH & DEVELOPMENT: At the assessment stage, periodic costs, sav- market." ings, contribution to energy efficiency, con- R&D projects provide direct contributions tribution to security of energy supply and

Page 99 FIRST ISSUE TURKEY'S ENERGY INVESTMENTS – PROJECTS - POLICIES: AN OVERVIEW UNDER DECISION MAKING APPROACH

contribution to strategic position of alternatives can be determined as the criteria. The important point is the determination of critical factors and weights of these factors. Because of environmental concerns, technological structure and political balance change depending on time, the necessity of updating the critical factors and weights should always be kept in mind.

It is seen that Turkey has many objectives and alternatives in the energy field. Unfortunately, it is impossible to implement all the alternatives for satisfying all the objectives at desired level. Therefore, the questions of what objective should be satisfied with what alternative and in what priority the objectives should be assessed arise. Analytical decision-making methodologies can make it easier. At this point, academia-public or private energy sector collaboration is an important tool to establish future energy policies. "The questions of what objective should be satis- REFERENCES fied with what alternative 1 Avrupa Birliği, Türkiye 2015 İlerleme Raporu. 2 Elektrik Enerjisi Piyasası ve Arz Güvenliği Strateji and in what priority the Belgesi. 3 Enerji ve Tabii Kaynaklar Bakanlığı, 2014 Yılı Amaç objectives should be Ve Hedefleri Kitapçığı. 4 Enerji ve Tabii Kaynaklar Bakanlığı, 2015 Yılı Bütçe assessed arise." Sunumu. 5 Enerji ve Tabii Kaynaklar Bakanlığı, 2015-2019 Stratejik Planı. 6 Avrupa Birliği Bakanlığı, Avrupa Birliği Sürecinde En- erji Faslı Kitapçığı. 7 Enerji Verimliliği Strateji Belgesi 2010-2023. 8 John Roberts, Güney Gaz koridoru Enerjide Yeni Çözüm. 9 Enerji ve Tabii Kaynaklar Bakanlığı, Nükleer Güç San- tralleri ve Türkiye. 10 WWF, Türkiye’nin Yenilenebilir Gücü: Türkiye için Alternatif Elektrik Enerjisi Arz Senaryoları, 2014. 11 Enerji ve Tabii Kaynaklar Bakanlığı, Türkiye Ulusal Yenilenebilir Enerji Eylem Planı, 2014.

ENERGY POLICY TURKEY Page 100 AHMET BAHADIR ŞİMŞEK

Page 101 FIRST ISSUE COAL: A REALISTIC HOPE FOR TURKEY’S FUTURE ENERGY SE- CURITY?

by Selçuk Özgen and Ferda Bayrak

INTRODUCTION thermal, geothermal, hydraulic, solar, and electrical ways and converted to each other As it is well known, energy is the basic ele- with suitable unique methods. A comprehen- ment of the social and economic develop- sive case analysis needs to be implemented ment for any country. Energy consumed in both in the world and in Turkey to make a today’s world is produced mainly from fossil reliable plan to stop the rapid declination of fuels such as oil, natural gas, largely from coal energy resources and to arrange the utiliza- (87 %), from nuclear and as a smaller proportion of renewable energy sources. tion from renewable (13 %) resources. Euro- pean countries have been the biggest energy The pioneer energy sources are non-renew- importers but lately, China seems to carry the ables like oil, natural gas and coal in the flagship as it is going to be the major importer world’s energy production. The share of natu- by 2030. Russia is expected to keep its posi- ral gas in energy production increases day by tion as the biggest energy exporter country in day in the world because of being a cleaner the world, as it is now. source for the environment. Oil is the most used energy source in the world, which is fol- Turkey’s priority on its energy policies is to lowed by mined coal with a decreasing con- achieve supplying cheap and quality energy sumption rate and natural gas with an increas- sources continuously and reliably. However, ing production and consumption rate. In all "Energy consumed in Turkey’s energy security has become contro- periods to the day, a particular energy source versial since some of the analysts recently ad- (Coal) was superior to other sources. Oil re- today’s world is produced dressed the issue that Turkey covers its energy placed coal with time, later in the following demand largely from imported sources. This years, natural gas gained an importance and mainly from fossil fuels study analyzes the status of domestic coal re- at last, alternative energy sources are expected serves and production facilities in Turkey as if such as oil, natural gas, to replace them in the forthcoming years. it can be an alternative to the imported energy sources. largely from coal (87 Figure 1 presents the share of primary energy sources in the world’s electricity production in %), from nuclear and ENERGY PRODUCTION IN TURKEY 2012. In the following year (2013), electricity production from primary energy sources as a smaller proportion AND THE WORLD was 23,322 TWh. Coal had the biggest share (41.3 %) that was followed by natural gas from renewable (13 %) Growing population and industrialization in (21.7 %) and hydraulics (16.3 %) respective- developing countries cause a rapid increase ly. The share of renewables (geothermal, solar, resources." in energy demand in such countries. Energy wind, bio, etc.) was 5.7 %, bigger than the that indicates a country’s social and economic previous year’s (5 %). potential is a mandatory element as a factor of production. There is a linear relation between For Turkey, primary energy production was energy consumption and social development 252.00 TWh in 2014. The distribution of in a country, whereas the more the country sources in primary energy production was develops by economic gains and draws cul- 47.9 % for natural gas, 29.9 % for coal, and tural relief, the more the energy consumption 16.1 % for hydraulics (See Figure 2). The increases (Koç and Kaplan, 2008; Koç and energy production from lignite, geothermal, Şenel, 2013). Energy finds its place in every wind and solar sources was more than the last stage of everyday life for people who use it year’s, whereas it was lesser from wood, ani- and it can be supplied by various chemical, mal and plant sources. nuclear, mechanical (potential and kinetic),

ENERGY POLICY TURKEY Page 102 rapidly between the years 1990 and 2011. This ratio was 48.1 % in 1990, and 28.2 % in 2011 (Koç and Şenel, 2013).

COAL RESERVES AND COAL TRADE IN THE WORLD AND IN TURKEY

Coal has become an important asset in the energy world due to some recent developments on clean coal technologies, coal gasification and coal liquefaction processes. Ac- "Coal has become an cording to the International Energy Outlook 2014 Report, coal’s share in world electricity important asset in the en- generation in 1990 increased from 37.4 % to ergy world due to some 40.3 % in 2012 and stood steady since then (Energy Report, 2014). recent developments on

Due to continuous energy demand global- clean coal technologies, ly, fossil fuels are decreasing day-by-day and proven and prediction of the probable re- coal gasification and coal serves are to be depleted in the next millenni- um. As of 2013, the calculated proven reserve liquefaction processes." of coal was 891 billion tons and determined Figure 1: World energy production in 2012 to have run out in 142 years’ time. Table 1 (IEA, 2015). presents coal reserves in continents. Figure 3 displays Turkey’s energy production Turkey’s proven coal reserves are owned and and consumption from domestic sources. The operated by public and private sector were ratio of energy consumption to energy pro- calculated as 15.8 billion tons in 2013. Hard duction from domestic resources decreased coal is extracted only from Zonguldak Re-

Figure 2: Turkey’s electricity generation in 2014 (TEIAS, 2015).

Page 103 FIRST ISSUE COAL: A REALISTIC HOPE FOR TURKEY’S FUTURE ENERGY SECURITY?

"Hard coal is extracted only from Zonguldak Re-

gion, and lignite basins Figure 3: Turkey’s energy production and consumption from domestic sources.

are spread over the Mid- gion, and lignite basins are spread over the coal export reached to 1.255 billion tons in Middle Anatolia and Aegean Regions. Tur- dle Anatolia and Aegean 2012 and only 2.5 million tons of the whole key’s mineral reserves, prepared by Mineral amount consisted of lignite (IEA, 2013). In Regions." Research and Exploration Institute (MTA), Turkey, including private sector production, are presented in Table 2. 79 million tons of coal (asphaltite, oil shale, lignite, and hard coal) was produced in 2012. It is widely known that calorific values of Tur- The coal demand has increased in recent years key’s lignites are quite low and studies per- but coal production in Turkey has been de- formed have shown lower heating values of creasing that has resulted in a rise of coal im- lignites being between 1,000-4,200 kCal/kg, ports. In 2013, the produced hard coal was 90 % of which are lower than 3,000 kCal/kg. 2.3 million tons but the imported coal that includes hard coal and lignite was approxi- "It is widely known When the global coal trade is examined, al- mately 25 million tons. No export process of most all of the trade is set up on hard coal. that calorific values of coal is realized in Turkey because of the lim- This is because it is not feasible to transport ited reserves and production of hard coal and lignite overseas except from short distanc- Turkey’s lignites are low calorific values of lignite. es between neighboring countries. World quite low and studies Hard Coal Lignite Total Ratio REGION performed have shown (Million Tons) (Million Tons) (Million Tons) (%) Eurasia 92,557 217,981 310,538 35.8 lower heating values of Asia Pacific 157,803 130,525 288,328 32.3 lignites being between North USA 112,835 132,253 245,088 27.6 1,000-4,200 kCal/kg, Middle East and Africa 32,722 214 32,936 3.7 90 % of which are lower South and Middle USA 7,282 7,359 14,641 1.6 than 3,000 kCal/kg." Total 403,199 488,332 891,531 100

Table 1: Coal reserves in continents (Energy Report, 2014).

ENERGY POLICY TURKEY Page 104 SELÇUK ÖZGEN AND FERDA BAYRAK

distribution of the 31.9 mtep of domestic REGION Total (Million Tons) energy production in 2013 should be taken Soma 205 under consideration. It is clear that the 15.5 Pınarhisar 140 mtep was from coal as first, 5.1 mtep from hy- Çerkezköy 495 draulics as second, 4.3 mtep was from wood, Eskişehir 1200 animal and plant wastes as third. These were Afyon-Dinar 941,5 followed by 4.1 mtep of renewable energy Ilgın 30,5 sources like geothermal, wind and solar, 2.5 Çumra 15 mtep from oil and 0.4 mtep from natural gas. The coal distribution was 14 mtep lignite, 1 Karapınar 1832 mtep hard coal and 0.5 mtep asphaltite. "Coal keeps its posi- Amasya 9,2 Afşin-Elbistan 1815 In 2013, 57.5 million tons of lignite was tion as one of the main Malatya 17 produced with a decrease of 15.5 % when sources of energy in the compared with previous year. Hard coal pro- Table 2: Mineral reserves of Turkey (Dagistan, duction was 2 million tons and asphaltite world. However, Turkey’s 2012). production was 0.9 million tons. Lignite was largely used in power plants for the electrici- energy policy in terms ASSESSMENT ty production (85.4 %), 6.8 % for industrial purposes and 7.7 % for heating households of producing energy Coal keeps its position as one of the main and work places. sources of energy in the world. However, from imported resources Turkey’s energy policy in terms of producing As stated earlier in this study, there is a quite energy from imported resources seems to be a notable decrease among energy production to seems to be a bad exam- bad example. Turkey produces nearly half of consumption ratios in Turkey. This ratio was ple." its electricity (47.9 %) from imported natural 19.2 % in 1993, 12.9 % in 2003, and 12.8% gas, 16.5 % from domestic coal, 16.1 % from in 2013. The energy consumed was 260 TWh hydraulics, 13.4 % from imported hard coal, in 2013 and 252 TWh of it was produced in and the remaining 6.1 % from other sourc- Turkey. This production was mainly from es like wind, solar, geothermal and others. It natural gas (43.8 %) and imported coal (13.4 should be discussed whether all of the energy %). Clearly, only 107.8 TWh of energy was demand in Turkey could be met by domestic produced from domestic sources and the en- resources although there is a big energy de- ergy produced was 41.5 TWh from domestic pendency to other countries’ resources. lignite sources.

The energy consumption in Turkey was 78 There is a 152.15 TWh energy gap due to TWh in 1994. It rised up to 150 TWh during outer dependency directly or indirectly. Even 2001 by nearly a 100 % increase and to 255 though Turkey had the opportunity to meet TWh by a 70 % increase in the year 2014. this gap from domestic coals, it should have However, increase in coal production could produced 200 million tons of lignite instead be succeeded only by 20.8 % in two decades of currently produced 50 million tons. In- and 34.3% in a decade time (compared with stalled capacities of power plants using do- tons of oil equivalent). As a result, it would mestic coals should have been four times be wise to say that increase rate in Turkey’s higher the current ones. Additionally, if the "It would be a dream to energy production by its domestic sources production rate is assumed to be steadfast, it is much far behind the energy consumption can be deduced that the coal in Turkey will fill Turkey’s energy de- rate. In account of these calculations, the pro- be depleted in 77 years even the reserves are pendency gap by domes- duction to consumption rate was 43.9 % two operated by 100 % efficiency. decades ago, 28.4% a decade earlier and it tic coal." was 26.6 % in 2013. Consequently, it can be referenced that it would be a dream to fill Turkey’s energy de- After addressing the decrease in energy pro- pendency gap by domestic coal. Even if it is duction to consumption rates in years, the succeeded, depletion of all the coal reserves

Page 105 FIRST ISSUE COAL: A REALISTIC HOPE FOR TURKEY’S FUTURE ENERGY SECURITY?

"Instead, we have to in the near future would create a big problem. Instead, we have to accelerate renewable accelerate renewable energy investments and especially in nuclear energy investments and as soon as possible so that the energy dependency on foreign resources could be lowered especially in nuclear as substantially. soon as possible so that REFERENCES the energy dependency Dagistan, H., “Türkiye Kömür Aramaları”, 2012, MTA on foreign resources Yayınları, Volume 16, Pages 35-45. Koç, E., Şenel, M. C., “Dünyada ve Türkiye’de Enerji could be lowered sub- Durumu - Genel Değerlendirme”, 2013, Mühendis ve Makina, Volume 54, 639, Page 32-44. stantially." Koç, E., Kaplan, E., “Dünyada ve Türkiye’de Genel Enerji Durumu-I Dünya Değerlendirmesi”, 2008, Termodina- mik Dergisi, Volume 187, Page 70-80. TEIAS, 2015; accessible from www.teias.gov.tr/ ebulten/makaleler/2014/Dunyada_ve_Turkiyede_En- erji_Gorunumu.pdf World Energy Council, “Energy Report”, 2014, Page 181. IEA, 2015; accessible from http://www.iea.org7/

ENERGY POLICY TURKEY Page 106 SELÇUK ÖZGEN AND FERDA BAYRAK

Page 107 FIRST ISSUE RUSSIAN CHESS ON GAS POLITICS: EVALUATION OF TURKISH STREAM

by Oğuzhan Akyener and Çağrı Şirin

HISTORICAL OVERVIEW OF RUS- INTRODUCTION SIAN GAS EXPORT TO EU Turkish Stream Pipeline Project (TSP) is the result of the altering Russian gas supply pol- Initially, existing key gas pipelines feeding icies toward European Union (EU). Due to the Europe will be described shortly in the flustering disputes over Ukraine, initial step concept of the historical overview of Russian was planned as to bypass Ukraine with a new gas export to EU. Latter, the previous steps before the Turkish Stream and South Stream "Due to flustering dis- standalone pipeline that will transit Russian gas to Eastern Europe. However, increasing Pipeline will be adverted. After mentioning the infrastructural situation, customer char- putes over Ukraine, initial conflicts between EU and Bulgarian government made Russia take a step forward with acteristics of Ukraine and the third energy package of EU will also be analyzed. step was planned as to a new standalone pipeline project, which is named as Turkish Stream. bypass Ukraine with a EXISTING KEY PIPELINES TO FEED THE EUROPE In the concept of Turkish Stream, Russia is new standalone pipeline planning to transport the gas through Black Russia gas export to Europe started before Sea and Turkey and sell it in the Greek border that will transit Russian 1940’s with the small volumes of export to of Turkey. This means, Russia will not have Poland. While considering the small portion to deal with the transportation of her gas in- gas to Eastern Europe." of consumption volumes, location of the ex- side EU’s borders. Being a self-assured seller, isting resources (which are affecting the trans- Russia also wishes that Balkan countries on portation costs), lack of existing transporta- the demanding side to provide their own gas tion systems, prices and economical items, export securities. This shift in Russia’s gas gas trade between Russia and Europe could sale and/or transportation policies may be an not find a chance to tighten. After the new important indicator for the future gas politic giant discoveries in 1970s, new pipeline proj- analysis of the region. ects and more politically stabilized and indus- In another aspect, doability of TSP will re- trialized Europe’s trade volumes increased. sult in facing with too many milestones such As seen in Map 1 below, the first key pipe- as commercial, technical, political, market, line from Russia to Europe is the Brother- etc. All these items require careful analysis "The first key pipeline hood Pipeline (PHP), which is active since that will help coherent evaluation of Turkish 1967 (despite the prevention attempts of Stream. from Russia to Europe is USA). PHP is also known as Urengoy-Pom- ary-Uzhgorod Pipeline and has a capacity of the Brotherhood Pipeline In this study, after giving the historical overview of Russian gas export to EU, which is 100 bcma and a 4500 km length. As depict- (PHP), which is active the determiner for TSP, doability of TSP will ed, PHP and its extensions by transiting and be evaluated from the technical, commercial, feeding Ukraine, meet an important portion since 1967 (despite the marketing, political and resource aspects. In of many European countries’ gas demands, addition to this evaluation, after mentioning such as Germany, France, Czech Republic, prevention attempts of the main risks for successful completion of Slovakia, Austria, Slovenia, Croatia, Italy and Hungary. USA)." TSP, other possible options will also be evaluated for any cases of TSP that may not be suc- Second key pipeline from Russia to Europe is cessful. Having the result of this evaluation, the northern lights pipeline, with a capacity of the future of regional gas politics and Turkey’s 51 bcma and a length of 7400 km. This pipe- situation will be analyzed. line consists of five major trunk routes with

ENERGY POLICY TURKEY Page 108 different capacities and different construction However, in the aftermath of the indepen- "For several decades, times. However, the main line from Torzhok dence of the two countries, gas conflicts be- to Ivatsevich is completed in 1970s.1 Due to, tween Russia and Ukraine started to emerge.3 Ukraine represented a supplying gas to Poland and Lithuania and reliable transit platform its main purpose being to directly supply the Conflicts mainly are about the gas prices those Russia offered for Ukrainian domestic Brotherhood Pipeline i.e. her potential being for Russian gas export linked to the Brotherhood, Northern Lights market. Although Ukraine buys the gas with a may not be accepted in the category of the cheaper price than the other European coun- to Europe. However, most important gas import pipelines of Eu- tries, hence she knows that Russia is depen- rope. dent on her to transit gas to Europe, which in the aftermath of the can be accepted a vital item for Russia’s for- Third key pipeline, as shown in the map above eign politics, Ukraine every time tried to use independence of the two is the Yamal – Europe Pipeline (YEP). YEP this situation for the due gas pricing negotia- was activated in 1996 to feed Germany. After tions and deals. From the other side, Ukraine countries, gas con- some upgrades in the compressor stations, the also is dependent to Russian gas while consid- flicts between Russia total volume of YEP has extended up to 33 ering her energy consumption distribution. bcma and its average length is 4200 km. These situations and the unsolved disputes and Ukraine started to several times resulted in Ukraine not paying Fourth key pipeline is Nord Stream (we mean her debts to Russia and Russia cutting her gas emerge." “nord stream1”) with a total 55 bcma capac- supplies to Ukraine. Sometimes Russia erased ity and 1224 km length. Nord Stream Pipe- the piled up debts of Ukraine, however, the line (NSP) is activated in late 2011 to feed situation has never changed. Germany. However, only half portion of this 55 bcma capacity can be utilized due to the From the gas transit region to Europe, this sanctions of EU’s third energy package. conflicts and disputes directly affected the gas transits to Europe. As happened in 2006 and UKRAINE: A BAD CUSTOMER 2009, Russia cut off supplies to Ukraine and Ukraine diverted the European transit vol- By considering the location, existing pipe- umes to her domestic market, which result- line capacities and gas storage capabilities, ed in gas crises in a few European Countries. Ukraine is the most important route for Eu- As a result of this situation, Russia has been "In 2006 and 2009, rope’s gas supply security politics. For several following a new strategy of diversifying her decades, Ukraine represented a reliable tran- gas transit routes away from Ukraine. South Russia cut off supplies sit platform for Russian gas export to Europe. Stream, Turkish Stream and newly proposed to Ukraine and Ukraine

diverted the European

transit volumes to her

domestic market, which

resulted in gas crises in

a few European Coun-

tries."

Map 1: Russia to Europe gas pipelines.2

Page 109 FIRST ISSUE RUSSIAN CHESS ON GAS POLITICS: EVALUATION OF TURKISH STREAM

Figure 1: Russian exports to Europe via Ukraine and other routes.4

Nord Steram2 gas pipeline projects can be lines, South Stream Pipeline Project (SSP) accepted as the results of this new strategy. was launched by Russia to feed the South- However, rest of the paper will focus on the ern and Eastern European markets, in the SSP & TSP. same concept of bypassing Ukraine. SSP was "With SSP; Bulgaria, The volumetric results of this new strategy planned to be a 900 km long offshore pipe- can be observed from Figure 1 above. As it line with a capacity of 63 bcma. Nearly 42 Serbia, Hungary, Austria, can be seen, Russian exports to Europe via bcma of this 63 bcma was planned to be the existing volume being transported through Slovenia, Croatia, Ukraine are decreasing and via other routes are increasing. However, a new project such existing pipeline structure transiting Ukraine. as TSP is needed for long term solution. The remaining portion will be the new gas Bosnia-Herzegovina volumes for the due customers. As seen in Map 3, with SSP; Bulgaria, Serbia, Hungary, and Italy markets were In addition, the South Eastern European countries, red colored in Map 2, are more de- Austria, Slovenia, Croatia, Bosnia-Herzegov- planned to be the poten- pendent on the Russian gas transiting through ina and Italy markets were planned to be the Ukraine, the route diversification strategy of potential markets. tial markets." Russia is very important for that region. Final investment decision of the SSP was made SOUTH STREAM PIPELINE in December 2012 and the whole project was planned to be activated in 2020. However, As indicated above, there are four gas pipe- SSP created controversy due to non-compli- lines, which are the most important structures ance with the European Union competition for Russia to feed the due European coun- and energy legislation, such as the Third En- tries’ gas hunger. In addition to these four ergy Package, which stipulates the separation

Map 2: Percentage of missing gas supplies in 2009 gas crises.5

ENERGY POLICY TURKEY Page 110 OĞUZHAN AKYENER AND ÇAĞRI ŞİRİN

Map 3: South Stream Pipeline project.6

of companies' generation and sale operations EU’s goal to create a liberalized gas market "Gazprom has been from their transmission networks. Project was in Europe via the unbundling of vertically cancelled by Russia in December 2014 fol- integrated gas companies, the imposition of working on shifting her lowing obstacles from Bulgaria and the EU third party access rules and publicized tar- price mechanism from (due to the TEP), the 2014 Crimean crisis, iffs, marked the start of this progression. It and the imposition of European sanctions on also caused huge concern for Gazprom as it the traditional model to Russia. The project has been replaced by pro- would mean a significant shift in its tradition- 7 posals of Turkish Stream and Tesla Pipeline. al business model. In particular, it threatened hub model, in overall, its pricing structure, which had always been Note that TESLA pipeline, which is the pos- based on a long-term oil-linked methodology, hub price mechanism sible extension of Turkish Stream in Europe is and its plans for access to customers via con- planned to start from the Turkish border and trolled infrastructure.”9 Note that although does not seem as ben- to end in Baumgarten, as indicated in Map 4. Gazprom has been working on shifting her price mechanism from the traditional model eficial as the traditional EU 3RD ENERGY PACKAGE to hub model, in overall, hub price mecha- system for Russia." nism does not seem as beneficial as the tradi- “The announcement of the Third Energy tional system for Russia. Package (TEP) in 2011, which outlined the

Map 4: CIS & Eastern Europe pipeline system.8

Page 111 FIRST ISSUE RUSSIAN CHESS ON GAS POLITICS: EVALUATION OF TURKISH STREAM

"Turkish Stream Pipe- As a result of TEP, firstly, Gazprom’s full ca- will reach 2,200 m. The length of the offshore pacity use of the Nord Stream Pipeline was in- part will amount to 910 km. As planned, the line project is the result terrupted by EU Competition Commission. TSP pipeline will surface on the shore of the of altering Russian gas Hence, NSP is connected to Ostsee-Pipe- European part of Turkey near Kıyıköy with line-Anbindungsleitung (OPAL) pipeline gas delivery point at Lüleburgaz for the Turk- export politics, mainly system; this meant a monopolized Gazprom ish customers, and a border crossing between in the case of EU Competition Commission. Turkey and Greece in İpsala serving as deliv- affected by bypassing As a result, Gazprom was forced to use only ery point for the European customers. The half capacity of the pipeline. length of Turkish onshore section will total Ukraine strategies, TEP 180 km. The capacity of four strings totals up Secondly, in 2012, again the EU Competi- to 63 bcma, including 47 bcma to be sup- and Bulgaria’s attitude tion Commission agreed on Gazprom’s com- plied to the Turkish-Greek border.”11 As can mercial activities in the Balkan Countries re- (suspending the prepa- be understood from the information above, sulting in a monopoly position in due high 16 bcma gas via TSP will directed to Turkey ratory operations for the oil prices. That is why; TED again affected and the other portion is planned to be trans- the utilization capacity of SSP’s onshore parts ferred to EU. TSP is planned to have four construction of SSP in after Bulgaria. This means, although Russia parallel pipelines with each having is 16 bcma transports 63 bcma gas to Bulgarian onshore, capacity. First line is planned to transfer the her offshore in 2014)." she can only transport half of this volume Turkey’s portion and the other three lines for to the European markets, by using her own EU. pipeline. These conflicts resulted in an unexpected shift of Russia from SSP to TSP. Off course, transportation of Russian gas from the Turkish border is also important. Hence, TURKISH STREAM PIPELINE "According to the BP SSP was planned to extend to inside the Eu- rope. TSP also has to be planned to link with Energy Outlook 2035 As described above, Turkish Stream Pipeline some other pipeline projects to transport the project is the result of altering Russian gas gas to the customers inside Europe. This issue report: “The EU’s natural export politics, mainly affected by bypassing will be identified in the following sections. Ukraine strategies, TEP and Bulgaria’s atti- gas imports increas- tude (suspending the preparatory operations for the construction of SSP in her offshore DOABILITY OF TURKISH STREAM: ingly diversify; LNG net in 2014). Gazprom CEO’s statement issued FROM RUSSIA TO TURKEY – in January 2015 also summaries the shift in GREECE BORDER imports almost triple by Russian export strategy and the shift from SSP to TSP: “The principle of our strategy in 2035 and account for The most popular pipeline project to handle relation to the European market is changing. due strategies of Russia can be accepted as the 30% consumption in The decision on stopping South Stream is the Turkish Stream Pipeline project. However, in beginning of an end to our operation model this step, doability and the future of TSP has 2035 up from 9% to- of the market within which we oriented our- to be evaluated from technical, commercial, selves towards supplying to the end consum- marketing, political and resource aspects. Po- day. However, imports er. But you cannot win love by force. If the litical aspects will be the most determinative buyer does not want the purchase to be deliv- items for the future of TSP. from Russia via pipeline ered home, well then perhaps he needs to get dressed and go to the store, and if it happens TSP: FROM THE MARKETING SIGHT remain an important in winter, get dressed warmer. Well he could source of supply, growing also take some package. Which can well be According to the BP Energy Outlook 2035 the Third Energy Package, but what counts report: “The EU’s natural gas imports increas- by 15% and maintaining most is that it should not be empty. In our ingly diversify; LNG net imports almost tri- case, the store is certainly the delivery point ple by 2035 and account for 30% consump- a market share of around on the Turkish–Greek border.”10 tion in 2035 up from 9% today. However, imports from Russia via pipeline remain an 31% by 2035.” “The offshore part of the TSP will cross the important source of supply, growing by 15% Black Sea bed. Maximal depth along the route and maintaining a market share of around

ENERGY POLICY TURKEY Page 112 OĞUZHAN AKYENER AND ÇAĞRI ŞİRİN

31% by 2035.” This means, Russian gas de- Which means Russia is developing her fields mand in EU will increase. In addition, while and has the resource development and invest- considering that LNG supplies will be main- ment environment inside. ly to the coastal countries of EU, increase in LNG supply will not have a significant influ- Furthermore, according to the BP Energy ence on TSP, where TSP’s main interest is not Outlook 2035 report: “Russia remains the coastal areas (except Italy and Greece). largest net exporter of energy with net exports meeting 4% of world energy demand in 2035 Moreover, TSP’s interest includes the coun- and Europe remains the largest importer of tries that average more than 60% dependen- gas.” cy on Russian gas. As pointed out in Map 5, 2014 Russian gas import values of due coun- These approaches show that, from the sight tries, which are also the possible markets for of supply volume of gas resources in Russia gas transported via TSP, total 74,31 bcma in there is no risks currently for TSP and for the the area including Italy and Turkey. By assum- technical life of the pipeline. "BP Energy Outlook ing the demand will increase in the coming years, 63 bcma after 2018 will easily be able TSP: FROM THE TECHNICAL SIGHT 2035 report: “Russia to find enough market volume in the region. By the way, Italian and Turkish markets also Turkish Stream, a new gas pipeline from Rus- remains the largest net have to be evaluated separately for long term sia to Turkey will run across the Black Sea exporter of energy with estimations, because of possible LNG and from the Russkaya CS near Anapa to Kıyıköy village in the European part of Turkey and other resource potentials. However, Russian net exports meeting 4% gas again may be the cheaper way of supplies further via Lüleburgaz to Ipsala on the border between Turkey and Greece. for both countries after comparing with other of world energy demand resources. As the result of these facts, there will be no market risk for TSP doability. 660 kilometers of the offshore pipeline route in 2035 and Europe re- will be laid within the old corridor of South TSP: FROM THE RESOURCES SIGHT Stream and 250 kilometers – within a new mains the largest import- corridor towards the European part of Tur- According to the data taken from BP Statisti- key. The offshore part of the pipeline, which er of gas.” cal Review 2015, Russia with 32,6 tcm gas re- is 910 km in length, will cross the Black Sea serves has the 17,4% of the total gas resources bed with Maximal depth of 2,200 m. in the world, coming after Iran in the rank- ing. In addition, another important value The onshore gas pipeline section will stretch from the same report is (reserve/production) for 180 kilometers from the Black Sea coast R/P ratio, which is around 50% for Russia. of Turkey to the border between Turkey and Greece.

Map 5: Russian gas exports 2014.12

Page 113 FIRST ISSUE RUSSIAN CHESS ON GAS POLITICS: EVALUATION OF TURKISH STREAM

"Political side is the most

important issue that will

affect the doability of the project. After the Ukraine

conflicts, TEP and

Bulgaria’s attitude, TSP

was the best solution for

Russia, although EU cur-

rently does not support

and US is against the Map 6: Turkish Stream Pipeline project.13 project." The annual gas pipeline capacity will total 63 • Oil prices in the last quarter of 2018 is billion cubic meters of gas. The offshore gas 75 USD pipeline will consist of four strings with the • Gas prices in EU for the last quarter of capacity of 15.75 billion cubic meters each. 2018 is between 330 – 370 USD/1000 Gas from the first string is intended exclusive- m3 ly for the Turkish market. • Gas prices in Baumgarten Hub for the 3 Estimated Cost & Tariff according to the ex- last quarter of 2018 is 350 USD/1000 m isting technical information for TSP are summarized in Table 1. Note that; cost is calculat- With the estimated tariff above, total unit cost ed by using commercial software and tariff is of Russian gas in the Turkish-Greek border is estimated by benchmarking with the current (30+180) 210 USD. Up to this point, there is similar projects. During tariff estimation pro- no commercial risk, where EU gas prices will cess, rate of return of the project is accepted as 9%. Offshore Length 910 km Onshore Length 180 km TSP: FROM THE COMMERCIAL SIGHT Diameter 4x32" Hence, Russia is financing the project, which Capacity 63 bcm means there are no financial risks. For com- Water Depth 2200 m mercial analysis, initial items given below are assumed: Cost 18 MMM$ Tariff @ Greece Border 180 $ / 1000 m3 • Russia’s average unit gas cost @ Anapo (including the production and inside Table 1: TSP technical summary. country transportation costs) is 30 US- D/1000m3 be estimated to be between 330 - 370 USD Note that; hence, the existing giant gas fields / 1000 m3. However, commercial analysis has to supply the TSP are mature and also there to be repeated by considering the additional are currently existing free capacities in the tariffs inside the EU. pipeline distribution system of Russia, as the lowest breakeven point; 30 USD / 1000 m3 TSP: FROM THE POLITICAL SIGHT cost is accepted.

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Political side is the most important issue that the public announcements, TESLA is expect- “Continuing workshops will affect the doability of the project. After ed to be completed in 2019. the Ukraine conflicts, TEP and Bulgaria’s at- between the countries titude, TSP was the best solution for Russia, Replacing the scrapped South Stream pipe- Hungary, Serbia, Mace- although EU currently does not support and line, Turkish Stream comprising four lines with a combined annual capacity of 63 bil- US is against the project. However, from the donia, Greece, Turkey, Turkish side, the straining and worsening re- lion cubic meters of gas will carry gas from lations with Russia will be able to effect the Russia to Turkey under Black Sea. Turkey is Albania and Bosnia & last investment decision of the project. to take about 16 billion cubic meters while the remainder will be transited to a gas hub to Herzegovina give clues Videlicet, the doability of the project has be built on Turkey’s border with Greece, for political risks according to the current ap- exports to Europe. about the possible do- proaches of Russia, EU, Turkey and US. On the contrary, Balkan countries, as being the TESLA MARKETS AFTER TURKISH ability of TESLA pipeline customers politically support the project. BORDER project, carrying gas from Beyond TSP, as mentioned above, 47 bcma Turkish – Greek border BEYOND TURKEY: GAS DELIVERY gas is assumed to be in the Turkish border for TO ITALY & BAUMGARTEN EU’s consumption. In addition, by bench- to Baumgarten.“ marking with the current trade volumes, 20 For a planned 47 bcma gas supply via TSP bcma is planned to send to Italy. Other 27 to the due countries in EU, as the end points bcma will be shared between the other due Austria and Italy, new pipeline infrastructures Balkan countries. By considering the 2014 have to be considered and constructed. Com- Russian gas import volumes, for Balkan mercial and political issues will be the deter- countries 27 bcma gas volume is assumed to miners to select the routes and the due pipe- be distributed as given in Table 2. line projects such as TAP extension, Western Nabucco, ITGI, IAP or others. However, ITGI PIPELINE TO ITALY continuing workshops between the countries Hungary, Serbia, Macedonia, Greece, Tur- “The ITGI (Interconnector Turkey-Greece-It- "The ITGI (Interconnec- aly) System is a multi-source import project key, Albania and Bosnia & Herzegovina give tor Turkey-Greece-Italy) clues about the possible doability of TESLA that will contribute to the European diver- pipeline project, carrying gas from Turkish sification and security of supply by opening 9 System is a multi-source – Greek border to Baumgarten. In addition the so called “Southern Gas Corridor”. The to TESLA, to feed the Italy market, TAP ex- pipeline is designed to transport approximate- import project that will tension or ITGI pipeline projects may also ly 15 billion cubic meters of natural gas a year be considered. However, commerciality will from Caspian, East Med and/or Middle East contribute to the Euro- again determine the routes, so, all costs and areas to Italy and Europe through Turkey and tariffs have to be studied. pean diversification and Greece 2 security of supply by TESLA PIPELINE TO BAUMGARTEN Bulgaria 3 Serbia 1,5 opening the so called The Tesla pipeline – named after Serbi- Bosna 0,2 an-American engineer and inventor Nikola Hungary 5,5 “Southern Gas Corridor." Tesla – is a continuation of the controversial Gazprom - backed Turkish Stream. It is Slovakia 5 planned to cross through Greece, FYROM, Austria 4,5 Serbia and Hungary, and then reach the gas Czech Rep 4,5 hub Baumgarten in Vienna. Macedonia 0,1 Slovenia 0,4 The length of the pipeline is planned to be Romania 0,3 1,300-1,400 kilometers and capacity is 27 billion of cubic meters of gas. According to Table 2: TESLA markets.

Page 115 FIRST ISSUE RUSSIAN CHESS ON GAS POLITICS: EVALUATION OF TURKISH STREAM

Greece.”. In the first option, the re-designed through two standalone pipeline infrastruc- capacity of new ITGI will be 20 bcma. tures to Austria via Tesla with 24 bcma, and to Italy via ITGI (or to the small extent via COMMERCIAL ANALYSIS TAP) with 20 bcma. However, extension of TAP is not considered due to possible other Then, by considering the above volumes, gas supplies via TANAP. The extended vol- routes have to be studied. As depicted in Map umes can be filled with Azeri resources. In 7 from the Turkish border; addition, TAP can technically be extended up to 20 bcma, so additional 10 bcma will not be • Gas to Bulgaria and Romania will be enough for Italy’s portion. transported via existing Trans-Balkan Pipeline reverse flow. So, the remaining Cost estimations to see the viability of two volume for the other markets will be 44 routes were evaluated by commercial software bcma. and benchmarking procedures are followed • The remaining volume of 44 bcma has 2 for the tariffs. As a result; main options to reach the due markets: • Option 1: Italy market’s 20 bcma share • Estimated cost for 24 bcma TESLA: 8 will be transported via a new stand- billion USD alone pipeline (which may be a re-de- • Estimated tariff for 24 bcma TESLA @ signed ITGI) and other 24 bcma por- Macedonia: 15 USD / 1000 m3 tion will be transported in the planned • Estimated tariff for 24 bcma TESLA @ TESLA route and will reach up to Serbia: 30 USD / 1000 m3 (Bosna will Baumgarten. get her gas from this point) • Option 2: 44 bcma including Italy’s • Estimated tariff for 24 bcma TESLA @ share will be transported with a 44 Hungary: 70 USD / 1000 m3 bcma capacity TESLA project and Ita- • Estimated tariff for 24 bcma TESLA @ ly will get her portion with a new link Baumgarten: 120 USD / 1000 m3 (Czech from Baumgarten. Rep., Slovakia and Slovenia will get their Both options can be observed in Map 7. gas from this point)Estimated cost for 20 bcma ITGI: 6 billion USD (Bench- OPTION 1: marked with TAP) • Estimated tariff for 20 bcma ITGI @ Ita- As indicated above, gas will be supplied ly: 140 USD / 1000m3

Map 7: Extension of TSP and due market’s volumes.

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OPTION 2: The new economics of the project including TESLA extension, by considering the previ- In this option, All 44 bcm/annum gas goes ous assumptions, estimated unit gas costs in to Austria and Italy gets her 20 bcma portion due points are given in Table 4. via a small link from Baumgarten. So, TESLA will have a 44 bcma capacity. According to Note that; total gas unit cost at the due deliv- the results; ery point includes the average gas production cost in Russia, inside Russia transportation • Estimated cost for 44 bcma TESLA: 14 costs, TSP tariff and due tariffs in due pipe- billion USD lines in the European part up to the delivery • Estimated tariff for 44 bcma TESLA @ points. Macedonia: 23 USD / 1000 m3 According to the results given in Table 4, Sce- • Estimated tariff for 44 bcma TESLA @ nario 2 is not feasible while assuming the gas 3 Serbia: 45 USD / 1000 m (Bosna will prices will be between 330 – 370 USD/1000 get her gas from this point) m3 in 2019. Hence, not economic, Scenario • Estimated tariff for 44 bcma TESLA @ 1 has to be selected. Hungary: 105 USD / 1000 m3 • Estimated tariff for 44 bcma TESLA @ As a result, although the economics are not Baumgarten: 190 USD / 1000 m3 (Italy, so satisfactory in Italy, in regards to due as- Czech Rep., Slovakia and Slovenia will sumptions, for all delivery points, netback get their gas from this point) can be accepted above zero so; TSP will again be doable. • Estimated cost for 20 bcma Italy Link: 1 billion USD However, if the “unit production + inside • Estimated tariff for 20 bcma Italy Link: country transportation” cost will be high- 10 USD / 1000 m3 er than 30 USD / 1000 m3, then Italy or Baumgarten markets may not be the eco- "If the “unit production + As a result of these 2 scenarios; the total tariff nomical options for Russian gas transported inside country transpor- costs are given in Table 3. via TSP. Therefore, this approach may be able to force TSP not to feed Italy and Baumgar- tation” cost will be higher UPDATED COMMERCIAL ANALYSIS ten markets with new standalone pipeline INCLUDING THE TSP projects. Therefore, cheaper upgrades in the than 30 USD / 1000 m3, current distribution systems in Europe may Tariff for 44 bcma TESLA be the solution to feed some portions of due then Italy or Baumgarten 190 $ / 1000 m3 @ Baumgarten markets. This means, there is a chance for TSP to be constructed with less capacity such markets may not be the Tariff for 24 bcma TESLA as 16 + 16 bcma, where 16 bcma is for Turkey 120 $ / 1000 m3 @ Baumgarten and the other portion is for EU, can be trans- economical options for ported via the upgraded existing structure. Russian gas transported Table 3: TESLA tariffs. via TSP." Scenario1 Scenario2 Total Unit Gas Cost Delivery Point Total Unit Gas Cost (USD/1000m3) (USD/1000m3) Macedonia 225 233 Serbia 240 255 Hungary 280 315 Baumgarten 330 400 Italy 350 410

Table 4: Total unit costs of Russian gas after TSP & TESLA.

Page 117 FIRST ISSUE RUSSIAN CHESS ON GAS POLITICS: EVALUATION OF TURKISH STREAM

“The organization, own- As an additional final note for TESLA, again due to the TEP, the organization, owners and Ukraine transit route and SSP. ers and financial issues financial issues of TESLA will have a vital role for the doability of TESLA. In addition to these two options, LNG trans- of TESLA will have a vital portation and supply possibility of other markets can be a different solution for Russia as role for the doability of A NEW ASPECT OF BEING TSC ONLY TO BE TWO LINES a seller. TESLA again due to the As mentioned above, due to economic rea- TURNING BACK TO GOOD OLD TEP.” sons, there is a possibility of TSC to be con- UKRAINE TRANSIT ROUTE structed as two parallel lines with each capacity of 16 bcma is being discoursed. In this As mentioned above, if the political disputes scenario, Russia will construct the 16 bcma will not solved on TSP, one of the alterna- pipeline to Turkish coast and then after the tives is Brotherhood Pipeline, which is one legislative and political issues between the EU of the oldest pipeline from Russia to Europe countries solved, will construct the second through Ukraine. parallel line up to the Turkish – Greek border. From the Greek border, gas will be transited The pipeline runs from Siberia's Urengoy gas via upgraded existing pipeline systems and field to Uzhgorod in Western Ukraine. From reverse flows. In this case, not all but some there, the natural gas is transported to Cen- of the Balkan countries such as Greece, Bul- tral and Western European countries. Togeth- garia, Romania, Italy (via the extended TAP), er with Soyuz and Progres pipelines, it forms Macedonia, Serbia and Hungary may share the western transit corridor in Ukraine. It the 16 bcma volume of the second line. crosses the Russian–Ukrainian border north of Sumy. In Ukraine, it takes gas to the Uzh- In this case, new costs and estimated tariffs gorod pumping station on the Ukrainian are written below: border with Slovakia and to smaller pumping stations on the Hungarian and Romanian TSC Line 1 (16 bcma) to Turkey, Cost (bil- borders. The pipeline crossed the Ural Car- lion USD): 4,2 pathian Mountains and more than 600 rivers including Ob, Volga, Don and Dnepr rivers. TSC Line 1 (16 bcma) to Turkey, Tariff (US- D/1000m3): 80 The pipeline is 4,500 kilometers long, of “If there will be again which 1,160 kilometers lays in Ukraine. Its TSC Line 2 (16 bcma) to Greece, Cost (bil- diameter is 56 inches. The total capacity of unsolved political dis- lion USD): 5,4 the pipeline is 100 bcma and it has 42 compressor stations, of which nine are placed in putes on the doability of Note: If the second line will be constructed Ukraine. TSP, then there will be just after the first line then the cost is estimated to be 4.5 billion USD and tariff will be Besides the advantages of without any cur- 3 two options. Which are around 90 USD/1000 m . rent capital investment, the disadvantages can be accepted as being old and disputes be- turning back to Ukraine TSC Line 2 (16 bcma) to Greece, Tariff tween Russia and Ukraine. While consider- (USD/1000 m3): 100 ing 1967 is the activation date and assuming transit route and SSP.” the maximum life of a standard gas pipeline As a result, this case also seems doable accord- is 50 years, this line has to be replaced after ing to the commercial analysis. 2017 for a reliable transfer. This means, no cost advantage of this pipeline is up to 2017. Therefore, an estimated extra more than 18 OTHER ROUTES billion USD cost will have to be considered. By adding the new additional costs and the If there will be again unsolved political dis- current disputes, this option does not seem to putes on the doability of TSP, then there will be selectable. be two options. Which are turning back to

ENERGY POLICY TURKEY Page 118 OĞUZHAN AKYENER AND ÇAĞRI ŞİRİN

ONCE AGAIN SSP to sell her resources located in the eastern and central Russia. In the concept of this project, The other alternative, which is already un- which is called as “Power of Siberia” that has officially cancelled pipeline project, is South a planned capacity of 38 bcma and by the Stream Pipeline. It is almost the same tech- end of 2018, the 2200-kilometres-long sec- nical aspects of Turkish Stream. The offshore tion linking Chayanda field in Yakutia with “From the commercial pipeline is planned to carry 63 billion cubic Blagoveshchensk on Russo-Chinese boarder meters of natural gas per year. It was planned will be completed. It is further planned to side, both SSP and TSP to have four parallel lines with capacity of build a section linking Chayanda with the are estimated to have the 15.75 billion cubic meters each. The offshore Kovykta field in Irkutsk Region (some 800 pipeline was planned to use pipes with a di- km pipeline), and a section from Svobodny similar benefits to the in- ameter of 32 inches, designed for 4,022 psi in Amur Region to Khabarovsk (1000 km). of working pressure and having the pipe wall This will link the Power of Siberia to Sakha- vestors. So, political and thickness of 39 millimeters. The offshore sec- lin-Khabarovsk-Vladivostok gas transmission tion is expected to cost 14 billion USD. system.14 market related issues will

Pipeline sections in Bulgaria, Serbia, Hunga- As a result, LNG and other market options be determinant in such a ry, and Slovenia was planned to have capacity will not commercially take the place of at least 10 billion cubic meters per year af- planned pipelines and will not be the solu- case SSP to turn back.“ ter the completion of the first pipeline of the tion. project. The onshore pipeline was planned to have eight compressor stations and it is expected to cost 8 billion USD. At least, two ANALSYS & TURKEY’S SITUATION gas storage facilities were planned to be constructed, of which one was an underground ANALYSIS: EUROPE storage facility in Hungary with capacity of minimum 1 billion cubic meters and another “In 2014, Gazprom Export supplied 146.6 one in Banatski Dvor, Serbia with capacity of billion cubic meters of gas to European coun- 3.2 billion cubic meters. tries. Western European countries accounted for approximately 80% of the company’s ex- From the commercial side, both SSP and TSP ports from Russia, while Central European are estimated to have the similar benefits to states took 20%. The Western European mar- the investors. So, political and market related ket (including Turkey) consumes the bulk of “In 2014, Gazprom issues will be determinant in such a case SSP Russian exports. In 2014, Gazprom Export to turn back. Moreover, Russia may apply delivered 117.9 billion cubic meters of gas Export supplied 146.6 bil- only the offshore section of SSP and give up to markets in the region. The Eastern and the onshore part of the pipeline due to the Central European natural gas market is par- lion cubic meters of gas continuing effects of TEP. ticularly important because of its geographical proximity to Russia. The Russian “blue to European countries. LNG & OTHER MARKETS? fuel” takes account of about 3/5 (three-fifths) of gas consumption in the region. In 2014, Turkey is the second In the concept of Russia’s target to bypass Gazprom Export sold 28.7 billion cubic me- largest gas customer of Ukraine in her gas export policies LNG sup- ters of gas in this market”.15 plies reaching to other markets via pipelines Russia, after Germany.” (such as China) and other pipeline projects This explanation above shows the importance through northern Europe to feed the central of Russian gas for Europe. In addition, Rus- & southern Europe will not give the econom- sian supplies are a lot more important for the ical results to Russian economy as TSP and South Eastern European countries, due to the SSP. market share. In the concept of the Russian gas export strategy, bypassing Ukraine is a key In addition, reaching the other markets such element for further decisions. That is why; as China is another issue that has to be con- Europe (mostly South Eastern Europe) needs sidered separately. Hence, Russia is planning a new route to get the Russian gas. As men-

Page 119 FIRST ISSUE RUSSIAN CHESS ON GAS POLITICS: EVALUATION OF TURKISH STREAM

tioned above, there are two main alternatives customer. In such a time, when the oil and to handle the due capacity being transited via gas prices are lower than the expectations, for Ukraine. They are South Stream and Turkish Russia to keep her relations prosperous with Stream pipelines. the reliable customer Turkey is important.

Mainly and officially due to the TEP, today In this concept, TSP is beneficial for both and in the future, EU will have disagreements Russia and Turkey. With TSP mainly: with both the projects. From the offshore technical designs and the economics, both • Russia projects are nearly the same. From the de- • will find a reliable and stable transit manded onshore parts, where Turkish Stream country by bypassing Ukraine officially does not have such an extension, • will be able to reach all demanded again the disagreements will be observed. markets with the due extensions

From another view, EU needs this volume • will supply Turkey gas directly, with- of gas, which is planned to be transported out any transmitter through SSP or TSP. That is why; although • Turkey there is no agreement and a solution today, • will find a second direct gas supply for both EU (buyer) and Russia (seller), a from Russia, without a transit country solution to be taken is expected. Hence, this • will put an important step on her strat- unsolved demand situation will be more diffi- egy of being a gas transit center cult than the agreement on one of these pipeline projects for EU. • will be able to find a chance to get Turkmen – Uzbek – Kazakh gas in the By comparing SSP and TSP from the side of future EU, politically SSP seems a better solution. • will have more chance for more vol- However, commercially, while considering umes of gas supplies the high tariffs to transit Italy’s gas through Baumgarten, seems a worse selection. There- As a result, TSP is beneficial and import- fore, TSP can be acceptable for EU in the fu- ant for both Russia and Turkey. In TSP’s al- ture. ternative SSP, Russia has to deal with a less “In 2014 Gazprom sup- (economically and politically) stable transit However, at this point the main determiner plied 27,33 bcm16 gas country Bulgaria and has to finance the inner will be the Turkey – Russia relations. Europe part of the pipeline. In addition, she via the existing pipe- will not be able to use the full capacity of TEP ANALYSIS: TURKEY although she finances the whole SSP (includ- lines Blue Stream (with ing onshore part). However, with the TSP, Turkey is the second largest gas customer of Russia will be able to reach all her demanded 16 bcma capacity) and Russia, after Germany. In 2014 Gazprom 16 markets with less endeavor, money and strug- supplied 27,33 bcm gas via the existing gle. Furthermore, the first step of the proj- Trans-Balkan, where the pipelines Blue Stream (with 16 bcma capaci- ect, which is the delivery of Turkish volume, ty) and Trans-Balkan, where the total import is ready to launch, This means less risk, less total import gas volume 17 gas volume of Turkey was 33 bcma. This work, less money, making EU to think about means more than 80% volume of Turkish gas her own gas demand and less headache. of Turkey was 33 bcma.” was supplied by Russia. This means Turkey is dependent to Russian gas to sustain her en- However, recent events and their results con- ergy security. Moreover, the gas power plants fused both parts. Russia is attacking to the realized 47% of electricity production in Tur- Syrian Turkmens near Turkish border, by key in 2014. Although in 2015, this rate has claiming that she was bombing the ISIS. On 16 decreased up to 36% levels, natural gas effect the other side, during these unjust attacks, on the Turkish electricity market is another her aircraft’s border violation made Turkey to important issue for Turkey. From the Rus- shoot it down, to protect her own air land. sian side, Turkey is the second largest good The results of this event badly affected the

ENERGY POLICY TURKEY Page 120 OĞUZHAN AKYENER AND ÇAĞRI ŞİRİN

relations between these countries. Naturally, Russia and Turkey, there is a chance for SSP there occurred political risks for the doability to turn back to life; however, economical, of TSP. market related and legislative (TEP) items have to be cleared. Russia today, in the concept of TSP, may be “Future political moves studying on new alternative strategies; however, future political moves and actions will RESULTS and actions will show the show the final results. In addition, it will not be easy for Russia to find another econom- There are five sources for EU to meet her gas final results. In addition, it ic way to feed the South Eastern Europe by demand. First are the politically most suitable will not be easy for Rus- bypassing Ukraine and without Turkey, while and an economic choice, which is Norway. However, the supply volumes of Norway are TEP is not deactivated. Commerciality will sia to find another eco- also be an important factor as the politics be- decreasing. The second is the Russian sup- fore giving the last decisions. plies, which are and which will be the dom- nomic way to feed the inant resource according to the volumes and From another view, the losers of cancellation price comparisons. Third are the North Afri- South Eastern Europe by of TSP will be both Russia and Turkey and can resources that only provide gas to Spain also EU, if another valid solution cannot be or Italy. Forth are the possible LNG supplies bypassing Ukraine and found. However, the gainer will be US, who with naturally higher prices. Last is the Azeri wants Russia to put in more struggle. (Note: supply, which is planned to be started with 10 without Turkey.” Bulgaria again will be the gainer, however, bcma in 2019’s. While comparing these five from the global politics side, this fact is not options, Russia will be the most important considered.) supplier in the future as today.

As a result, for the future steps of TSP, both The most important gas supply option for Russia and Turkey have to think about the EU: Russian gas has three main routes to possible gain-gain philosophy other than tak- follow. Which are Nord Stream, Yamal and ing sharp actions. Brotherhood pipeline systems. Nearly 60% of Russian gas has been transited via Broth- TURKISH STREAM OR AGAIN SOUTH erhood pipeline system to the Europe. So, STREAM? Brotherhood is the most strategic line for Russia and EU gas trade. From the techni- There are public statements about the cancel- cal sight, this pipeline system is old and has lation of SSP; however, there is not an official to be modernized with an estimated cost of cancellation letter sent to the Bulgarian gov- more than 18 billion USD. From the polit- ernment. This currently means that there is a ical sight, Russia does not want her trade to chance for Russia to step back to SSP again. suffer from Ukraine’s unexpected actions and Nowadays, the speeches and declarations of plans to change her trade route by bypassing Bulgarian and Russian authorities give the Ukraine. signal about the studies on a shift of TSP to SSP. As the result of this scenario, South Stream and Turkish Stream pipelines are put forward By considering the onshore transportation as alternatives to (some parts of) Brother- route of Russian gas, with the already worked hood pipeline system. With South Stream organizational items, agreements and funding or Turkish Stream Russia will be able to feed SSP may be one step ahead compared to TSP, the South Eastern Europe and some parts of where its extension route TESLA is not clear, Central Europe. Trans-Balkan’s part of Broth- yet. However, Italy’s volumes change the bal- erhood pipeline system will be able to be used ances in economics and make it uneconomic for other gas transportations without being for Italy to get her gas from Baumgarten, will dependent on Ukraine. be another issue to be considered. Initially, the selected route was the South As a result of the political conflicts between Stream, however, due to some conflicts with

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EU, Russia shifted from SSP to Turkish Stream. Doability of Turkish Stream is possible by considering the technical, resource based, commercial and market related issues. However, unsolved political conflicts will be the determiner for the future of the project.

Due to worsening relations between Russia “Doability of Turkish and Turkey may be resulted in the cancella- Stream is possible by tion of TSP and a step back to SSP. However, with the current conditions of SSP, this oc- considering the tech- currence will not be possible also. In addition, such a step will be resulted in the increased nical, resource based, interest of Turkey on other gas supplies such as more Azeri gas, Iranian & Eastern Medi- commercial and market terranean gas and LNG. This will also result in Russia to lose her second big and reliable related issues. However, customer Turkey. unsolved political con- Forward moves on the chessboard over the flicts will be the determin- Middle East & Europe may change all the balance in the region; however, the best and er for the future of the doable option seems to be the TSP and 24 bcma TESLA to feed the due markets. project.”

REFERENCES

Katja Yafimava, "Belarus: the domestic gas market and relations with Russia", 2009; accessible from http://www. gastechnews.com/ Nota Di Lavaro, “Turkish Stream: What Strategy for Eu- rope?”, 2015, IHS CERA European Commission Wikipedia,“South Stream”, accessible from https:// en.wikipedia.org/wiki/SouthStream) OSW – The Centre for Eastern Studies; accessible from http://www.osw.waw.pl/ Interfax, 6 December 2014 Russian Analytical Digest, No:163; accessible from http://www.css.ethz.ch/ http://www.gazpromexport.ru/en/projects/6/) http://www.gazpromexport.ru/en/statistics/) http://www.gazprom.com) http://www.gazpromexport.ru/en/projects/3/) http://www.gazpromexport.ru/en/statistics/) http://www.gazpromexport.ru/en/statistics/) www.botas.gov.tr EUAŞ http://www.edison.it/en/itgi-pipeline

ENERGY POLICY TURKEY Page 122 OĞUZHAN AKYENER AND ÇAĞRI ŞİRİN

ABSTRACT

Page 123 FIRST ISSUE SOUTHERN GAS CORRIDOR, MILESTONES AND OTHER TURK- MEN GAS EXPORT OPTIONS (VIA TURKISH STREAM)

by Oğuzhan Akyener

EU is the biggest energy importing structure point through assessing potential shippers, in the world and Russia is her major suppli- and of economic parameters, then the place er. EU energy security troubled by increasing of Turkmen gas in SGC will be evaluated. political conflicts with Russia rushes EU to In addition, for Turkmen gas exportation to diversify her energy supplies. EU, other two possible roots: through Iran & Turkey and Russia & Turkey (through new One of the most popular candidates for EU’s popular line Turkish Stream) will be analyzed "EU is the biggest energy future energy supply is the Caspian resources in terms of economic parameters affecting the placed in between Russia, Azerbaijan, Turk- end market competition. importing structure in menistan, Iran and Kazakhstan, however, as of today (due to political reasons) only Azeri the world and Russia is and Turkmen natural gas resources have the INTRODCUTION priority for EU’s future energy security strate- her major supplier. EU gies. These strategies under the forth corridor Caspian, involving Russia, Turkmenistan, concept by EU were partly realized through Kazakhstan, Uzbekistan, Azerbaijan, Iran, is energy security troubled southern gas corridor (SGC) initiated by the most important region according to the by increasing political Azerbaijan. In such a corridor Azerbaijan is proved gas reserves potential in the world planned to be the main supplier country and (46,3% of the world share1). Moreover, due conflicts with Russia to a greater extent Turkmenistan and others to the geographical properties (being located as well. While Azerbaijan and Turkey will be in the middle of the important consumers; rushes EU to diversify the transit countries and EU and also Turkey China-India-EU & Turkey), importance of will be the markets in demand. Caspian region for world gas politics is in- her energy supplies. One creasing. As there are no important political obstacles of the most popular can- for Azerbaijan as the supplier, demand market Due to the nature of the development pro- or transit countries however; unreconciliated cedures of huge gas projects, long term plan- didates for EU’s future political situation of the Caspian Sea is one of ning is vital for logical estimations. Therefore, energy supply is the Cas- the most important milestones for potential at least 2035 supply and demand potentials supplier Turkmenistan to flow its gas through with the economic fundamentals have to be pian resources." Caspian to Azerbaijan stepping forward with studied. the corridor since early 2000. Moreover, the political encouragements and support of EU Map 1 is giving brief information about the "According to the in- and US, and related parties have not been 2035 supply and demand potentials estima- enough to take tangible steps to resolve the tions of Caspian and related regions. formation giving on the problem. According to the information giving on the map, there is an unbal- However, in any case, even if the linkage of map, there is an unbalanced gas equation due Turkmen gas to Azerbaijan flowing through to total high demand and insufficient total anced gas equation due the demand market is assumed politically supply potential from the Caspian (except Iran). So, minimum additional 600 bcma to total high demand and possible, another important matter will be the economic fundamentals as a determining volume of gas will be demanded annually in insufficient total supply factor for consideration. the region. This shows the increasing importance of Caspian resources and from the sight potential from the Caspi- In this paper, initially by assuming the polit- of huge demanders; “First comers will get ical conflicts on Caspian is resolved, success much from the cake.”. Moreover, current sit- an (except Iran)." rate and future of Southern Gas Corridor uation shows that due to the previous agree- will be evaluated from the view of capacity ments and existing infrastructures EU will get

ENERGY POLICY TURKEY Page 124 "The first stage of SGC is

Map 1: 2035 Estimations (Demand – Supply potentials).2 the delivery of Shah Den-

the greatest part. In general, resources and planned infrastruc- iz Stage 2 gas to EU as tures for SGC can be studied in four stages it is continuing. The sec- From the general sight; videlicet, middle according to their tangibility; world (including Asia & Europe) also needs ond stage; future Azeri Iran, Iraq, North Africa, East Mediterranean, SGC STAGE 1 Persian Gulf & some Pacific resources for gas (mainly from Umid/ their future gas security (So, LNG will play The first stage of SGC is the delivery of Shah a key role). Deniz Stage 2 gas to EU. It is continuing. In Babek and Absheron) is that concept, capacity expanded SCP (SCPX), After showing the unbalanced gas supply-de- TANAP and TAP is planned to transport 10 planned to be transport- mand potentials in the region and the strug- bcma Azeri gas to EU/Italy Hub after 2018. gles growing up, to focus on EU’s main en- The view of SGC Stage 1 is given in Table 1. ed to EU via SCPFX, ergy security targets related with Caspian gas resources: SGC STAGE 2 TANAPX and TAPX after 2025." • For political reasons and diversity of re- The second stage; future Azeri gas (main- sources, Caspian gases have to be trans- ly from Umid/Babek and Absheron) is ported to EU. planned to be transported to EU via SCPFX, • Initially, Azeri gas and then Turkmen gas TANAPX and TAPX after 2025. (Note: TAP will be transported. capacity is with the maximum expandable 10 bcma, and it can be 20 bcma. So, for addi- • For additional supply potentials and de- tional gas flow above maximum capacity, new "The third stage as on creasing the transportation costs, Iran – infrastructures have to be constructed). The Iraq and West Mediterranean resources view of SGC Stage 2 is given in Table 2 the table projects; Iraq will be able to be adapted to the supply system. SGC STAGE 3 – Iran – Eastern Mediter- • All transportation will be through Turkey ranean gas is thought to via pipelines. The third stage as on the table projects; Iraq – Iran – Eastern Mediterranean gas is to be be transported through These ideas are called popularly as Southern transported through Turkey to EU via: Gas Corridor (SGC). In order to have a more Turkey to EU. coherent analysis, SGC will be divided and • Free capacity of TANAP or TANAPX investigated in four stages. • Possible expanded capacity of TANAPX (TANAPFX) SGC IN FOUR STAGES • Revival of NABUCCO

Page 125 FIRST ISSUE SOUTHERN GAS CORRIDOR, MILESTONES AND OTHER TURKMEN GAS EXPORT OPTIONS (VIA TURKISH STREAM)

Time Period To Start After 2018 Related Countries / Political AZ (Supplier), GEO & TR (Transit), EU/ITALY (Market) Structures No risk Resource (Existing proved resources in Shah Deniz Gas Field waiting to be developed. Very low reserve risks, those can be negligible.) No risk Finance (All shareholders have necessary finance.) No risk Infrastructures / Production (All are in the construction period) No risk Infrastructures/ (SCPX (through AZ & GEO), TANAP (through TR), TAP (in EU). Transportation All are in the construction period) No risk Market (Enough market capacity in Italy Hub, completed sales agreements) Low level risk Economics (Transportation costs, decreasing oil & oil effected energy prices.) No risk Political Support (Full political support from AZ, GEO, EU) No risk Agreements (All related agreements are signed) No risk Related Legislations (Legislative structures are clear and defined.) Result Successful

Volume (bcma) 10 Effect on EU 2035 Gas Less than 2% Demand (%) Due to increasing competition in EU, gas sale price might go down Future Risks & Weak Points to unexpected levels. This decrease in sale prices may make the project uneconomic due to transportation costs.

Table 1: SGC Stage 1 analysis.

The view of SGC Stage 3 is given in Table 3. • Overall expectations are taken into consideration. SGC STAGE 4 • “OK” means; there is no risk or no high The fourth stage: Turkmen gas is to be trans- risk or possible. ported to EU via Trans Caspian Pipeline • “Successful” means; will be completed “Only the Turkmen and (TCP) and forward infrastructures in Turkey successfully. and EU. Iranian gas export to EU • “POTENTIAL” means; there is potential for being successful. via forth corridor may be For evaluation of all steps, political support, resources, finance, market potentials, eco- As seen on Table 5, only the Turkmen and nomics, related infrastructures and related impossible due to eco- Iranian gas export to EU via forth corridor legislations (on the related period) have to be may be impossible due to economic reasons. nomic reasons.“ considered jointly. The view of SGC Stage 4 This table also shows that economics is the is given in Table 4. most important item in addition to political support for such gas project to be successful. All these criteria will be evaluated shortly on a standard table for each stage. When generally estimating the netback prices OVERALL CRITICS FOR ALL FOUR and tariffs of each stage on the Table 6, Ira- STAGES nian and Turkmen gas economic risks can be observed. Notes about the Table 5:

ENERGY POLICY TURKEY Page 126 OĞUZHAN AKYENER

Time Period To Start After 2024 (In best case) AZ (Supplier), GEO & TR (Transit), EU (Market) Related Countries / Political (Note for EU Market: With preference due to existing Structures infrastructure Italy or Balkan markets can be selected) Medium Level Risk Resource (Hence being in appraisal stage, proven reserves is not clear yet.) Low Level Risk Finance (Low oil prices may make contractor or AZ government to delay some investments on development projects.) Low Level Risk (No risks for technology, know-how, equipment supply but Infrastructures / Production risks for infrastructures completion time. Hence being in the appraisal stage, a delay in infrastructures will delay the first gas) Low Risk (Extension of related pipelines is on the table projects and has Infrastructures / Transportation to be studied more. SCPFX (through AZ & GEO), TANAPX (through TR), TAPX (in EU to Italy), other options to Balkan countries are planned to be used for transportation.) No Risk Market (Price computation will determine the end point) Medium Level Risk Economics (Transportation costs, decreasing oil & oil effected energy prices, competitive end market price will determine the economy) No risk Political Support (Full political support from AZ, GEO, EU) Low Risk (Market and economics will determine the risk factor, if the Agreements project is economic then there will be only some delay risks for the agreements hence the projects are in the appraise stage) No risk Related Legislations (Legislative structures are clear and defined.) Result Potential For Being Successful

Volume (Estimated) (bcma) 4-6 Effect on EU 2035 Gas Demand 1% (%) Due to increasing competition in EU, gas sale price might go Future Risks & Weak Points down to unexpected levels. This decrease in sale prices may make the project uneconomic due to transportation costs.

Table 2: SGC Stage 2 analysis.

Note: EU Gas price for 2018 is estimat- the success rate of EU’s energy diversification ed as 400 USD/1000 m3, all values are in plans. USD/1000 m3 unit. All tariff estimations are for the time period after 2018, netback values For Turkmen gas to be able to be exported to are without tax, Sta4 Turkmen gas to TR tar- EU, which seems the greatest volume in the iff value includes (75 USD for Trans Caspian concept of SGC, hence the problem is mainly pipeline and 85 USD for AZ to TR related economic, other options have to be studied pipeline for 1000 m3)3. for better economics.

From another strategic view, even if all the steps are to be successfully completed (includ- TURKMEN GAS EXPORT OPTIONS ing the assumption that Turkmen gas option TO EU is possible), the total volume is lower than the 10% of EU’s 2035 demand. This also shows Turkmenistan has the third biggest proved gas reserves in the region (after Iran & Rus-

Page 127 FIRST ISSUE SOUTHERN GAS CORRIDOR, MILESTONES AND OTHER TURKMEN GAS EXPORT OPTIONS (VIA TURKISH STREAM)

After 2020 (In best case) Time Period To Start (Assumed that sanctions on Iran are removed) IRAN & IRAQ & ISRAEL (Supplier), TR (Transit), EU (Market) Related Countries / (Note for EU Market: With preference due to existing infrastructure Italy Political Structures or Balkan markets can be selected, but not confined to) No Risk Resource (No geological and reserves risks, there are proven reserves but risks exist in available future export volumes) Low Level Risk Finance (Low oil prices may make Iran & Iraq governments to delay some investments on development projects.) Low Level Risk Infrastructures / (No risks for technology, know-how, equipment supply but risks for new Production infrastructures completion time. Hence some of the projects are being in the appraisal stage, a delay in infrastructures will delay the first gas) Medium Risk (Possible Pipelines for Transportation: Free Capacity of TANAP according to time period / TANAPX / TANAP FX / new NABUCCO (through TR), Infrastructures / TAPX / new standalone pipelines according to volume of gas / ITGI (in Transportation EU to Italy), other options to Balkan countries and further EU states All these projects are on the table but as distinct from the second stage, these suppliers are not the shareholders of the existing pipeline projects.) No Risk Market (However, price competition will determine the end point) Low Level Risk for Iraq and Israel (Transportation costs, decreasing oil & oil effected energy prices, competitive end point price will determine the economy) Economics Medium to High Level Risk for Iran (Production costs, transportation costs and market (end point) sales prices which makes net back value questionable do not let Iran gas to be economic for EU sale) No Risk Political Support (Assumed as sanctions on Iran are removed) Low Risk (Market and economics will determine the risk factor, if the project is Agreements economic then there will be only some delay risks for the agreements hence the projects are in the appraise stage) No Risk for Iran & Iraq, Low Risk for Israel Related Legislations (Antimonopoly & tax issues should be should be solved for Israel.)

Potential For Being Successful Result (Except Iran gas via pipeline in current conditions.) Not Clear Volume (Estimated) (As a general estimation: Israel: 4 bcma, Iraq: 3 bcma, Iran: only via LNG (bcma) export to EU is possible and production capacity and internal consumption scenarios are not clear to be able to make estimation) Effect on EU 2035 Not Clear Gas Demand (%) (From Israel & Iraq 1.2%) Due to increasing competition in EU, gas sale price might go down to Future Risks & Weak unexpected levels. This decrease in sale prices may make the project Points uneconomic due to transportation costs.

Table 3: SGC Stage 3 analysis.

ENERGY POLICY TURKEY Page 128 OĞUZHAN AKYENER

Time Period To Start After 2025 Related Countries / TURKMENISTAN (Supplier), AZ & GEO & TR (Transit), EU/ Political Structures ITALY or BALKANS (Market) No Risk Resource (No geological and reserves risks, there are proven reserves but risks exist in available future export volumes) No Risk Finance (According to Turkmen fiscal policy but project economics will be determining factor since all finance should be met by contractor.) Low Level Risk (No risks for technology, know-how, equipment supply but risks for Infrastructures / new infrastructures completion time. Hence some of the projects are Production being in the appraisal stage, a delay in infrastructures will delay the first gas) Medium Risk (Possible pipelines for transportation: Trans Caspian Pipeline (through Caspian Sea), SCPFX or new standalone pipeline (from AZ to TR), Free Capacity of TANAP according to time period / TANAPX / Infrastructures / TANAP FX / new NABUCCO (through TR), TAPX / new standalone Transportation pipelines according to volume of gas / ITGI (in EU to Italy), other options to Balkan countries and further EU states. All these projects are on the table but as distinct from the second stage, Turkmenistan as a supplier is not a shareholder in the existing pipeline projects.) No Risk Market (Price computation will determine the end point) High Level Risk (Production costs, transportation costs and market (end point) sales Economics prices which makes net back value questionable do not let Turkmen gas to be economic for EU sale) No Risk Political Support (By assuming the conflicts in the situation of Caspian Sea are solved.) Low Risk (Market and economics will determine the risk factor, if the project is Agreements economic then there will be only some delay risks for the agreements hence the projects are in the appraise stage) Related Legislations No Risk Not Possible to be Successful Result (Hence being uneconomic in current situations, after assuming Caspian conflicts are solved) “Turkmenistan has the Volume (Estimated) 30 (bcma) third biggest proved gas Effect on EU 2035 Gas 5.3% Demand (%) reserves in the region Due to increasing competition in EU, gas sale price might go down Future Risks & Weak to unexpected levels. This decrease in sale prices may make the project (after Iran & Russia), with Points uneconomic due to transportation costs. 9.4% of the world share Table 4: SGC Stage 4 analysis. of 17.5 tcm. Moreover, sia), with 9.4% of the world share of 17.5 From this view, EU is making plans and con- tcm1. Moreover, in 2035 she is estimated to tinuing negotiations to export Turkmen gas in 2035 she is estimated be able to have a 140 bcma gas export poten- for more than 10 years. However, in addition tial. Therefore, she is an important strategical to conflicts in the Caspian status, economics to be able to have a 140 supplier for the huge demanding markets in is the key factor for these plans to be success- bcma gas export poten- the nearby region, such as China – India & ful. EU. tial.” As observed in the sections above; Turkmen

Page 129 FIRST ISSUE SOUTHERN GAS CORRIDOR, MILESTONES AND OTHER TURKMEN GAS EXPORT OPTIONS (VIA TURKISH STREAM)

STAGE 1 STAGE 2 STAGE 3 STAGE 4 Resource OK OK OK OK Finance OK OK OK OK Infrastructures OK OK OK OK Market OK OK OK OK Economics OK OK OK (except Iran) NOT ECONOMIC Political Support OK OK OK OK Agreements OK OK OK OK Result SUCCESSFULL POTENTIAL POTENTIAL NOT POSSIBLE

Table 5: SGC Stages overall critics.

gas export to EU through Caspian Sea – AZ – TR option is not economic. Therefore, other As a result of this option, netback in Turkmen options have to be studied. border (excluding the gas transportation cost inside Turkmenistan), after sale of gas to EU 3 In this section, from the economical view, is 110 USD/1000 m . three Turkmen gas export options to EU through; Caspian – AZ – TR, Iran – TR and Technical properties’ cost, tariff analysis of Russia – TR will be evaluated. the pipelines, and other related assumptions can be found in the 3rd reference given. “1442 km pipeline has Note: Turkmen gas export to TR market is THROUGH IRAN – TURKEY OPTION3 not included in calculations. to be constructed with THROUGH CASPIAN – AZERBAIJAN – In this option, transportation of Turkmen a cost of 16 billion USD TURKEY OPTION3 gas through Iran and Turkey is evaluated. Ac-

and expected tariff is EU GAS E U TO TR TR-EU NETBACK GAS PRICE UNIT COST INSIDE 180 USD/1000 m3 for 30 ST1 AZ SD2 400 125 60 100 80 35 ST2 AZ ADDITIONAL 400 120 60 120 80 20 bcma Turkmen gas that ST3 ISRAEL 400 100 40 120 80 60 will be transported from ST3 IRAQ 400 70 50 120 80 80 ST3 IRAN 400 150 60 120 80 -10 Turkmen border to TR ST4 TURKMEN 400 120 160 100 60 -40 border.” Table 6: SGC Stages netback analysis.

Assuming that political conflicts on the Cas- cording to this evaluation, for 30 bcma Turk- pian status are solved: Turkmen gas will be men gas, from Turkmen border to TR border, transported to EU initially through a new a 1442 km pipeline has to be constructed (as standalone pipeline called “Trans Caspian shown on Map 2) with a cost of 16 billion Gas Pipeline”. From AZ to TR (again assum- USD and expected tariff is 180 USD/1000 3 ing SCPX or SCPFX will not have enough m . By adding the other transportation costs free capacity for 30 bcma), a new standalone Table 7 is prepared. pipeline will be constructed, then through Turkey with a new Nabucco or a similar pipe- Technical properties cost and tariff analysis of line will be in demand. the pipelines and other related assumptions can be found in the 3rd reference given.

ENERGY POLICY TURKEY Page 130 OĞUZHAN AKYENER

EU GAS E U TO TR TR-EU NETBACK GAS PRICE UNIT COST INSIDE TURKMEN GAS 400 120 180 100 60 -60 VIA IRAN & TR

Table 7: Turkmen gas via Iran to EU netback analysis.

EU GAS TO E U RU- TS TS NETBACK GAS PRICE UNIT COST RU INSIDE TURKMEN GAS 400 120 20 60 100* 60 40 VIA RUSSIA & TR

Table 8: Turkmen gas via Russia to EU netback analysis.

THROUGH RUSSIA – TURKEY OPTION and liquidity.4

In this option, Turkmen gas thought to be ex- Note: Political issues between related coun- ported to EU via: tries, the situations of the existing old pipelines, free capacities of gas pipeline network • Initially the existing CAC & Bukhara – inside Russia (after 2020) is not taken into Urals Pipelines (From Turkmenistan to consideration for the tariff estimations above. Russia, through Uzbekistan and Kazakh- stan) Additional Note: For the tariff estimation of • Then 30 bcma Turkmen gas will be trans- TS, by using the IHS QUESTOR software ported through Russia inside gas pipeline for such a 30 bcma gas transportation, with system up to the start of Gazprom’s new 54” pipe diameter and middle quality ther- popular project “Turkish Stream (TS)” mal isolation material, pipeline capex is estimated as 10.1 billion USD (including the • Through TS (Assumed as TS will success- compressor stations). Then the tariff is esti- fully be completed) or the expanded ver- mated as 100 USD/1000 m3. This cost and sions of TS, gas is transported via Black tariff estimation is for a standalone pipeline in Sea and Turkey to the EU border. the same root of ST. So, for an already existing ST, tariffs will be cheaper. However, as a Tariff estimations of this root are given on worse case tariff of ST for 30 bcma Turkmen Table 8. gas is assumed as 100 USD. This option (in the case of realization) might As seen from the Table 8 above, this option make Turkey a medium size trading hub to- is the only economic option that can be suc- gether with Russian gas in terms of source cessful.

Map 2: Trans Caspian & Trans Iran Pipelines from Turkmenistan.3

Page 131 FIRST ISSUE SOUTHERN GAS CORRIDOR, MILESTONES AND OTHER TURKMEN GAS EXPORT OPTIONS (VIA TURKISH STREAM)

RESULTS & ADDITIONAL BENEFITS supplier options Turkmenistan, there are no OF 3rd OPTION tangible steps have been taken.

As seen from the general economic views, ac- Although some EU authorities claim: “after cording to the netback values (without tax), the solution of the Iranian sanctions, Turk- only the through Russia – Turkey option is men gas will be exported to EU via both coherent for Turkmen gas to be exported to Azerbaijan and Iran”5, hence being uneco- EU. The other two options might be con- nomic in the current situations, these are not sidered following the solution of Caspian coherent notions. conflicts and Iran sanctions but the future of those acts are unforeseeable. For gas politics to be successful, although all the milestones in reserves, markets, leg- This option, as an idea, has to be studied and islations, and technics are progressed, if the improved and taken into consideration as a projects are uneconomic, then no investor, new route for SGC, although Russia will be finance and agreement steps can be taken. an arbiter as a transit (pipeline owner) coun- Therefore, in order for SGC plans to be con- try. Besides, future estimations show that sistent, in addition to political steps, econom- Russia will continue to be the most import- ics have to be considered. ant exporter for EU. As written in BP Energy Outlook 2035 – EU & Global Reports: “EU As described in the paper, in current situations, gas export option of Turkmenistan “EU (via pipelines) (via pipelines) remains the largest importer of natural gas and imports from Russia that via Azerbaijan and Iran to EU may not be remains the largest has an important remaining source of supply, commercially possible. In addition, Iran gas growing by 15% and maintaining a market export to EU, via pipeline through Turkey, importer of natural gas share of around 31% by 2035.”. Therefore, if is in the same situation. Thence, other com- EU really needs Turkmen gas resources, she mercially possible and coherent options and and imports from Russia has to act more political. solutions have to be considered.

that has an important In addition, with such a new gas corridor Turkish Stream, which is the changing face of from Turkmenistan – Russia – TR to EU, Gazprom’s gas export politics with the pros remaining source of possible future gas exporters such as Uzbeki- and cons for EU may also have positive sides with new strategic targets. Assuming TS to be supply, growing by 15% stan and Kazakhstan may also be added to the system as the gas suppliers to EU. completed and capacity expanded, Turkmen and maintaining a market gas and additionally Uzbek and Kazakh gas Besides, this will be the most beneficial op- will be able to find a chance to be transport- share of around 31% by tion for Turkey, increasing importance of be- ed to EU economically (through Russia and ing a gas trading hub strategy. By this way, TR). Then, this option will also be profitable 2035.” this hub concept will be at reach. for EU, Russia, Turkey, Turkmenistan, Uz- bekistan and Kazakhstan.

SUMMARY To sum up, in this paper, after giving brief information about the SGC, mainly econom- SGC’s popularity for EU and the related re- ic concerns of the SGC stages are explained gions is increasing due to increasing demand and a new approach for Turkmen gas to be of EU and other huge demander competitors exported to EU is described. such as China and India. In the concept of SGC, initially Caspian resources and addi- From the sight of Turkish energy policies; tionally Iran, Iraq and Israel gases are planned hence having Turkey an extended resource to be transported to EU. diversified gas market and trading hub, this approach might be a strategic energy target The focus on the Caspian resources states that for Turkey to put an effort on. Azeri step will be completed successfully in late 2018. However, as for the other Caspian Note: Special thanks to Dr. Tayfun Yener

ENERGY POLICY TURKEY Page 132 OĞUZHAN AKYENER

Umucu for his remarks on Russian root for Turkmen gas.

ABBREVIATIONS

EU: European Union RU: Russia TR: Turkey AZ: Azerbaijan SCP: South Caucus Pipeline SCG: Southern Gas Corridor TS: Turkish Stream Pipeline “Assuming TS to be TANAP: Trans Anatolia Pipeline GEO: Georgia completed and capacity TAP: Trans Adriatic Pipeline TCP: Trans Caspian Pipeline expanded, Turkmen gas ITGI: Interconnector Turkey – Greece – Italy Pipeline and additionally Uzbek “X” after pipeline name: Means extension of the related pipeline (Ex: SCPX: Expansion of SCP) and Kazakh gas will be “FX” after pipeline name: Means forward extension of the related extended pipeline (Ex: SCPFX: Expansion able to find a chance of SCPX) to be transported to EU

REFERENCES economically (through

1 BP Statistical Review, “World Energy”, 2014. Russia and TR).” 2 Oguzhan Akyener, “Caspian Gas Politics & Struggle Between Main Energy Players”, World Petroleum Con- gress, 2014. 3 Oguzhan Akyener, “Doability Of Trans-Caspian Pipe- line And Deliverability Of Turkmen Gas To Turkey & Eu”, Pipeline Technology Journal, 2014. 4 Personal Communications: Tayfun Yener Umucu. 5 TURAN Energy News, Baku, 17 April 2015.

Page 133 FIRST ISSUE STRATEGIC APPROACHES TO UNCONVENTIONAL RESOURCES TO MEET THE TURKISH ENERGY DEMAND

by Necdet Karakurt and Oğuzhan Akyener

ABSTRACT Second, it has been reported also that there has been an increase in the seismic events in Increasing demand in energy makes the world those areas where unconventional technology revolve around it. Major oil companies have is used. Tactfully, cracking the rock happens been researching all around the world as to to affect natural balance and causes to stim- increase reserve and production. What could ulate more earthquakes. That information we do to find more reserves? Thinking back- points out that location for unconventional wards is a way to discover new methodology wells have to be chosen far from active fault and associated new technology. That is how systems as fracturing might trigger earth- unconventional methods stepped in to petro- quakes with higher magnitude. leum industry. As it is known, conventional methods are only able to extract oil from As we elaborate Turkey’s energy supplies, de- reservoirs with fair enough permeability. mands and politics regarding the subject, we Unconventional methods focus on those res- might try to answer a couple of questions as ervoirs and or source rocks within the range follows: How much of unconventional po- from little down to micron level permeability. tential Turkey has? Or, can Turkey double its proven reserves by this methodology? An- What is challenging when we consider uncon- swers are not complicated as one might think. ventional production? As known, associated Known facts about unconventional studies "Thinking backwards is technology depends on horizontally drilled suggest that they require using a unique but wells and fracturing the rock to suck hydro- expensive technology and raise important a way to discover new carbons out to surface. Once the horizontal environmental concerns that might slightly methodology and asso- wells are drilled, water is injected through by change our lives. A few companies worldwide powerful pumps to crack the rock. Sand is a have the technology required for unconven- ciated new technology. necessity to keep the cracks open and some tional hydrocarbon production. Turkey has to chemical additives provides stability of the pay for the expensive technology for its un- That is how unconven- cracks to efficiently remove water and gas conventional reserves. On the other hand, in- out, they also prevent bacteria growth. The formation regarding source rocks of Turkey is tional methods stepped amount of injected water, sand and additives still questionable and poorly defined. Suitable play a key role since millions of tons of wa- source rocks need to be examined thoroughly in to petroleum industry." ter and hundred thousands of tons of asso- as in thickness and areal extent before going ciated sand and additives are used in the hy- too deep into unconventional business. As a draulic fracturing process. At this point two result, Turkey has to carefully examine and main concerns should be addressed. First, the properly define its unconventional resources wastewater that is pumped out during pro- before thinking that unconventional methods duction requires high attention due to the are the solution to ease high costs of energy chemicals it contains. The chemicals pose se- import. rious threats to human health and have to be handled carefully. It could be either recycled In this study, we share brief information from for usage in another fracking procedure or in- a technical window regarding global uncon- jected into a sealed reservoir to be sensitive ventional energy practices, how it affects the to the environment. To define impermeable market, how it shapes Turkey’s energy policies zones, which will trap re-injected wastewater, and further on if Turkey have enough reserves a thorough stratigraphic evaluation has to be to cover its energy demands. Analysis of the achieved successfully. A leaking disposal for- technology used and its economic aspects will mation is unwanted as it is certainly undesired certainly point out how Turkey’s unconven- to see those wastes pollute our environment. tional future will change its energy supply

ENERGY POLICY TURKEY Page 134 and security chain. easy to extend them or create new cracks. This same logic could be used in tight shales but more wells had to be drilled. INTRODUCTION Having these already applied techniques "Having these already It was believed that the major oil fields had “Fracturing” and “Horizontal Drilling” on already been discovered and it was unlikely hand, researchers stimulated the idea to a applied techniques “Frac- that petroleum companies would be able to higher level. As if they drilled horizontal succeed a reputable increase in their produc- wells through an impermeable source rock turing” and “Horizontal tion. However, these companies had the urge and fractured it, they could suck most of that Drilling” on hand, re- to find another way to increase their produc- non-recoverable oil out to the surface. And tion with the help of high oil prices, which al- that is what they exactly did and succeeded! searchers stimulated the lowed them to flexibly invest more money on The only handicap was the fact that they had the researchers. It has been known that only to drill more horizontal wells to use the ad- idea to a higher level. As certain amount of hydrocarbon, produced by vantage of cracking procedure, which is now a source rock, is released through a porous known as “Unconventional Methods”. if they drilled horizontal and permeable reservoir rock. Total amount of hydrocarbon produced never equals the United States of America (USA) has become wells through an imper- amount aggregated in a reservoir rock. This is the pioneer and practiced unconventional due to some geological restrictions that affect methods for over a decade now. Statistics in- meable source rock and migration of oil and gas out of source rock dicate that USA is the major oil consuming fractured it, they could such as having micron level permeability, low country and the largest importer in the world. overburden pressure, etc. At this point in the However, it now increased its production by 5 suck most of that non-re- exploration history, researchers were aware million barrels after American oil companies that source rocks had great hydrocarbon po- started to develop from unconventional recoverable oil out to the tential but the question was: “How could serves. An important outcome of these 5 mil- they overcome the impermeability and suck lion barrels of increase is the fact that small surface." all the oil out?”. and mid-range companies have gone under a big change and they grew their assets and It is well known that conventional methods succeeded a steady growth. Seeing the uncon- exercise on the reservoir rocks that have a va- ventional potential and witnessing American riety of permeability ranges from low to high glory, many countries now aims to find out enough depending on the texture of the sand if they have economic unconventional re- minerals in depositional environment. Those serves. European companies seem to strug- who are familiar with the exploration and gle with the legislations since they are hav- production practices should know the terms ing hard time to convince European Union “Oil in Place” and “Recoverable Oil”. These that unconventional practices are safe enough terms state that how much of hydrocarbon for the people and the environment. Coun- there is in the reservoir and how much of it tries in the Middle East such as Saudi Arabia is producible. In general, the numbers for oil have been doing research to guestimate their in place are generally calculated as billions of unconventional resources. China and India, barrels but those for recoverable are lowered which seem to be largest oil importers in the to millions of barrels depending on porosi- future, also have important expectations and ty and permeability distribution of the rock. current activities on defining their unconven- Conventional reservoirs with lower permea- tional potential. In near future, we might be bility require more effort and time and higher seeing other countries joining the profitable investment costs than those with higher or unconventional club. high enough permeability. Technique used is based on fracturing the reservoir level to provide flow of hydrocarbon trapped in pores. UNCONVENTIONAL METHODOLO- There had been successful applications of GY horizontal drilling in conventional reservoirs. As the rock already has some fractures, it is Unconventional practices depend mainly on

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"To be able to crack Fracture water is of importance since it flows hydraulic power, which oil industry has been back to the surface after its injection to the almost impermeable but utilizing for the conventional low permeable well. This is called flow-back fluid or waste- reservoirs. In general, the industry used hy- water. Considering the amount of injected oil rich rock that extends draulic fracturing to crack the oil rich but low water might exceed one million gallons per permeable reservoir rocks. That process has well, the amount of flow-back fluid is as a few kilometer squares, been mostly achieved in wells drilled vertical huge. Additionally, it should be handled care- but has also been practiced in horizontal wells more than a few horizon- fully since it contains harmful chemicals and drilled through a reservoir. What makes un- heavy metals that pose serious threats to fresh conventional approach different is that frac- tal wells need to pene- water sources and environment. There are a turing is applied in a grid of horizontal wells few ways to handle this wastewater that flows that are drilled in very low permeability shales trate through it. That is back to surface after cracking. It could be that are known as source rocks. It is essen- either recycled for usage in another fracking why designing a well grid tial to understand that fracturing a rigid rock procedure or injected into a sealed reservoir requires too much pressure and success is to be sensitive to the environment. Recycling for a successful recovery measured as a few meters penetration around requires a number of techniques like distilla- the well bore. With the new technologic en- tion and it could be done in either onsite or is a must." hancement, it is now possible to fracture a offsite. Municipal wastewater treatment plant few hundred meters but just one well never might come in handy if there is one near- does the job. To be able to crack almost im- by. Some companies dilute wastewater and permeable but oil rich rock that extends a few re-inject it but dilution and reinjection of kilometer squares, more than a few horizon- contaminated water might clog up the well. tal wells need to penetrate through it. That No matter how water treatment is made, the is why designing a well grid for a successful expenses increase up to such level that makes recovery is a must. Upon defining the hori- the project uneconomic. Many companies zontal well grid, cracking starts by injecting prefer disposal wells that might cost cheap- highly pressured water through the hole. er. Regulations state that disposal wells have "Hydraulic fracturing of Water aims to create channels between oil/ to be deep and wastewater has to be injected between impermeable zones. A leaking dis- Marcellus Shale in 2003 gas bearing lobes throughout the rock. These channels provide flow of oil/gas into the well posal formation is unwanted as it is certainly changed the assump- bore. However, overburden pressure tends undesired to see those wastes pollute our en- to close all the cracks, which is why a mech- vironment. For a successful disposal process, tions regarding proven anism to keep the cracks open is necessary. impermeable zones, which will trap injected The industry uses propping agents such as wastewater, have to be defined by a thorough oil reserves in the world. fine sand and ceramic beads mixed in water. stratigraphic evaluation. Gelling agents are also added to the water Since American oil mix to increase fluid viscosity that will help UNCONVENTIONAL RESERVES sand minerals travel along with water into the companies started ‘use (VALUABLE OR NOT) cracks and stay there. Having sand minerals of multi-well pads and inside the cracks prevents channels from clos- Hydraulic fracturing of Marcellus Shale in ing and allows the desired flow of hydrocar- 2003 changed the assumptions regarding cluster drilling’ in 2007, bons. Stabilizing flow from cracks is essential proven oil reserves in the world. Since Amer- and it requires other additives such as bio- ican oil companies started ‘use of multi-well oil reserves increased cides, breakers, fluid-loss additives, anti-cor- pads and cluster drilling’ in 2007, oil reserves rosives, friction reducers and acid. All these dramatically as opposed increased dramatically as opposed to the idea additives are intended to overcome certain that reserves would diminish day by day. In problems associated with preventing bacteria to the idea that reserves the beginning of the 21st century, USA was growth, decreasing viscosity and leaking off of the largest oil importer in the world. After the fracturing fluid, protecting metallic ele- would diminish day by cracking the Marcellus Shale, USA turned ments, allowing high pressures and flow rates the table around and reached over 5 million day." and cleaning the perforations, fractures and barrels production from the unconventional the well itself respectively. reserves. And now, USA seems to be cutting

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on its oil imports. What this means is the fact mapped and modelled thoroughly before oil that USA showed the world that having the companies prepared their horizontal drill- science and coupling it with the high technol- ing grids to develop from unconventional ogy may change the conscience. As a result, reserves. American oil companies have been each country might follow the lead, do the producing oil and gas from their convention- same and explore what is underneath their al reservoirs for years. All the oil and gas they borders. However, USA did this when the produced are known to be migrated from oil prices capped $100. Notable information those shales (Bakken, Eagle Ford, etc.). What states that; a barrel of oil production from an can be inferred from this fact is that hydro- unconventional well may cost around $60, carbons were formed within these shales and depending on the geological difficulties and migrated to the conventional light tight oil technical hardships. That means many coun- and gas reservoirs. As it was mentioned earlier tries have to find a cheaper way to succeed the in the introduction part of this article, not all horizontal well grid in their unconventional of the hydrocarbons that were formed in or- gold. ganic rich shales are migrated to the reservoir rocks. Most of the oil still remained in the shales due to some geological restrictions. The LOOKOUT AT TURKEY’S UNCON- most important of all can be referred as very VENTIONAL POTENTIAL low permeability. Putting together the information above, it is certainly worth knowing Every country that has conventional hydro- the shape and the size of the light tight oil "Turkey claims that it has carbon production should have unconven- reserves and if they have formed the oil or tional hydrocarbon reserves. Turkey produces yet to do so. If there is hydrocarbon trapped great unconventional re- oil, gas and condensate from its reserves in in conventional reservoirs, it means organic the South-East Anatolia and Marmara Re- material rich rock certainly formed hydrocar- serves laid out in Trace gions. Most of its Marmara reserves consist bons and spilled it out. Then the source rock and South-East Anatolia of natural gas, whereas oil reserves are mainly can be mapped directly and can be character- located in the South-East Anatolia. Both re- ized for its oil potential. Basins. In fact, the whole gions are considered as potential areas for unconventional explorations and exploitations. Turkey claims that it has great unconvention- basins are displayed as Other regions in Turkey have some hydro- al reserves laid out in Trace and South-East carbon potential, too. It has been reported to Anatolia Basins. In fact, the whole basins are if source rocks extend the national oil company (Turkish Petroleum displayed as if source rocks extend through- Corporation, TPAO) that there are lots of oil out those basins. This logic is due to the as- throughout those basins." and gas leaks and spills all around the Anato- sumption that known source rocks in those lia. TPAO carefully examines all the reports areas are widely sedimented in those basins. and has yet to find valuable reserves in those However, either oil and gas discoveries or reported areas but Marmara and South-East drilled wells in mentioned areas prove that Anatolia. That is why areas other than those these source rocks appear not to be present two should be evaluated in another category within the whole basins. General findings of unconventional hydrocarbon potential, for of oil exploration in Turkey states that pro- instance, bitumen shale or shale-oil. Concept duced hydrocarbons are sourced to the rocks of this study focuses on ‘light tight oil and as Dadas of Silurian, Karabogaz, Karababa-A gas’ as for unconventional sources definition member and some to the calcispheres parts of and examines Turkey’s known conventional Derdere Formations of Cretaceous age. Even hydrocarbon resource areas. though findings claim that Silurian shales are potential source rocks there is very little in- In the USA, there are a few known tight formation about their presence in the South- shales such as Bakken, Eagle Ford, etc. that East Anatolia Basin. Current unconventional led to famous unconventional discoveries. practices try this formation but extent of it Almost all of these shales contributed to the still requires more work as far as sedimen- production as millions of barrels per day. A tology and stratigraphy are considered. Ad- certain fact that all these formations were ditionally, Karabogaz Formation seem to be

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sedimented only in certain areas even though vironment. Water amount used in the frac- Karababa-A and Derdere Formations can be turing process is huge since it averages over found almost everywhere in the South-East millions of tons per well. Companies prefer Anatolia Basin. Specific questions remain un- to use fresh water supplies since it is cheaper answered regarding the accountability of the in contrast to drilling water wells. Can Turkey named source rocks since many exploratory favor its fresh water sources to be depleted by wells turned out to be dry in the region. Three fracturing, moreover how economic will it major tectonic cycles during Cretaceous, Eo- be? Let us say Turkey has no problems with cene and Miocene phases play a key role to fresh water usage and it is economic, it still shape today’s geology in the South-East of has to pay close attention to contaminated Anatolia. The cycles are due to the Arabian water because it comes out back to surface and Anatolian plate interactions, which ap- and some gasses released to the atmosphere parently mingles two crustal plates and inter- after production starts in an unconvention- fere very badly with the geology. Wells that al well. The wastewater might as well cause produce oil are the proof of source rocks but problems since there is a high possibility that dry wells state that there is a catch to be not- it may contaminate the drinking water, pol- The wastewater might ed. Many explorers think that main reason lute the air and the soil. Oil companies, in most cases, handle the wastewater carefully as as well cause problems for oil not to be abundant could be the overburden pressure, which may be insufficient to some of them recycle and reuse it in another since there is a high start organic materials to switch to kerogen. fracturing process and some prefer pumping Or the in-situ temperature of the rocks is low it in disposal wells underground. Yet, there possibility that it may so no hydrogen and carbon molecules are able are reports that some of them are not that to make a bond. Another reason could be that careful and do not dispose the water accord- contaminate the drinking not all of those source rocks are really a source ingly. Some disposal wells might be inappro- rock. Perhaps, only those that sedimented in priate due to leaky faults as there are a lot of water, pollute the air and certain areas had the necessary temperature them in the areas that are exampled to have and pressure to achieve hydrocarbon bonds. Turkey’s unconventional potential. To decide the soil. To have the real answer, there should be more if a fault is leaking or not might be difficult work done to accomplish as far as knowing since it is impossible to go underground and the areal extents and thicknesses of forma- see it. Using available geophysical, geological tions that reserves light tight oil intact. and engineering data is a must and testing the disposal formation should be able to guide Unconventional production requires using the companies to the right direction. How- horizontal drilling technology and coupling it ever, regulations have to be in order to keep with fracturing the oil-rich tight rock. Sever- the control over the companies and the clean al companies worldwide have the technology environment. or the companies with the technology seem to be abundant but Turkey has to build its At last, a point that might be considered as own national drilling teams to lower down a mild situation and needs attention is the the high costs of fracturing. Of course, it is small earthquakes caused by hydraulic frac- still possible to buy the technology and ar- turing. Pumping high pressured water into range the production efficiently. Flexibili- a solid rock surely creates cracks. Each crack ty for hiring foreign professionals would be stimulates a small quake as it is measured by more beneficial if Turkey had invested in its seismometers. Thinking that many cracks unconventional potential before the oil price are achieved during hydraulic fracturing, the had dropped. number of quakes recorded increases rapidly in the areas where unconventional work is Other concerns as far as the technology goes practiced. Are these quakes dangerous? Prob- are that chemicals and water usage are the head ably no, because they are very small in siz- actors in unconventional business. Chemical es but the point is if there is an active fault additives to keep the cracks open and prevent that has been drifting by huge energy load, bacteria growth are of main concerns because it might, as well, be triggered by those little these chemicals pose serious threats to the en- quakes. This is not to say that big earthquakes

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are triggered by fracturing. It only is to point bon (TOC) and hydrogen index (HI) values. “A few formations all out what seismology states and that is a Mezardere and Hamitabat from Thrace basin, fact: ‘Little forces might trigger huge earth- Dadas, Karabogaz and Karababa-A member around Turkey are quakes!’. Possibility of this seismological fact from South-East Anatolia basin, Caglayan pointed as having high is that Arabian Plate is still pushing towards from Blacksea Region, Karapınaryaylası from Anatolian Plate, which is why three tecton- Mid-Anatolia, and Akkuyu and Ziyarettepe to very high source rock ic stages took place in geological time frame. Formations from the South Anatolia Region The interaction is known to be continued and are reported to have high TOC and HI val- parameters like total the North and South Anatolian Faults are still ues. Those formations with high source rock active. Geological studies in the area note that potential means Turkey has plenty of uncon- organic carbon (TOC) some of the faults cuts through Quaternary ventional oil and gas waiting to be discovered. fluvial sediments. Indeed some of the faults However, only two of the regions have proven and hydrogen index (HI) in that area might have had some energy load oil reserves or oil has been produced. The oth- and that fracturing might fasten the energy er regions have yet to be claimed to have con- values.“ load over a fault and might near a potential ventional oil reserves since there is no oil dis- big earthquake. covery. An important step should be to define the source rocks first. A rock might have high TOC or HI values but the question: ‘Has it STRATEGIC STEPS TO BE CONSID- produced hydrocarbon, yet?’ has to be an- ERED swered. If a rock has yielded any hydrocarbon, some of that hydrocarbon would definitely Each country wants to increase their oil pro- migrate to a nearby reservoir. That knowledge duction - reserves since hydrocarbons are the is certain for Thrace and South-East Anatolia most preferred source used to cover their en- Basins. That might be the reason for TPAO, ergy demand. Hydrocarbon usage in Turkey’s Shell and private companies to consider those energy sector is over 700,000 barrels of oil per basins for unconventional practices. A second day (bopd) and Turkey’s production only cov- question might come in handy since knowing ers 10-15% of the total consumption. Latest the areal extent and the thickness distribution news states that USA will become an oil ex- of the named formations. Have oil compa- “Turkey’s drilling technol- porter in near future because it started uti- nies studied and mapped these formations lizing its unconventional sources. This brings thoroughly? It was informed that some work ogy unsuits the multi well up the question: ‘Why not Turkey should has been accomplished in the south east for do the same?’ So it is about the right time to Dadas Fm. but it was only local and proba- horizontal drilling and start the challenge. TPAO, as the national oil bly not enough to characterize the formation. company, had already signed an agreement The knowledge for the proposed potential high pressured hydrau- with Shell and begun unconventional explo- formations is skeptical because extents of ration activities in the South-East Anatolia those formations require more seismic work lic fracturing process. and Marmara Regions. Even a few wells were since the information only comes from the Choices for Turkey are drilled in Dadas Fm. The results are hidden well cuttings. As a result, the first step into at the moment but if there were good news the unconventional adventure should start at either to take the baby TPAO would definitely share it with public. stratigraphic and structural definition of each It looks like new strategies should be consid- proposed source rock. steps and learn from ered before going head-down into unconventional reserves of Turkey. At this point, this Turkey’s drilling technology unsuits the multi scratch as building high study aims to pinpoint the needs of a success- well horizontal drilling and high pressured ful start or successful beginning for the un- hydraulic fracturing process. Choices for pressured pumps and conventional. Turkey are either to take the baby steps and learn from scratch as building high pressured rigs to go with that or to According to technical sources or studies, Tur- pumps and rigs to go with that or to hire ser- hire service companies key has a lot of unconventional hydrocarbon vice companies to do the job. Another choice potential. A few formations all around Tur- might be to find a partner with technology to do the job.” key are pointed as having high to very high such as Shell and share the profit. TPAO source rock parameters like total organic car- seems to be doing this as it cooperates with

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Shell in south east and with TransAtlantic in points out that the countries with low hy- Thrace. Hiring service companies seems to be drocarbon potential such as Turkey should reasonable and will provide more profit as op- evaluate and utilize their unconventional re- posed to collaborating with other companies sources. It is well known that pioneers in any but that will also reduce the profit because industry always struggle with the pitfalls. In production expenses per barrel will increase this unconventional case, the process might dramatically. Taking the baby steps should be be easier for those countries because they the main purpose of the national oil company have the upper-hand of minimizing the risks or other private companies operating in Tur- and mistakes done in US. Any country that key. Waiting for the staff to gain the necessary considers investing on their unconvention- skills and expertise means a long and painful al resources should assess the pros and cons journey. Designing and building the rigs and to stay on the safe line for the country and the high pressure pumps is never a bad idea. the environment. Economic aspects of the It will open up new frontiers for the Turk- hydrocracking technique should meet the ex- ish investors and help with economy as well. pectations whereas the environment should If Turkish companies acquire the necessary be kept clean. technology and the experienced staff, they might provide services to other companies As for Turkey with very limited known con- worldwide, which might drive the economy ventional reserves, it makes sense to examine to a higher level in the long run. its unconventional potential to secure its energy supply in the future. However, as men- Water supplies are of another concern. Tur- tioned earlier, Turkey should start with con- key seems to have enough fresh water sources. sidering certain facts and taking a few steps It may be unfair to criticize losing its water into unconventionals as listed below: supplies but if the wastewater from unconventional production pollutes the surface wa- • Unconventional resources have to be ter, there might be huge concerns expected studied geologically to assess their eco- to be aroused. Legal authorities need address nomic value. If there is no economic known allegations and prepare associated reserve, there is no need to invest. As of laws and regulations to prevent the uncon- today, Turkey’s hydrocarbon bearing ba- ventional pollution to the environment. Laws sins and related source rocks are yet to be and regulations need to cover disposal wells, mapped thoroughly. To be able to define water treatment facilities and specific solu- the basins and reserves, coherent analysis tions for air pollutant gasses. must be designed both structurally and stratigraphically (new seismic and wells) Turkey is located on Anatolian Plate, where and such source formations should be too many seismic activities are recorded on a mapped correctly at each basin. daily basis. Some major earthquakes happen • Comparison of unconventional pro- “Unconventional dis- in the strike-slip fault zones. It is possible to duction cost in US, averaging about coveries succeeded in come across lots of faults of different geolog- $60 bopd, to about $ 40 bopd for con- ical type (Strike-Slip, Normal, and Reverse ventional oil production cost in Turkey US points out that the Faults) in Anatolia. High pressure hydraulic states that unconventional reserves to be fracturing may not cause big seismic activi- found in the country have to be in great countries with low hydro- ties; however, seismology states that one small amounts to be a hope for the future. It push might move big mountains. That is why is obvious that hydrocracking technique carbon potential such as active strike-slip fault zones and faults that is a fairly new technology that Turkey might be triggered by these fault zones should has to pay for. That is why; developing Turkey should evaluate be carefully examined. the unconventional resources will never and utilize their uncon- be any cheaper than the rate succeeded in US. Since the technology is expensive, ventional resources.” CONCLUSION the commercial risks will draw the private companies out of the picture but the Unconventional discoveries succeeded in US governmental support such as awarding

ENERGY POLICY TURKEY Page 140 NECDET KARAKURT AND OĞUZHAN AKYENER

unconventional exploration and develop- al exploration and production. MENA ment projects in certain potential areas should affirm national and international might bring them back in. These awards investors to carry the flagship in uncon- may also include easy & long term bank ventionals. loans, tax reductions, etc. • In the case of successful unconventional • Ensuring the safe environment should be reservoir discoveries, more service com- a must for the government since the de- panies for drilling and well completion velopment of unconventional resources will be necessary. MENA should clari- poses danger to the environment. Chem- fy any allegations that such companies ical additives used in the development might encounter under current laws process are dangerous to human health while entering the country. and the nature as they pollute the fresh • An important part of unconventionals water sources, soil and air. In USA, cer- is the utilization of fresh water. MENA tain regulations were ordered by the US should regulate plans for fresh water Senate and some other rules are waiting usage and handling the wastewater pro- “If national oil company to be discussed. Turkey should start work- duced during unconventional developing on the known cases of environmental ment stage. is unable to lead the hazards caused by pollutants and rule out the terms and procedures in the process • Micro earthquakes are of another im- industry, MENA should of development of unconventional sourc- portant concern since Turkey lays on es. It will be much easier to regulate the active fault systems. Securing Turkey’s encourage private com- oil companies on their work once the en- future before starting the fracturing shale panies by providing solid vironmental legislation system is settled. reserves should be definitely considered. MENA should define a safe tremor scale • Being in the center of oil and gas relat- for fracturing especially nearby active investment opportunities ed global energy politics and running its fault systems. industry by the most consumable ener- and economic support gy sources as oil and gas, Turkey has to • At last, the oil price is the key element for remain firm as far as having energy as unconventional investments to be able to on oil and gas market the most important item in its political continue or stop. especially in exploration agenda. In the last decade, Ministry of Two scenarios can be derived depending on Energy and Natural Resources (MENA) whether or not the above items are applied: activities.” attempts to make Turkey an energy hub between oil producers and exporters. THE WORST CASE SCENARIO: (AS THE However, being a transit route alone ITEMS IN THE LIST ABOVE ARE NE- is never enough to control or build the GLECTED) pipelines. In addition to all the efforts for making Turkey a transit route, MENA National oil company, TPAO will be the should be determined to establish a main and only actor investing on unconven- steadfast growth in exploration activities tionals, which means investment capacity is so that oil and gas reaches a desired im- limited to TPAO’s own resources. Consider- portance in Turkey’s political agenda. If ing TPAO’s current investments and financial national oil company is unable to lead situation being very negative, and current low the industry, MENA should encourage oil prices, it is unlikely that TPAO will favor private companies by providing solid great investment to the unconventional activ- investment opportunities and economic ities. Being inflexible to invest more TPAO support on oil and gas market especially might double its current production number in exploration activities. from conventional reserves by adding uncon- • Current statistics regarding Turkish Pe- ventional resources, which will be estimated troleum Corporation (TPAO) states as about 0,5 bcma of unconventional gas pro- TPAO’s financial situation, experience duction and about 30000 bopd of unconven- and technology are insufficient to han- tional oil in 2035’s. dle such an uptrend in unconvention-

Page 141 FIRST ISSUE STRATEGIC APPROACHES TO UNCONVENTIONAL RESOURCES TO MEET THE TURKISH ENERGY DEMAND

THE BEST CASE SCENARIO: (AS THE sary. ITEMS IN THE LIST ABOVE ARE AP- PLIED) In conclusion, minimum 20 years needed to define the possible resources. An additional “In conclusion, minimum If MENA succeeds the above list items, there 30 years needed to organize a suitable invest- will be more company involvement for in- ment environment, which will help investors 20 years needed to vesting on unconventional resources. More to develop the resources and turn into pro- investment will provide better exploration duction. As it is clear, unconventionals have define the possible re- results and draw the success rate to a higher to be a long term strategy to be followed and level as it happened in US. Too many com- the benefits will be rewarding after the first 20 sources. An additional 30 panies (small-mid-large scale) utilized differ- years of 50 years in total. years needed to organize ent unconventional basins in US. The production increased 10 times higher than the REFERENCES a suitable investment conventional production. Supposing Turkish government applied the list items presented Nicole Branan, “Exploration & Innovation: Geoscientists environment, which will above, production rates will definitely in- Push the Frontiers of Unconventional Oil and Gas”, The crease 10 times higher than the current pro- University of Texas at Austin, Jackson School of Geo- help investors to develop duction rates. Estimations will be 5 bcma for sciences, 2008; accessible from http://www.jsg.utexas. unconventional gas and 350,000 bopd for edu/news/2008/04/exploration-innovation-geoscientists-push-the-frontiers-of-unconventional-oil-and-gas/ the resources and turn unconventional oil in 2035. PacWest, “Shale/Unconventional Resources”; accessible into production.” from http://pacwestcp.com/education/shaleunconven- Assuming oil prices will be at again $100 lev- tional-resources/ els after 2020 (if not happens earlier), Tur- Halfdan Carstens, “A World of Plenty”, GeoExPro; acces- key’s unconventional investment portfolio sible from http://www.geoexpro.com/articles/2013/08/ should be as follows: a-world-of-plenty Marathon Oil Corporation, “Reservoir Management”; BETWEEN 2015 AND 2020: accessible from http://www.marathonoil.com/Technol- ogy/Technology/Reservoir_Management/ • Unconventional resources should be de- Donald Hertzmark, “Unconventional Gas Riles and Re- fined properly. Each basin and reservoirs figures the World Energy Market: North America (Part I)”, should be mapped structurally and strati- Master Resource, 2011; accessible from https://www. graphically. masterresource.org/shale-gas-energy-sources/unconventional-gas-north-america/ • Rules and regulations should be written Tracy Crawford, “Hydraulic Fracturing: What is hydrau- and ready until 2020. lic fracturing?”, Green Plug District; accessible from http://greenplug.nu/hydraulic-fracturing-what-is-hy- • Economic models should be prepared for draulic-fracturing/ the potential reservoirs. Pioga, “Hydraulic Fracturing Process”; accessible from http://www.pioga.org/education /hydraulic-fractur- BETWEEN 2020 AND 2025: ing-process/ Illinois Chapter, “Fracking News”; accessible from • 2020 should be the start for the invest- https://sierraclubillinois.wordpress.com /tag/fracking/ ments since the oil price will be high Mirko van der Baan, David Eaton and Maurice Dus- enough to extract the unconventional oil seault, “Microseismic Monitoring Developments in Hy- and gas. draulic Fracture Stimulation”, Intech; accessible from http://www.intechopen.com/books/effective-and-sus- • MENA should call for the national and tainable-hydraulic-fracturing/microseismi c-monitor- international investors. ing-developments-in-hydraulic-fracture-stimulation By Al Granberg and Krista Kjellman Schmidt, “In- BETWEEN 2025 AND 2035: fographic:What is Hydraulic Fracturing?”, ProPubli- ca; accessible from http://www.circleofblue.org/ • This interval will be the time to develop waternews/2010/science-tech/climat e/hydraulic-frac- the market and adjust rules and regula- turing-infographic/ tions as the market grows. Richard Liroff, Danielle Fugere, Lucia von Reusner, Steven Heim, “Disclosing the Facts 2014: Transparency • New laws should be mandated as neces- and Risk in Hydraulic Fracturing Operations”, Investor

ENERGY POLICY TURKEY Page 142 NECDET KARAKURT AND OĞUZHAN AKYENER

Relations; accessible from http://www.slideshare.net/ AsYouSow/dtf2014-embargoed Seth Busetti and Ze’ev Reches, “Geomechanics of hydraulic fracturing microseismicity: Part 2. Stress state De- termination”, AAPG Bulletin, v. 98, no. 11 (November 2014); accessible from http://earthquakes.ou.edu/reches/Publications/Busetti%202014%20Part%20II.pdf Vincent M. C., “Five Things You Didn’t Want to Know about Hydraulic Fractures”, Intech; accessible from http://cdn.intechopen.com/pdfs-wm/44148.pdf http://www.telegraph.co.uk/news/earth/energy/ U.S. Environmental Protection Agency, “Class I Indus- trial and Municipal Waste Disposal Wells”; accessible from http://www.epa.gov/uic/class-i-industrial-and-municipal-waste-disposal-wells U.S. Energy Information Administration. Indrajit Das1 and Mark D. Zoback, “Long-period, long-duration seismic events during hydraulic stimulation of shale and tight-gas reservoirs — Part 1: Waveform char- acteristics”, Geophysics, VOL. 78, NO. 6 (NOVEM- BER-DECEMBER 2013). D.V. Satya Gupta, “Unconventional Fracturing Fluids”, Baker Hughes, 2010. Tony Ingraffea,“Fracing In Practice in Unconventional Shale Gas Wells”, Cornell University, 2011; accessible from http://www2.cce.cornell.edu/naturalgasdev/doc- uments /cheme%206666%20lecture%20series-2011/ cheme%20666609hfpractice%20in%20shaleclas s%20 notes.pdf

Page 143 FIRST ISSUE TURKEY’S ENERGY STRATEGIES AND POLITICS RESEARCH CENTER (TESPAM)

FROM A COUNTRY AS BEING A FOLLOWER OF THE INTERNATIONAL ENERGY POLICIES AGENDA

TO THE IDEAL OF MAKING TURKEY AN AGENDA-SETTER COUNTRY

We are on the web. Visit Us @ www.tespam.org TESPAM is Turkey's first and only civil organization that is focused on energy policies.

The idea was brought to the public’s attention in 2005 as a civil platform founded by a few students that pursued the goal of contributing to determination of Turkey’s energy politics and strategies and being responsive to the need for training specialists in energy politics that Turkey has been longing for.

In 2015, TESPAM’s main identity was brought alive among energy specialists, who are currently working in governmentally and privately owned energy industry, and academicians from several universities. TESPAM values and brings together a group of young, dynamic and solution-based professionals with the capability of both being self-driven and working in multi-dimensional environments and disciplines.

TESPAM is highly motivated to fill the gap for setting “Turkey’s Energy Agenda”.

TESPAM governs the mission of being an organization that:

- plays an effective role in development of energy policies and strategies,

- executes independent –scientific-realistic studies, conducts useful analyses,

- conducts useful analyses,

- produces projects for Turkey,

- enables training of energy specialists that Turkey needs.

- being a referred organization in determination of energy policies with its analyses and comments,

- being an organization that steers the energy policies.

Address: Phone: +(90) 312 394 8139 GMK Bulvarı No: 36/11 Fax: +(90) 312 230 85 13 Kızılay, Ankara, Turkey e-mail: [email protected]

We are on the web. Visit Us @ www.tespam.org FROM THE FIRST AND ONLY CIVIL ORGANIZATION FOCUSED ON ENERGY POLICIES: TESPAM

“from a country as being a follower of the international energy policies agenda to the ideal of making turkey an agenda-setter country”

Energy Policy Turkey NEW TURKEY: ONE-STEP FORWARD TO INTERNATIONAL POLICY MAKING

Contact Information

Phone: +(90) 312 394 81 39 Fax: +(90) 312 230 85 13 e-mail: [email protected] Address: GMK bulvarı no:36/11 Kızılay, Ankara, TURKEY

Visit us @ http://www.EnergyPolicyTurkey.com