Dr Yurdakul Yiğitgüden is an expert on energy economics, energy geopolitics and natural gas supply in Turkey and the Caspian region. A former Under-Secretary of the Turkish Ministry of Energy and Natural Resources, Dr Yiğitgüden also served as a co-ordinator of Economic and Environmental activities for the OSCE from 2013-2017. He currently works as an independent energy consultant.
Turkey is a nation without significant energy resources, abutting some of the world’s most prolific natural gas producing regions. Its reliance on its neighbours for imports of fossil fuels – Russia in particular – has added billions to the country’s trade deficit, and made security of supply an issue of vital strategic importance to the Turkish state.
Despite these disadvantages, the country’s well developed natural gas infrastructure, its early efforts at supply diversification, and its close proximity to consumers in South East Europe have placed it in a fortuitous position. “I strongly believe that Turkey has many assets to become a regional gas trading hub,” Dr Yurdakul Yiğitgüden, a Turkish expert in energy economics and natural gas, told Knect365 Energy.
Pipelines and Power Generation
Turkey has devoted considerable resources towards achieving this end. The most widely publicised of its efforts has been to encourage the construction of new pipelines projects, such as the Trans Anatolian Natural Gas Pipeline (TANAP) from Azerbeijan, and the TurkStream pipeline from Russia. Increasing flows of pipeline gas into the country have been complemented by a reduced emphasis on gas for domestic power generation. “In 1999,” Dr Yiğitgüden explains, “the share of Turkey’s electricity production provided by natural gas piped power plants was 64%... In 2010 it was 51%, and in 2016 it was 36%.” These figures reflect a shift towards gas use by the industrial and residential sectors, as well as concerted efforts by Turkey to meet its power generation requirements through other means, including coal and renewables.
Taken together, new pipeline projects and slowing demand growth in the power sector are driving up the volumes of natural gas available for export to Europe. The TurkStream pipeline alone will allow for the importation of 31.5 billion cubic meters of gas from Russia annually (by comparison, Turkey imported 25 bcm of natural gas in total from Russia in 2016, and 29 bcm in 2017). Unlike its predecessor, Blue Stream, the new pipeline will bypass much of the Turkish gas network, crossing under the Black Sea directly to connectors in the European portion of Turkey west of Istanbul. Much of the imported gas will then be transited via Greece or Romania to consumers in the Balkan states, meeting what Dr Yiğitgüden calls “a need, especially in the Balkan countries – and also an interest – to import more natural gas from the Russian Federation.”
Turkey’s Caspian Gambit
Important as it is, the TurkStream pipeline is only one component of Turkey’s natural gas trading strategy. Another aspect Dr Yiğitgüden points towards is a policy objective adopted in the second half of the 90’s “to help Turkish speaking countries of the [Caspian] region achieve their economic independence, and develop projects to allow them bring their hydrocarbon resources to the world market… In those days there was criticism in public that we were investing too much, that those countries have only minor trade with Turkey, and so on.” Twenty years later, it would be hard to argue that the strategy hadn’t paid off. The eventual success of the TANAP pipeline is one dividend; others include a new 5.7-billion-dollar refinery built on Turkey’s West coast by the Azerbaijani oil company SOCAR, and the development of the once ailing Georgian economy into a strong regional player.
An Early Adopter of LNG
Turkey has also demonstrated remarkable foresight by quickly realising the value of LNG. “Turkey started very early with efforts to import Liquefied Natural Gas,” Dr Yiğitgüden explains, “just one year after starting to receive pipeline gas. In 1988 we signed the first LNG long term supply agreement with Algeria. Then next year, 1989, BOTAŞ (the Turkish state owned oil & gas company) started to build Turkey’s first LNG terminal.” The first phase of Turkish LNG development took place during the final years of the Soviet Union, at a time when the communist bloc was Turkey’s only significant pipeline supplier. Despite the fact that liquefied natural gas was 20% - 25% more expensive than Soviet pipeline gas, investing in receiving terminals made strategic sense for a country concerned with how vulnerable it had become to political extortion – extortion of a kind now familiar to Turkey’s other Black Sea neighbour, Ukraine. By 1994, the Soviet Union was no more; but the need for supply diversification was still pressing. It was in this year that Turkey “received its first LNG cargoes from Algeria.” One year later, in 1995, “Turkey signed another LNG agreement with Nigeria, and started to receive more LNG from there.”
Storage Capacity & Market Reform
Fast forward to the first decade of this century, and Turkey’s investments in LNG and pipeline infrastructure had made for a healthier supply portfolio; albeit one in which natural gas imports from the Russian Federation still amounted to half the total figure. But improvements to supply and the negotiation of long term trading agreements were not enough to turn Turkey’s reliance on imports into an asset. “We tried to explain to parliamentarians, this is not the issue,” Dr Yiğitgüden says. “The big issue is we don’t have enough storage capacity.” The first of Turkey’s underground storage facilities, the Northern Marmara and Değirmenköy Depleted Gas Reservoir, became operational only in 2007. At present it has 2.8 billion cubic meters of storage capacity, which will be increased to 4.8 bcm if a planned expansion goes ahead. The second, the Lake Tuz Natural Gas Storage facility, will be fully operational by 2019. A tendering process is ongoing to expand its capacity to 5.4 bcm.
But a lack of storage is not the only difficulty Turkey faces. Another thorn in the side of their gas trading ambitions is a market hampered by over-regulation and public sector influence. Dr Yiğitgüden’s opinion is that there is a “definite need to go ahead with the liberalisation of the gas market, and to create more gas competition in Turkey.” In 2001, he was responsible for bringing the Natural Gas Market Law to the Turkish parliament, an important piece of reformist legislation which reduced BOTAŞ’s rights to automatically renew its contracts and supply agreements. As a result of this legislation, “BOTAŞ is no longer a natural gas monopoly,” Dr Yiğitgüden says. “But they are still a huge player.” There are indications that liberalisation may at last be starting pick up pace, though. On the 1st of April, the Energy Stock Exchange Istanbul (EPIAS) began testing of an online natural gas trading system inspired by similar innovations in the electricity sector. By the end of the year, the intention is for the system to act as a flexible spot natural gas market capable of setting prices for the day ahead.
Recent FLNG Investments
What should inspire more confidence in Turkey for natural gas industry stakeholders, however, is the country’s move towards FLNG. So far Turkey has two FLNG projects in operation. The first, the Etki FSRU import terminal, is based on Turkey’s “Western coast near Izmir… and has been operational since December 2016,” Dr Yiğitgüden tells us. The terminal is owned by the Turkish private sector companies Kolin and Kalyon, and is equipped with the 145,130 cubic meter capacity Floating Storage and Offloading vessel GDF Suez Neptune. The second and more recent FLNG project, based at the South Easterly port of Dörtyol, became operational in February this year. Financed by BOTAŞ, the Dörtyol project consists of the world’s largest FSRU, the MOL FSRU Challenger, with a storage capacity of 263,000 cubic meters. Two other Turkish FLNG projects are also currently in planning or consideration stages.
Turkey’s recent move towards FLNG is an indication that the country may not be far off from achieving its goals as a trading hub for natural gas. For one, the FLNG projects at Etki and Dörtyol have minimised the bugbear of supply over-dependence, and opened the country out to further imports from countries as far flung as Trinidad & Tobago, Norway and Equatorial Guinea. Secondly, Turkey’s FLNG projects are an example of how both the public and private sectors can engage to help realise the nation’s strategic objectives. And thirdly, the addition of new floating storage facilities has gone a considerable way to increasing Turkey’s once inadequate storage capacity. Other countries in a similar position could do worse than to follow Turkey’s example.