With so many alternative suppliers in its neighborhood, Turkey should not worry about being dependent on imported gas, provided it can develop an energy strategy to secure competitive prices, the head of Turkish Association for Energy Economics has said.
Despite the turmoil in the region, and despite the fact that Ankara has in the recent past had strained relations with both, Iran and Israel stand as the next big potential suppliers of gas to Turkey, Professor Gürkan Kumbaroğlu from Boğazici University told the Hürriyet Daily News.
Let’s start with where oil and gas currently stand in the energy world.
It is still number one in terms of importance. The shale gas revolution has helped create an oversupply, meaning that prices have gone down over the last couple of years. This has revived the industry and there are tremendous reserves. I think the latest decision by the Trump administration to withdraw from the Paris agreement on climate change is related to its vision to revive the petroleum industry. We are heading into a future where oil and gas flourish, and where gas becomes the fuel of the century.
What does this mean as far as Turkey is concerned? It is after all dependent on foreign energy resources.
Turkey is in a geographically very advantageous position, being located very close to all major suppliers and reserves. In terms of nonconventional reserves Turkey is also rich. Southeast Anatolia hosts a rich basin in terms of shale oil and gas, but due to the ongoing conflict no company will operate there. In terms of offshore reserves, there is the Eastern Mediterranean, while in the Black Sea the technological advances that the Chinese have made could prove promising for the icy part of the ground, which is rich in hydrocarbons.
Turkey has an increasing gas demand but it has a national strategy to reduce electricity production from natural gas and focus on national resources. Still, oil and gas will continue to play a major role. In terms of economics, gas is very competitive and I don’t think dependence on imported natural gas should be treated in terms of energy security. As long as there are many alternative suppliers and as long as you develop a strategy to utilize the suppliers in a correct manner, it is not necessarily right to reduce dependence, especially because the other alternatives are not any better. The government’s energy strategy aims to use all domestic coal reserves and it wants to have nuclear energy, but both entail environmental risks. Renewables are increasing but you need reliable back up capacity.
Gas has become so cheap and is so widely available that the fact Turkey is close to all these reverses gives it the advantage of being able to use them at the lowest cost.
But is Turkey making use of all these alternatives? There is often talk, for example, of it being too dependent on Russia. Perhaps it has not succeeded in diversifying its suppliers.
I think the game is being played well in terms of diversification. What is not being played well enough is this: The natural result of bringing all these different sources to Turkey is to become a hub. You have different sources of supply, which can compete in terms of prices. That is what the competitive European market aims for, but it is something that suppliers may not like. As a result, there are requests to have long-term bilateral agreements, which Turkey has suffered a lot from in the past. But currently there is a change in trend from long-term bilateral agreements to market hub-pricing. A real energy hub is emerging in Turkey. But developing a hub requires all the infrastructure and all the preparations coming with it in terms of storage and in terms of market mechanisms. I don’t see that happening. A competitive market would be a win-win for Europe too, but I don’t see that dialogue – especially with the Europeans who would support such a development.
But for years there has been official rhetoric about Turkey becoming a hub. Why has Turkey so far failed to become a hub?
Firstly, we need more storage facilities. Secondly, we need a location where you have all the deliveries coming in, bringing together in one location all the gas coming from the Trans Anatolian Pipeline Project and from the Turkish Stream. We need trading infrastructure, a competitive marketplace where suppliers and producers can enter and where demand meets supply. Turkey has been trying to liberalize its energy market since 2001 but there has been very limited success.
Finally, you cannot develop all this yourself. You need to have collaboration with the Europeans. Europe has the experience. You need the European Union. If you need hub base pricing, the demand will come from Europe. If you look at the EU strategy document that is exactly what Europe is aiming for: Creating a competitive energy market. This is a unique advantage for Turkey but I’m not sure whether Turkey is in dialogue with its European counterparts.
Although you are talking about alternative suppliers, there is a risk in terms of sustainability as the region is in turmoil. Just look at Iraq.
Well, there is the Trans-Anatolian Natural Gas Pipeline project being constructed to bring gas from the Caspian Sea, so the Azerbaijani gas is coming. There is also very good dialogue going on with Israel to bring the offshore East Mediterranean gas to Turkey. Sanctions against Iran have been lifted and there is no longer any embargo.
Hasn’t the arrival of the Trump administration in the U.S. made the Iran option problematic?
French company Total has made a huge agreement recently in the South Pars Field. Europe is very actively developing its ties with its Iranian counterparts in terms of energy. The embargo has been lifted and I’m not sure what can be done to reverse it, so long as Iran doesn’t violate the terms. The election results in the country provide hope for Iran’s comeback to the energy markets. So there is good potential with Iran. Then there is also the East Mediterranean.
Israel is looking forward to getting opportunities to sell its gas. Going to Egypt is not an option, as it has its own new discoveries. The European market and Turkish markets are attractive for Israeli gas. Building a pipeline from the field directly to Greece is not feasible, but bringing it first to Turkey and coupling it with the Turkish grid is an attractive option. This brings another source.
Talks on a political solution in Cyprus recently collapsed. Won’t that create a problem?
The Cyprus problem does not hinder the building of a pipeline from international waters off Cyprus directly to Turkey. I’ve spoken to Israeli counterparts and different experts in international maritime law and they say the Greek Cypriots cannot legally hinder this.
What about Iran? Relations between the two are not at their best. Do you think Iran is willing to get closer energy ties with Turkey?
I think there has been some progress with Iran. The energy trade can bring politically different points into agreement. This is what we have experienced with Russia. We have different positions in Syria but there is now much more dialogue. Turkey and Iran will see the economic advantages and they might put aside political differences. I see this taking place. Look at the Astana talks on Syria.
Iran has now entered the energy charter treaty and is trying to benefit from a lifting of the embargo. It is still not there – financial mechanisms have not been adapted yet, there is slow progress, and Trump makes it more difficult – but Iran’s return to the energy markets is inevitable. I see huge interest from European countries.
To recap, you see the next big energy potential for Turkey being Iran and Israel?
That’s right, the two arch-enemies.
Who is Gürkan Kumbaraoğlu?
Gürkan Kumbaroğlu is Professor of Industrial Engineering at Boğaziçi University, Turkey. He is the Founding Director and Chairman of the Board of the Energy Policy Research Center at Boğaziçi University, and also the Founder and President of the Turkish Association for Energy Economics.
He is the former President of the International Association for Energy Economics (IAEE) based in the United Sates,
Kumbaroğlu holds a Ph.D. degree in Industrial Engineering from Ankara’s Middle East Technical University. He has worked as a guest researcher at the Center for Energy Policy and Economics, Swiss Federal Institute of Technology (ETH) Zurich, and at the University of California’s Lawrence Berkeley National Laboratory. He was a visiting professor at RWTH Aachen University, Germany; the University of Sao Paulo, Brazil; the Chinese Academy of Sciences, Beijing, China; the University of Campinas, Brazil; and the University of Port Harcourt, Nigeria.
Kumbaroğlu is also an editorial board member of the journal “Innovative Energy Policies” and the “Journal of Self-Governance and Management Economics.” He has received several awards and published numerous articles and book chapters on energy and environmental policy.