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Four reasons Turkey’s energy hub strategy can succeed

Turkish and Chinese companies were the beneficiaries of a $3bn+ deal signed recently to supply pipelines for the TANAP pipeline project, which will ferry Azerbaijani gas to Turkey and then to Europe. As well as giving a boost to the Turkish gas services market and supply chain, the pipeline shows Turkey is making progress towards its stated aim of becoming a gas transit hub. Here are four reasons why this strategy can succeed:
 

Location

Turkey's geographical location is the main driver of the strategy. Three quarters of global proven oil and gas reserves are located in its neighbouring regions, and Turkey is a logical hub between producers to the east of it and consumers to the west. New transit opportunities are also opening up on Turkey’s borders – the Kurdistan Regional Government exported its first oil via the Turkish port of Ceyhan in June and has made further shipments since.
 

EU-Russia standoff

On a similar theme, continued tension between the EU and Russia has increased Turkey’s importance as an alternative gas supply route. Both sides are courting Turkey in this regard – the Russian state-owned company Gazprom has announced an increase in gas supplies to Turkey as well as lowering the price the country pays for its gas, while Turkey is a key route for pipelines such as TANAP that the EU needs to wean itself off dependence on Russian gas.
 

Infrastructure spending

A convenient location, however, is not enough. Turkey is spending money on gas infrastructure – for domestic supply as well as transit – and this will serve the country well when it looks to up its exports in future. Progress on the TANAP pipeline is in full swing, while on the storage side the World Bank approved $400m of extra financing this July for a facility at the Tüz Gölü lake. Much more investment is needed though – the head of Turkey’s Energy Traders Association Batu Aksoy has called for $120bn over 10 years.
 

Market transparency

When asking for that spending, Aksoy told Turkish journalists that “Turkey needs foreign investors to fulfil this amount of investments, and in order to attract foreign investors, the Turkish government needs to pave the way for private sector players in Turkey’s energy sector.” This means market liberalisation – a bill calling for a fresh wave of gas sector privatisation (including the division into three of state-owned importer and distributor BOTAS) was submitted to the Turkish parliament in August. Also, the establishment of an Independent Energy Exchange (EPIAS) for spot transactions will provide more transparent market conditions and increase investor confidence in the Turkish energy sector.

The main piece of the strategy, though, is investment – Turkey’s government is keen for international companies to help the country capitalise on its excellent gas hub potential.


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