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The future of the Turkish gas hub

For a long time, Turkey's position in the oil and gas industry was not to be envied. The country is not a particularly large producer of either resource, making it reliant on importing from other countries with abundant supplies. However, the physical location of the country has made it extremely valuable in other ways.

Turkey, both geographically and politically, forms an excellent bridge between Europe and the trinity of Russia, central Asia and the Middle East. This has put it in a fantastic position to become an energy hub for the transport of resources, particularly natural gas. This is something it has focused heavily on in recent years.

In order to achieve this goal, Turkey has invested heavily in pipeline projects that will allow it to transport Asian gas to Europe. The Trans-Anatolian Gas Pipeline (TANAP) is one example. This project, which will become operational in 2018, will see Azeri gas transported to the EU via Turkey.

Of course, there are plenty of other pipeline projects in the works as well. Turkey has a lot of plates spinning at the moment, but overall the outlook looks extremely positive on a number of different fronts. Here are some of the most recent developments and challenges that Turkey faces:

 

Turkish Stream likely to be completed

One of the ways Turkey is to become an energy hub is through the Turkish Stream pipeline, which will travel under the Black Sea in order to import gas from Russia. However, there have been some doubts as to whether or not this project will be completed, partly due to the abandoned South Stream project.

This was a pipeline that would carry Russian gas under the Black Sea to Bulgaria, however it was cancelled in December. Russia's reasoning for this was that European objections had prevented the project from coming to fruition.

Dr Volkan Ozdemir, chairman of Turkey's Institute for Energy Markets and Policies, told Natural Gas Europe: "It was economically irrational for Russia to continue the South Stream project because of its high cost (about $35 billion) in a time of declining oil prices, sanctions and construction of Power of Siberia pipeline."

However, Russia has assured Turkey that the same will not happen for the Turkish Stream pipeline. Russian president Vladimir Putin has promised his country will co-operate with Turkey in order to complete the important project.

 

Euro-Russian politics

While there are certainly plenty of positives to Turkey's position, it has to tread carefully in the world of international diplomacy. Its location between Russia and Europe has put it in the middle of a longstanding rivalry that looks set to continue. Maintaining its position as an energy hub will depend on its ability to balance its relationships.

The EU has attempted to impose a number of restrictions on Russia recently, and has asked Turkey to do so as well. However, the nation has refused, as it wishes to maintain positive relationships with both sides in this debate. Doing so is important to ensure the success of its aim to become an energy hub.

There has been speculation that the EU will penalise Turkey by not building pipelines to connect up with the nation's energy hub. However, it does not seem as if this will matter. Dr Ozdemir said: "There is no need to develop new pipeline projects," as Turkey already has access to three pipelines it can use to transport the gas.

Turkey's energy and natural resources minister Taner Yildiz said, when asked if Turkey would side with Russia or the EU: "We clearly explained that Turkey does not give up on one or the other and said our roadmaps with both Russia and the EU were ongoing. Russia is important to Turkey and Turkey is also important for Russia."

 

Energy diversity

Another advantage of Turkey's energy strategy is that it will enable it to be more diverse with the resources it uses. For example, it is expected to use more of its existing capacity for liquefied natural gas (LNG), something it has been under-utilising so far.

According to Dr Ozdemir, the falling cost of LNG in international markets makes it a good resource for Turkey to use. He foresees more and more private energy companies importing the resource in the near future, and added that the country would benefit from "a new supply wave... in the LNG market".

 

A possible Iranian connection

Meanwhile, Turkey could be seeing an increase in natural gas imports from Iran; another country looking to increase its trade with Europe via the developing energy hub. Iran has access to the second-largest reserves of natural gas in the world, but international sanctions have prevented it from trading with Europe.

However, the country seems to be anticipating that these will ease off in the near future, as it has announced it will be increasing the amount of gas it exports to Turkey. Not much is known about the full details of this deal, but Iran anticipates a profit of up to $7 billion from its combined exports to Turkey and Iraq.

Considering it made roughly $4 billion to $5 billion from this market last year, this would be a huge step. However, it would depend on the potential market for the gas, as if European nations stick with current sanctions then Turkey will presumably not be transporting Iranian gas through its hub.

 

Collaboration with Eustream?

The Turkish Stream pipeline is one of the key aspects of Turkey's energy strategy. While there have been concerns about competition from other pipelines in the region, one of the major ones has announced that it hopes to complement Turkish Stream rather than compete with it.

Slovakian firm Eustream hopes to join the Turkish Stream pipeline up to its own Eastring project, a pipeline that will run through Bulgaria, Romania, Hungary, Ukraine and Slovakia. This would enable gas transported through Turkey to more easily reach western Europe.

SputnikNews reported that Mirek Topolanek, Eustream's head of international development and public affairs, said that Eastring and Turkish Stream would be "in no way" competing projects. "On the contrary, they can complement each other and be mutually useful."


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