TURKEY WANT BE THE HUB
On March 16, the presidents of Turkey, Azerbaijan and Georgia travelled to Kars in Turkey's mountainous northeast, and then to a remote worksite near the border with Georgia, to launch construction of the 1,850km Trans-Anatolian gas pipeline (Tanap).
It was a big occasion for a big undertaking: a $12bn pipeline that constitutes a quarter of the $48bn chain of projects, called the Southern Gas Corridor (SGC), initially designed to carry some 10bn cubic metres a year of gas from Azerbaijan's giant Shah Deniz field to Europe — and some 6bn cu m/y to Turkey itself. Eventually, the pipelines will carry twice as much.
The opening was a symbolic occasion, one that highlights Turkey's pivotal role in diversifying European gas supplies at a time when Russia appears an increasingly unreliable supplier, and when Moscow's plans for a new "Turkish Stream" gas line across the Black Sea poses a challenge to the companies and governments developing the SGC.
It is gas that matters. Turkey consumes more gas and oil than it produces, but it can buy oil from multiple sources in several ways. Its position at the end pipelines from Azerbaijan and Iraq, together with new connections from the Kurdish region of northern Iraq, have turned its port of Çeyhan into a centre for oil deliveries to European and Mediterranean markets, with some deliveries dispatched as far as the US and south Asia.
Today, both Russia and Azerbaijan want to send their gas to Europe via Turkey, while suppliers as diverse as Turkmenistan, Iran, the Kurdish region of northern Iraq and producers in the eastern Mediterranean have similar ambitions.
Ankara would like as many producers as possible to opt for a Turkish solution to their export problem, to strengthen Turkey's position as an energy hub. Both Tanap and Turkish Stream are vital for regional energy security.
Turkish Stream, announced by Vladimir Putin, the Russian president, during a visit to Ankara in December is crucial for the delivery of gas in a sustainable manner to Turkey's biggest city, Istanbul.
The SGC is equally important for Europe, because it will diversify supplies and enable leading producers in both the Caspian and the Middle East to reach EU markets.
In the past 20 years, the companies and governments involved in developing regional oil and gas have been seen as contestants in a "New Great Game", with the prize being control the hydrocarbon resources of the Caspian Sea.
Şevket Demirbaş, president of Turkey's Chamber of Geophysical Engineers, disagrees: "In the long term, we will see that they are not rivals to each other. Other pipelines will never be competitors to Tanap. They will be complementary."
Taner Yıldız, the Turkish energy minister, takes the same line. "If we look at Turkish Stream, it cannot replace Tanap," he told an energy conference in Ankara the day after the Tanap inauguration.
Both projects can be expected to proceed steadily because their sponsors have already invested.
Russia is in the middle of a $22.5bn programme to develop its own Southern Corridor, which will carry gas to the Russkaya compressor station on the Black Sea. This depends on an onward connection from Russkaya.
Gazprom, the Russian gas company, is committed to some €3.8bn worth of contracts for the delivery and laying of pipe for a Black Sea crossing. Most of the piping has already been delivered for the first two lines of what is intended as a four-line, 63bn cu m/y system from Russkaya to the Turkish coast at Kıyıköy.
One problem is that the pipe is stashed at Varna in Bulgaria, a reflection of Gazprom's original South Stream plan to deliver gas to the EU via Bulgaria and a 1,400km onshore line to Austria and possibly northern Italy.
Contracts for SGC work already run to more than €10bn, most of it on upstream development on Azerbaijan's Shah Deniz field — the €22.5bn Shah Deniz Stage Two (SD2 project) — but also on work on expanding the South Caucasus Pipeline from Baku to the Georgian-Turkish border and for the delivery of pipe for Tanap. Moreover, the 16bn cu m/y of gas heading for Turkey and the EU is already fully contracted.
There are, however, problems concerning the impact that Turkish Stream will have on the SGC, not least whether Gazprom might seek to secure space on the Trans-Adriatic Pipeline, the final leg of the SGC from the Turkish-Greek border at Ipsala/Kipoi to Southern Italy, and thus effectively deny its use for prospective additional exports from Azerbaijan or other suppliers coming after the SD2 project.
So, there is still a focus on whether long-term deliveries of gas through Turkey can be used to supply markets in the Balkans as well as in and beyond Italy. Turkey would like to use both Tanap and Turkish Stream, which will also terminate at Ipsala/Kipoi, to become a hub.
But as Volkan Özdemir, the chairman of Turkey's Institute for Energy Markets and Policies said recently, Turkey will have to negotiate well to create the right conditions to create the kind of hub in which gas producers and consumers wish to trade.
"Opportunity may turn into a great disaster for us," he says, adding that Turkey might become "an energy corridor instead of an energy hub".
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