Turkey's gas future

After the dramatic plunge in oil prices we have been witnessing, energy-related issues have come to the forefront in Turkey again. Due to its dependency on foreign energy sources, oil imports have been occupying an important place in Turkey's current account deficit. Therefore, the decline in oil prices excites Turkish financial circles, including the Finance Ministry, as well as the other oil importing countries and makes them constantly pray for the continuance of the current state.

If the price stays around this level for a long time, Turkey will be one of the countries that will benefit most. Although there are various forecasts, no one actually knows for how long this price dip will last. One way or another, according to notable experts, low oil prices will not last long; at least we know for certain that it will not last forever.

That is why fluctuations in oil prices are not that important for determining Turkey's energy future. Along with oil, we have another element that might play a crucial role in the future of Turkey, which is gas. There are more dimensions and issues regarding gas than oil or other energy sources. We can speak of some major points worth considering, which are, among other things, Turkey's role as an energy hub, shale gas developments in Turkey and Mediterranean gas fields.

Becoming an energy hub is a much discussed and much anticipated phenomenon in Turkey and one of the significant goals of the current government. Located between main oil and gas suppliers and buyers, Turkey's chance to become an important global energy player has been increasing thanks to its prospering energy diplomacy.

With the announcements made by Russian President Vladimir Putin and the CEO of Russia's state-run Gazprom in early December 2014 to build a new pipeline between Russia and Turkey as an alternative to the former planned South Stream route, this anticipation is about to come true. The building of a gas hub on Turkey's border with Greece in order to carry Russian gas to Europe is another element of this newly proposed project. But, as Putin indicated clearly in his press conference on Dec. 18, deciding to create this gas hub is up to the EU, not Russia. Turkey's energy diplomacy activities may be determinant in this regard.

As is known, Turkey has refused to follow the sanctions imposed by the EU on Russia and Energy Minister Taner Yıldız stated that Turkey does not have to make a choice between Russia and the EU - it can maintain its relationship with both. Yıldız's approach to this issue reveals the Turkish desire to convert its geographical state of being a bridge between East and West into a diplomatic state and maintain peace in its region with the help of energy diplomacy. Along with high-level relationships with Russia, Turkey is also simultaneously emphasizing its desire to join the EU and takes part in projects to ensure the energy security of the EU. This multipolar way of Turkey's energy politics provides a wide playing field and reinforces its importance in the area.

Time will show us the developments in this new gas pipeline project and we will see whether it will be realized or not. Even if there is some harsh criticism of this project purporting that it is not commercially and politically justifiable, Turkey should plan its own future and take the necessary steps considering its future needs. These types of big investments should not be discussed in a daily political framework, rather they should be assessed in a wider context keeping the future in mind.

Along with this abstract project, there are also other gas-related projects that have already started. The Trans-Anatolian Gas Pipeline (TANAP) that will deliver Azeri gas to Europe via Turkey is already under construction and is expected to become operational in 2018. As we all can remember, Turkey increased its share in this project from 20 percent to 30 percent with an agreement inked on May 30, 2014. In the Shah-Deniz gas project, the Turkish Petroleum Corporation (TPAO) also increased its share from 9 percent to 19 percent. Turkmenistan, which holds the world's fourth-largest proven gas reserves, is also interested in linking to TANAP and supplying its gas through this pipeline. Turkmenistan and Turkey also signed an agreement on Nov. 7, 2014 within this framework.

Another development worth mentioning is the ongoing negotiations between Iraq and Turkey on delivering Iraqi gas to Turkey. If we draw lines on a map from Turkey to every country that it interacts with concerning gas, we can see more than 10 connections from Eastern Europe to Asia and the Middle East to Western Europe with whom Turkey has direct relations. Turkey can gain a lot, both economically and politically, in the future from these gas related projects. Constructing new gas pipelines, becoming a gas hub and playing a crucial role providing the EU with energy diversity and security make gas a determinant factor in Turkey's energy future.

A second aspect in this respect is the potential shale gas developments in Turkey. Before starting to analyze Turkey's position, we should shortly review the importance of shale gas. Shale gas, briefly, is an unconventional type of natural gas found within shale formations. The reason that we have started to hear about it lately is the relatively new developed methods of extracting this gas from shale formations and the boom that has drastically changed the energy scene in the U.S. After 2007, shale gas production started to gain speed in the U.S. and, according to the BP Energy Outlook published in January 2014, the growth of shale gas will turn North America from a net energy importer into a net exporter in 2017. Even if this projection does not come true, it is for sure that the shale gas production growth trend will continue for more than another decade in North America and help its economy. The shale gas boom in the U.S. is also being considered one of the factors of the plummeting price of oil in the world. As we can see, shale gas has taken an important place in the energy field.

Turkey, of course, does not possess such big reserves to trigger a "shale gas revolution" to make itself independent from gas imports, but according to International Energy Agency (IEA) reports, Turkey has a substantial amount of shale gas that may help reduce energy imports. The shale gas sector is in its infancy in Turkey with just a few companies, including Royal Dutch Shell, taking part in exploration projects. This means that there are vast unexplored potential areas within the boundaries of Turkey and international energy investors should consider Turkey as a promising location with regard to the shale gas sector.

As well as its promising shale gas fields, the legal framework concerning exploration activities in Turkey has also become more investor-friendly with the adoption of the last amendment of the Petroleum Law in 2013. With the new regulations that eased the job for foreign energy investors along with its economic stability and constantly growing energy demand, Turkey sustains its position as a significant place to invest in the energy sector.

Last but not least, Mediterranean gas fields are of capital importance in Turkey's gas future. Actually, this might also directly affect Turkey's relationship with the EU. There are more politics involved than pure economic motives on this matter because it includes Greek Cyprus, Greece, Israel, the EU and Turkey. Set the EU aside and the rest will form a Bermuda Triangle.

Once gas is exploited in the region, controversies that have been ongoing on a relatively low level will become more evident and severe. Because finding a huge gas reserve does not mean anything unless you have a market at hand to sell your product and find out a way to deliver your gas to the concerned market. The problem for Mediterranean gas pops up at this point. Even if there are some different, mostly politically motivated suggestions such as building a new pipeline starting from Israel and arriving to Greece through Greek Cyprus and then Europe, or construction of an liquefied natural gas (LNG) facility to ship liquefied gas to the consuming markets, in reality, these options are unsustainable, economically and technically, as Prime Minister Ahmet Davutoğlu remarked in an interview with a Greek newspaper in early December 2014. The only economically and technically feasible way seems to build a pipeline to Turkey and connect this newly built pipeline to the existing and ever-developing network in Turkey. Of course, in order for a project like this to come true, there are far too many conflicts to be solved first. At this point, there are a lot of pitfalls to the newly elected Greek government. If it chooses to cooperate with Turkey, unlike its predecessors, in order to eliminate these everlasting issues, the region might witness a rapid economic development in the near future. However, it should be admitted that this is one of the most complicated problems in this region and it appears that there will be no absolute solution to this issue in the immediate future.

To conclude, as is seen, Turkey is entering a new phase with regard to its energy aspect, and gas will play a major role in Turkey's energy future both politically and economically. Turkey's eagerness in becoming a significant energy player has been increasing and thus, the opportunities in Turkey for foreign investors are escalating concurrently. President Recep Tayyip Erdoğan also clarified Turkey's stance with respect to energy by saying: "We will do our best to make oil and gas the instruments of peace and prosperity," at the Energy Markets Summit in Ankara on Jan. 20, 2015.