Energy has always played an important role in U.S. foreign policy. Developments in the world energy market have a direct impact on the foreign policy of energy-producing and consuming countries. With the start of U.S. natural gas and oil exports, the need to find a suitable market for U.S. natural gas and liquified natural gas (LNG) is becoming more and more apparent.
According to the U.S. Energy Information Administration, the U.S. currently exports to 36 countries around the world. The United States is currently the second-largest producer of electricity from solar and wind power plants. In the natural gas sector, the International Energy Agency predicts that more than a third of the world's natural gas will be produced in the U.S. in the next five years. In the LNG sector, more than 80% of LNG's production capacity will go to the U.S. over the next five years, making it the largest producer and exporter of LNG. In 2025, LNG is expected to be exported to 50 countries. This is a serious alarm for traditional oil and gas producers around the world. Currently, the U.S. produces more oil than Saudi Arabia and Russia and is also the world's largest oil exporter.
Turkey's gas imports
Historically and currently, Turkey pursues a foreign policy that strikes a balance between the U.S. and Russia on energy issues. Turkey is importing LNG from the U.S. and natural gas via pipelines from Russia. While the U.S.’ share in Turkey’s total imports in February was 18%, Russia’s share reduced way down to 21%. That is to say, the U.S.’ share increased to one-fifth of the total imports. In February 2020, the difference between the pipeline gas imported from Russia and the LNG imported from the U.S. retreated to 200 million cubic meters. The coronavirus pandemic caused the prices of petrol and other commodities, as well as of natural gas, to drop. For some time, Turkey's Petroleum Pipeline Company (BOTAŞ) has been importing “cheap” LNG, some of which is obtained from the spot market, instead of expensive pipeline gas. This attempt is based as much on prices as on sensitive geopolitical balances.
In Turkey 45 billion to 50 billion cubic meters of natural gas is being consumed annually. Natural gas via the pipelines from Russia, Iran and Azerbaijan and LNG from the U.S., Qatar, Algeria and Nigeria are being imported. BOTAŞ has been paying $228 for every 1,000 cubic meters of natural gas imported from Russia since April 1. On the other hand, it can obtain much cheaper LNG by means of spot and medium-term contracts. The price of LNG (for every 1,000 cubic meters) in the spot market is between about $80 to $100. BOTAŞ, which imported 13 billion cubic meters of LNG (this is 30% of the total gas imports) from different countries, primarily from the U.S. last year, is pursuing a politics of supply – predominantly LNG instead of pipeline gas. The U.S. constitutes an important place in the import of LNG and its share is increasing. On the contrary, Turkey increased its LNG imports from the U.S. In fact, it has become the second-largest importer of LNG from the U.S. among the European and Central Asian countries. With the aim of decreasing its dependency on Russia, Turkey has been pursuing a long-term strategy in which LNG has a central place, so it has been using the opportunity to purchase low-priced LNG and increase its LNG imports over the last couple of years.
Increasing trade volume
On the sidelines of the 2020 Munich Security Conference, U.S. President Donald Trump and Turkey's President Recep Tayyip Erdoğan discussed the option of increasing Turke-U.S. to $100 billion, which is quite possible if an agreement is reached.
Turkey-U.S. trade volume in 2018 reached $20.73 billion. The volume of U.S. exports to Turkey in 2018 reached $12.4 billion, and the volume of Turkish exports to the U.S. last year reached $3.8 billion. Some 1,874 American companies have invested in Turkey. Given Turkey's need for LNG imports and its investment in LNG infrastructure, further LNG imports will provide a good opportunity to increase trade between the two countries.
In February this year, Turkey imported 2.7 billion cubic meters of pipeline gas and 2.52 billion cubic meters of LNG. The total amount of monthly imports reached 5.26 billion cubic meters. In the same month in 2019, 2.58 billion cubic meters of pipeline gas and 1.69 billion cubic meters of LNG were imported. Russia’s share dropped to 21%. The share of this country was between 40%-50% in previous years. The shares of Azerbaijan, Iran, Algeria, Qatar and Nigeria were 16%, 15%, 10%, 12% and 7%, respectively. And the share of the U.S., from which LNG was imported, increased to 18%. In February 2020, the difference between the pipeline gas imported from Russia and LNG imported from the U.S. regressed to 200 million cubic meters.
It was from Louisiana, more specifically, from a Sabine Pass facility, that Turkey first imported its LNG from the U.S. in 2016. As of this year, Turkey’s LNG imports from the U.S. have been swelling. Until mid-2019, each year Turkey’s LNG imports from the U.S. grew by 363%, whereas there has been a reduction of 36% in pipeline gas imports from Russia. The source of Turkey’s pipeline gas for many decades has been its neighboring countries, among which Russia provided more than 50% of the gas supplies in Turkey. To this end, Turkey has begun to include and increase its share of LNG among its energy sources, and this endeavor has benefitted Turkey.
With LNG constituting 30% of Turkey’s total energy sources last year, Turkey has had to enhance the capacity of its LNG infrastructure and LNG storage facilities so that imported LNG, including imports from the U.S., can be maintained. One other reason underlying the U.S. and Turkey’s strategic examination of the LNG trade between them is related to Europe’s search for more energy security.
The conflict between Russia and Ukraine has provided Turkey with the opportunity to emerge as a key route by which gas could travel from the Caspian and the Middle East to the EU member states. Nord Stream 2, Turk Stream and other projects have been a source of concern for the U.S. members of Congress and the administration since they postulate that these projects would increase Europe’s dependence on Russian natural gas. Moreover, they would weaken Ukraine’s role as a transit route and serve as heightened leverage for Russia.
Increasing U.S. LNG exports to Turkey will increase trade between Turkey and the U.S., as well as reduce the share of Iranian and Russian gas in Turkey's energy market. Iran is working hard to extend gas exports to Turkey. The fall in gas and LNG prices is a good opportunity for the U.S. to target Iran's gas market in Turkey. The high price of Iranian gas is always protested by Turkey. Increasing LNG exports to Turkey could affect Turkey's energy security as a U.S. ally in the region and of NATO. U.S. LNG exports to Turkey are one of the most successful examples of energy efficiency to increase economic and political cooperation between the two countries and the rest of the countries that export gas to Turkey must meet the conditions of Turkey's continued export of gas to Turkey.
* Visiting research scholar in the Schar School of Policy and Government at George Mason University, holds a Ph.D. in international relations