Post on 15-May-2023
DOES TURKISH ENERGY POLICY EFFECTIVELY ADDRESS SECURITY
OF SUPPLY ISSUES?
EMRAH CAN∗
energysecurity@googlemail.com
ABSTRACT: Security of oil and gas supplies is one of the main energy policy concerns for Turkey just as it is for many other net energy importing countries in the current high oil price era. The risks associated with security of supply, in other words supply disruptions, could be mitigated by long and short term policy measures. Given the fact that oil and gas are such a vital input in the country’s economy, energy is also a part of foreign policy making. After the Cold War years, Turkey has come to the fore as the most stable pipeline transit country for the hydrocarbon resources of the FSU countries in the Caspian Sea region, and the Middle East. Therefore, recently built oil and gas pipelines might be the best solution for Turkey’s long-run supply security problems. Turkey has already been linked with nearly all of the producer countries in its region and the capacity of those pipelines might even increase with the planned new pipelines which would further diversify the sources and reduce the risk of supply disruptions. Increasing the critical oil stocks to the IEA’s required standards and investing in underground gas storage facilities in three different regions of the country would serve as the short term supply security measure. This paper considers these long and short term strategies for Turkey in a bid to address the challenges of energy supply security.
∗ The author graduated from Istanbul Technical University with BSc degree in Geology in 1990. He also received his MSc degree in Geophysics from Texas A&M University in 1996. He is a MSc student at the CEPMLP. He is currently employed by the Turkish Petroleum Corporation (TPAO).
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ABBREVIATIONS
BOTAS Boru Hatlari ile Petrol Tasimaciligi Anonim Sirketi – Turkish State
Pipeline Company
BTC Baku-Tbilisi-Ceyhan
DTM Dis Ticaret Mustesarligi – Undersecretariat of Foreign Trade
EIA Energy Information Administration
E&P Exploration and Production
ER Emergency Response
EU European Union
FSU Former Soviet Union
GDP Gross Domestic Product
IAEA International Atomic Energy Agency
IEA International Energy Agency
IEP International Energy Program
LNG Liquefied Natural Gas
OECD Organisation for Economic Cooperation and Development
TCGP Trans-Caspian Gas Pipeline
TEIAS Turkiye Elektrik Isletmeleri Anonim Sirketi – Turkish State Electricity
Transmission Company
ToP Take-or-Pay
TPAO Turkiye Petrolleri Anonim Ortakligi – Turkish State Oil Company
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1. INTRODUCTION
Even though the energy policies of oil and gas importing countries have been
addressing supply security issues in various action plans for the diversification of fuel
mix and supply sources since the first oil shock, this has not been central in Turkey’s
energy policy agenda with increasing import, depending primarily on Russia since
oil prices began to rise in 2003.
Turkey’s reliance on oil and gas imports has been steadily increasing (Figure-1), and,
in order to meet its growing demand, emphasis of the energy policy has largely been
on the supply side1. However, does the current energy policy of Turkey reflect the
above reality and efficiently address security issues related particularly to oil and gas
supplies in the high oil price era?
Figure-1. Indigenous production-import balance for (a) crude oil and (b) gas Turkey's Oil Supply
(1971-2004)
0%
20%
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100%
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
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years
perc
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)
Indigenous Production Imports Turkey's Gas Supply
(1987-2004)
0%
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40%
60%
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100%
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perc
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Indigenous Production Imports (a) Crude oil (b) Natural gas
Source: IEA Website
Numerous definitions can be found for ‘security of supply’ which generally
underlines sustained availability of energy sources, particularly oil and gas, in
1 IEA, Energy Policies of IEA Countries - Turkey 2005 Review 12 (2005).
3
adequate amounts at affordable prices2. In the light of this description, maximisation
of domestic supplies may be seen as the most ideal option if, of course, a country is
endowed with such energy sources. Indigenous sources, in other words self
sufficiency, would guarantee such supply security to an extent, at least by reducing
import dependency.
The high priority of the current Turkish energy policy is to increase the level of
energy supply security as it is the case for almost every net oil and gas importing
country. In this regard, Turkey has recently announced several policy measures3
which specifically address the security of oil and gas supply issue:
• Diversify energy sources and exporting countries.
• Benefit from the high potential of being the ‘energy corridor’ at the optimum
level.
• Participate in every single transportation stage of the oil and natural gas
projects related to the Caspian Sea and the Middle East regions.
• Increase the capacity of strategic oil and natural gas underground storage
facilities.
• Increase fuel flexibility in order to provide usage of alternative energy
sources in power generation.
As a matter of fact, the above supply-side of the energy policy4 has not considerably
changed compared to earlier policies in the past 10 years5. The attention was also on
diversifying energy sources to avoid import dependency, being a pipeline transit
country for Caspian resources to European markets, as well as increasing domestic
energy sources. This policy is consistent with the European Union’s (EU) concerns
where Turkey is mentioned in the Green Paper as a transit country which is an 2 Skinner, R. and Arnott, R., the Oil Supply and Demand Context for Security of Oil Supply to the EU from the GCC Countries 23-24 (2005). 3 Author’s translation of the speech of Hilmi Guler, Turkish Energy and Natural Resources Minister, in addressing Turkish energy policy during the annual parliamentary budget planning meetings, http://www.enerji.gov.tr/belge/butce2006.doc (last accessed on April 20, 2006) - in Turkish. 4 Only the oil and gas security of supply related policy tools are mentioned here in a rearranged order in the scope of this research paper. 5 Presentation by S. Burcu Ozdamar, ‘Turkey’s Policies on Security of Energy Supply’ for the European Commission Workshop on the Internal Market for Gas November 7-8, 2002 Brussels, http://europa.eu.int/comm/energy/gas/workshop_2002/doc/candidate_countries/turkey_security_supply.pdf (last accessed on April 20, 2006).
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essential element for the full exploitation of the resources of the Caspian Sea, as well
as the southern Mediterranean, to improve energy security by diversifying geographic
sources of supplies6.
Even though almost any energy policy measure can be fashionably attributed to and
easily justified for ‘security’, simple pair of energy security indicators7 (IAEA, 2005;
13), namely ‘imports’ and ‘stocks of critical fuel’ would be the focus of this research
paper in order to assess the energy policy of Turkey. Since energy policy is a very
complex subject, this paper does not have an intention to offer a solution or policy
advice, it rather attempts to draw the borderlines for the supply-side energy policy.
When looking at the issue of security of supply, regardless of how it is defined, an
energy policy should adequately address the following elements to be successful8.
• Trade relationships
• Continuing investment in the energy supply chain
• Physical disruption of supply
• Functionality of sectors in physical disruption
These policy elements may also provide a backdrop for discussing the Turkish energy
policy with regard to ‘security of oil and gas supplies’ in different time spans.
This research paper concludes that Turkey has been pursuing an energy policy which
is greatly interlinked to its foreign policy under which the long-term supply security
issues are addressed with the big pipeline projects. Furthermore, the short-term supply
security issues are handled in accordance with the International Energy Agency’s
(IEA)9 Emergency Response (ER) measures.
2. SECURITY INDICATORS
6 European Commission, Towards a European Strategy for the Security of Energy Supply 24 (2000). 7 IAEA, Energy Indicators for Sustainable Development: Guidelines and Methodologies 13 (2005) 8 See Skinner and Arnott, supra 28. 9 This international organisation was founded by the member countries of the Organisation for Economic Co-operation and Development (OECD) after the first oil shock to monitor the energy markets and to act as energy policy advisor.
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Any questioning about Turkey’s energy policy towards security of oil and gas
.1. IMPORT DEPENDENCE
his indicator may be the most publicised and most debated security issue for a
port dependency could be looked at on two different levels: fuel type and source,
igure-2. Domestic final energy consumption by fuel type in the period of 1960-2003
supplies should begin by introducing some statistics related with this industry. The
data from several different sources have been compiled to present the picture about
Turkey’s present oil and gas supply situation. These, however, will be looked at in a
perspective of the country’s import dependency and fuel stocks, as the two main
supply security indicators.
2
T
consumer country in general. However, for a net importing country like Turkey,
where, in 2004, its domestic oil production accounted for only 9.5% of its final crude
oil consumption, and the natural gas production met only 3% of its domestic natural
gas demand, this subject becomes even more vital for its economy (Figure-2).
Im
which basically means exporting country. First of all, oil account for 44.3% of
Turkey’s final energy consumption, whereas it is 11.1% for gas10 (Figure-2).
F
Final Energy Consumption by Fuel Type
0%
20%
40%
60%
80%
100%
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
years
perc
enta
ge, %
Oil Coal Electricity Natural Gas Combustible Renewables and Residulas Geothermal Solar/Wind
Source: IEA Website 10 57.45% of imported natural gas is used in electricity generation in 2005 (data source: BOTAS).
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Turkey imports 90.5% of its oil needs mostly from Russia and the Middle East
igure-3a. Crude oil imports by country of origin in the period of 1978-2004
countries (Figure-3a, 3b and 4).
F
Turkey's Crude Oil Imports by Country of Origin
0%
20%
40%
60%
80%
100%
1978
1980
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2004
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perc
enta
ge, %
Iran Saudi Arabia Iraq Libya Russia Other Middle East Other Africa Non Specified/Others
Source: IEA Website Figure-3b. Changes in the import dependency to the main oil suppliers in the period of 1996-2004
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Turkey's Oil Import Dependency
0%
5%
10%
15%
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30%
35%
40%
1996
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perc
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Russia Iran Libya Saudi Arabia Iraq
Source: IEA Website Figure-4. Crude oil imports by country of origin for (a) end 2004 and (b) January-October 2005
Russia28%
Iran24%
Libya21%
Saudi Arabia14%
Iraq6%
Others7%
Russia31%
Iran27%
Libya19%
Saudi Arabia15%
Iraq5%
Others3%
(a) End-2004 (b) January-October 2005
Source: IEA and DTM Websites
Besides increasing dependence on Russian oil supplies in recent years, Turkey has
also become over-dependent on Russian gas, especially for power generation since
1987. (Figure-5). Between 1987 and 1993, Russia was the sole natural gas supplier.
Regardless of the pipeline gas supplies from Iran and LNG from Algeria and Nigeria,
Turkey currently imports majority of its gas demand from Russia accounting for
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63.62% of the total import volume via two different pipeline routes11 (Table-1 and
Figure-6).
11 The Western pipeline route via Ukraine, Moldova, Romania, Bulgaria and the Blue Stream directly under the Black Sea.
9
Figure-5. Electricity generation by fuel type12 in the thermal plants in the period of
1940-2004
Electricy Generation by Fuel Typein Thermal Power Plants
0%
20%
40%
60%
80%
100%19
40
1944
1948
1952
1956
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1980
1984
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1996
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2004
years
perc
enta
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Coal Oil Natural Gas Renewables/Residues
Source: TEIAS Website
Table-1. Natural gas export dependency as of end-2005
Exporting
Country Dependency
Russia (pipeline) 63.62%
Iran (pipeline) 17.08%
Algeria (LNG) 15.22%
Nigeria (LNG) 4.07%
Source: BOTAS Website
12 Imported coal is included in the total share of coal.
10
Figure-6. Natural gas imports by country of origin in the period 1987-200513
Turkey's Natural Gas Imports
0%
20%
40%
60%
80%
100%
1987
1988
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2003
2004
2005
years
perc
enta
ge (%
)
Spot LNGNigeria LNGAlgeria LNGQatar LNGIranBlue StreamRussiaAustralia
Source: IEA and BOTAS Websites
The high level of both oil and gas import dependency evidently increases Turkey’s
vulnerability to supply disruptions of these resources. This problem would be, of
course, more severe in case of loosing supplies from the major supplier countries.
However, when the oil and gas import volumes are looked at in totality, Russia is the
most critical country on which Turkey depends. Simply from the definition of
dependence, supply disruptions from Russia, along with its geo-political influence,
would be the highest on the Turkish energy market compared to the other supplier
countries.
From an economical point of view, Turkey’s fossil-fuel imports account for 5.9% of
its gross domestic product (GDP) (Figure-7 and 8). Rising price levels of these fuels
would adversely affect the balance of payments of the country. A $1 increase in oil
price would increase Turkey’s oil import bill by approximately $170 million. When
other commodities are also taken into account in relation to the oil supplies, such a
small price increase would bring an additional burden of nearly $400 million on the
total energy cost14.
13 ‘Blue Stream’ is graphed separately due to the fact that this pipeline directly delivers gas to Turkey without going through any transit country. 14 The year 2006 program, p. 34, http://ekutup.dpt.gov.tr/program/2006.pdf ( last accessed on April 19, 2006) – in Turkish.
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Figure-7. Fossil fuel import bill by (a) fuel type and (b) their share in the GDP in the
period of 1996-2005 Turkey's Fossil Fuel Import Bill
($ million)
0
2,000
4,000
6,000
8,000
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14,000
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
year
$ m
illio
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Crude Oil and Products Natural Gas Coal Turkey's Import Bill
by Fossil Fuel Share
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
years
perc
enta
ge, %
Coal Crude Oil and Products Natural Gas (a) (b)
Source: DTM Website Figure- 8. Fossil fuel import bill shares in GDP in the period of 1996-2005
Turkey's Fossil Fuel Import Shares in GDP
0%
1%
2%
3%
4%
5%
6%
7%
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
years
perc
enta
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50
100
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350
400
billi
on U
SD
Crude Oil Natural Gas Coal Total Fossil Fuels GDP
Source: DTM Website
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Figure-9. Total crude oil imports against the oil price15 in the period of 1986-2005
Monthly Crude Oil Imports
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
1986
1987
1988
1989
1990
1991
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mill
ion
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$/bb
ls
Crude Oil Imports Oil Price
Source: DTM Website
Obviously, such dependence on imported oil and natural gas which are the major
sources of energy in Turkey exposes the economy to price fluctuations as well
(Figure-9). The imported oil volumes are inversely related to the oil price levels. In
other words, when the oil price increases, the import level decreases to avoid higher
import bills on the balance sheet.
2.2. CRITICAL FUEL STOCKS
As a founding member of the OECD, Turkey has been pursuing an energy policy to
meet the IEA fuel stock obligations. The IEA’s initial stockholding obligation was ‘to
15 This oil price actually reflects the cost of the crude oil imports per barrels to the country, not any other particular reference market price.
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maintain emergency reserves sufficient to sustain consumption for at least 60 days
with no net oil imports’ when it was first formulated in 197416. Since then, strategic
stocks have been the backbone of the international energy cooperation among the
OECD member states. The IEA mechanisms may deal especially with reducing the
damage caused by the short-term physical oil supply disruptions, that is, international
and internal politics, regional wars, sabotage, natural disasters, accidents17.
Emergency Response (ER) is the main element of the IEA’s International Energy
Program (IEP). It now requires IEA countries to hold stocks equal to 90 days18 of
their net oil imports19. ER has 4 main measures: stock draw, demand restraint, spare
production capacity, and fuel-switching capacity. The last two emergency measures
are not so much relevant to Turkey due to its limited oil and gas production20 and the
current energy market structure. However, releasing the critical stocks could be
effective to ease the severity of any particular short-term oil supply disruption.
IEA only monitors primary oil stocks21, excluding those in transportation state. Even
though the pipeline oil is not counted towards its stock level, oil supply security has
been increased since Turkey is the main pipeline transit country for the hydrocarbon
resources of Azerbaijan with the main Baku-Tbilisi-Ceyhan (BTC)22 crude oil
pipeline. This pipeline is expected to increase the oil stock capacity of Turkey by
additional 2 million tones along with the port storage facilities at the Ceyhan terminal.
In Turkey’s case, the amount of critical fuel stocks has also been related to the oil
price level in parallel to the import volumes. In the low price era, the oil stocks were
increased, and used in the high price era23. After few years of low stock levels,
16 Article 2.1 of the International Energy Program (IEP). 17 From the text of John V. Mitchell’s presentation, ‘Energy Supply Security: Changes in Concept’ http://www.chathamhouse.org.uk/pdf/research/sdp/EnergySupplySurityforPDF.d.pdf (last accessed on April 21, 2006). 18 The minimum level was later raised from 60 to 90 days with further emergency measures in 1975. 19 See IEA, supra 9. 20 It can only be increased by 5-10% for ten days (IEA, 2001: 272). 21 Three different types of stocks: a) primary; producing, transport (tankers, pipeline, barge), refining facilities, large distribution facilities, b) secondary; small distribution terminals, wholesalers, retailers, c) tertiary; consumers (IEA, 2001: 17). 22 ‘Benefits of the Project for Turkey’, http://www.btc.com.tr/eng/project.html#avantaj (accessed on April 24, 2006). 23 S. Yildirim, Oil in World and Turkey 32 (2003) – in Turkish.
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Turkey has continually met its obligation since 1 January 2004 in the IEA standards
(Figure-10).
Critical fuel stocks of Turkey are held by the companies in the industry. The law
imposes a penalty on oil companies in case of non-fulfillment of stockholding
requirements24. Besides overall stock level, National Protection Law No. 79, together
with the National Security Act, provides the government with a broad range of
authority to control the oil sector to obtain voluntary action immediately and also ‘to
implement different types of demand restrained programs which include energy-
saving campaigns, compulsory measure, delivery quotas of gasoline, and rationing25.
Such measures would primarily be the response of Turkey in case of an emergency,
since quantity of available critical fuel stocks would generally be limited.
Figure-10. Critical fuel stock level in the period of 1978-2004
Crude Oil Stock Level
0
1,000
2,000
3,000
4,000
5,000
6,000
1978
1980
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1000
tonn
es
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30
mill
ion
tonn
es
Crude Oil Stocks Crude Oil Imports
Source: IEA Website
The lead time for demand restrained measures other than rationing schemes is
estimated about one month from the preparation and decision making to first
24 See IEA, supra 24. 25 Ibid, 269-270.
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measurable effect26. The administrative procedures were proved to fully function
during the first Gulf War as an indication of the establishment and proper functioning
of the ER system27.
IEA does not require its member countries to hold natural gas stocks since its storage
is considerably more expensive, and at the same time geologically and logistically far
less effective than oil stocks. However, Turkey has been investing in natural gas
underground storage facilities ‘in order to regulate the seasonal, daily and hourly
fluctuations in consumption’, as well as to meet any potential natural gas supply
shortage in the future28. Two depleted gas fields in the Thrace Basin are expected to
be operational by the end of April 200629, one salt dome structure in the central
Anatolia will be in use by 2010 and another salt structure in the southern Anatolia are
under study30.
4. ENERGY POLICY
Energy policy has to be consistent in a number of separate aims which, at times, may
be in conflict with one another. These main concerns can be summarised as: security
of supply, competitiveness, environmental protection and social aims31. As a net
importer of energy with a growing reliance on external suppliers, security of supply
has risen in importance for Turkey relative to environmental issues, competitiveness
and social aims.
The essential idea of what determines security of oil supply had been expressed by
Winston Churchill in his often-quoted declaration: “On no one quality, on no one
process, on no one country, on no one route, and on no one field must we be
dependent. Safety and certainty in oil lie in variety and variety alone.” Thus variety,
26 The whole process includes preparation, decision making, implementation, full operation. 27 See IEA, supra 272. 28 BOTAS, ‘The Natural Gas Underground Storage Project’ http://www.botas.gov.tr/eng/projects/allprojects/underground.asp (last accessed on April 23, 2006). 29 TPAO, Silivri Dogal Gaz Depolama Projesi, http://www.tpao.gov.tr/winter2005/bg-tr/alt/silivri.htm (last accessed on April, 2006) – in Turkish. 30 BOTAS, 2001 Annual Report, http://www.botas.gov.tr/raporlar/Botas/projeler.htm (last accessed on April 23, 2006). 31 The Royal Academy of Engineering (RAE), Inquiry into Energy Policy - Security of Supply 1 (2001).
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or diversity of supply in fuels and their sources is more than anything else the essence
of security of supply. The transport sector’s high dependency on oil and the electricity
generation sector’s dependency on natural gas leave Turkey not much choice in
diversifying neither of these primary energy sources in the short term (Table-2). Even
though overall domestic consumption of petroleum products has fallen fractionally
over the last two decades, this has been mostly due to fuel switching from oil to gas
for electricity generation. The underlying trend for the transportation sector’s oil
consumption is still rising. However, it could be more relevant to discuss any options
in the scope of demand-side management.
Table-2. Sectoral oil and gas consumption in 2003
Sectors Oil Gas Transportation 97.29% 1.71% Agriculture 77.21% 7.16% Industry 31.08% 27.26% Commercial and Public Services 19.48% 29.50%
Residential 17.63% 38.74% Source: IEA Website
By the end of the Cold War, the concept of energy supply security had changed in the
national and international political and economic contexts. However, supply
disruption still remains as the main threat. Turkey has been gaining a very strong
position as a pipeline transit country since the break-up of the Soviet Union in 1991.
Therefore, the E&P and pipeline projects from the Caspian Basin have rapidly come
to the fore in the energy policy agenda of Turkey (Table-3) and they have been seen
as ‘the ultimate thing to improve energy supply security’32. In general, the potential to
diversify by origin for gas is more limited than that for oil because the supply routes
for gas are dedicated specific pipelines.
Table-3. Operational and planned Oil and Gas pipelines from the Caspian Sea region
Crude Oil Pipelines:
32 From the PowerPoint presentation by Mithad Rende, ‘Turkey’s Energy Strategy’, TUROGE Caspian & Black Sea Oil & Gas Conference 2005, http://www.bemltd.com/pages/documents/MithatRende.ppt#12 (last accessed on April19, 2006).
17
Baku-Tbilisi-Ceyhan (BTC)
Azerbaijan-Georgia-Turkey
Trans-Caspian (Kazakhstan Twin Pipelines)
Aqtau (Western Kazakhstan, on Caspian coast) to Baku; could extend to Ceyhan
Natural Gas Pipelines:
Baku-Erzurum (SCP)
Baku (Azerbaijan) via Tbilisi (Georgia) to Erzurum (Turkey), linking with Turkish natural gas pipeline system
Trans-Caspian Gas Pipeline (TCGP)
Turkmenbashy (Turkmenistan) via Baku and Tbilisi to Erzurum, linking with Turkish natural gas pipeline system
Source: EIA33
Turkey has been pursuing an energy policy in coherence with the IEA’s
recommendations since 1974. However, IEA’s main policy measures have been
mainly focused on the domestic energy markets, their liberalisation and regulation,
energy efficiency and environment since mid-1980s when the state controlled
economy was replaced with liberal economy34. Turkey has broken up its large
nationalised utilities in the petroleum and electricity sectors through the free market
economy since then. Liberalisation is still underway.
In the IEA’s 2001 review35, upstream security of supply related energy policy
recommendations to Turkey were only about giving priority to new oil and gas
pipeline projects and seeking to ensure further supplies for these pipelines36. The
2005 recommendations addressing Turkey’s security of supply issues, can simply be
highlighted as the continuation of the promotion of gas transit routes and encouraging
the petroleum industry to bypass Turkish Straits due to increased oil tanker traffic in
the Dardanelles and Bosporus straits 37. As a matter of fact, the Turkish energy policy
33 http://www.eia.doe.gov/emeu/cabs/caspgrph.html (last accessed on April 24, 2006). 34 O.A. Yilmaz and T. Uslu, Energy policies of Turkey during the period 1923–2003 (in press) 35 http://www.iea.org/textbase/nppdf/free/2000/turkey2001.pdf (accessed on April 20, 2006). 36 See IEA (2005), supra 8. 37 Ibid 18.
18
reflects all of these long-term recommendations. For example, a look at the BTC
pipeline reveals a number of benefits for the supply security of Turkey namely38:
• Turkey would be able to purchase Azeri oil at a discounted price due to
transit fees and operations services payments.
• 200 billion barrels of crude oil and 18 trillion m3 would flow through
Turkey
• Environmental risks associated with tanker traffic through the congested
Turkish Straits will be mitigated.
Since none of the projections regarding the future demand and supply levels in the
world energy markets are definite, and may change due to various alterations, a
meaningful and realistic assessment of Turkey’s policy options closely based on its
regional position as in the case of the above listed pipeline projects, is essential.
Russia is the main oil and gas supplier of Turkey and this energy trade relationship, in
other words dependency, may remain unchanged for a long time or even increase
since Russia is one of the biggest oil and gas producers in the world with vast
reserves. In a case of severe supply disruption from Russia, Turkey will lose 30% of
its oil imports and 65% of its gas imports. Besides having two separate gas pipelines,
the Western route and the Blue Stream, Russia is still interested in increasing its gas
export capacity to Turkey in a bid to reach to the European gas markets, and Israel
with an additional crude oil pipeline from the Black Sea to the Mediterranean coast39.
Russia’s intensions, of course, could be expected to further increase the already hot
debate about being ‘too dependent’ first on Russian gas and then its oil. However, this
could be easily diverted by flexible terms of contracts between the two countries.
Besides existing and planned pipeline projects from Russia and the Caspian Sea
region, Turkey currently has another twin crude oil pipeline from Iraq, and several
additional gas pipelines are planned to be built from Iraq and Egypt to supply oil and
38 ‘Benefits of the Project for Turkey’, http://www.btc.com.tr/eng/project.html#avantaj (accessed on April 24, 2006). 39 ‘Putin talks up Turkey gas pipeline’, BBC Monitoring - Energy, November 18, 2005.
19
gas especially to the European markets40. These projects would clearly increase the
supply security. However, the already contracted gas volumes exceed the domestic
demand forecast. This picture implies an excess supply into the Turkish market until
2012 (Figure-11). Turkey has to be very careful in projecting its future demand and
avoiding severe take-or-pay (ToP) agreements41 which are the legacy of the previous
energy policies. Turkey could face cash penalties of up to $1 billion per year if it fails
to purchase contracted gas under the provisions of these agreements with Russia and
Iran42. Contracting new gas supplies via the existing and new pipelines would be very
difficult by 2012, unless any additional gas supplies could be diverted to European
markets. Turkey-Greece natural gas pipeline has been planned to start delivering gas
in 200643, and this could help in reducing the oversupply risk to the domestic market.
Figure-11. Imported natural gas volumes in the period of 1987-2005 and domestic
natural gas demand for the period of 2005-2020
Natural Gas Imports and Demand Forecast
0
10
20
30
40
50
60
70
1987
1989
1991
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2019
years
billi
on m
3
Import Gas Contracted Total Gas Demand Forecast
Source: BOTAS Website
Even though coal reserves in Turkey are abundant (Table-4), arguments for and
against the use of coal are extremely polarised between price and environmental 40 BOTAS, ‘Projects’ http://www.botas.gov.tr/eng/projects/projects.asp ( last accessed on May 6, 2006). 41 These agreements did not only boosted gas usage in electricity generation sector, but also reduced likelihood of substituting other fuels in this sector. 42 EIA, Turkey - Country Brief Analysis, http://www.eia.doe.gov/emeu/cabs/turkey.html (last accessed on May 6, 2006). 43 BOTAS, ‘Turkey-Greece Natural Gas Pipeline Project’ http://www.botas.gov.tr/eng/projects/allprojects/greece.asp (accessed on May 6, 2006).
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issues. The reasons for subsidising coal production range well beyond security of
supply and centre on the socio-economic needs of the coal producing areas in Turkey.
Given this perspective, the fuel mix is not based on economic considerations, but
rather political decisions in the government’s energy policies. The maintenance of
such an indigenous energy supply and at the same time avoidance of its permanent
closure is another dimension for the coal production sector. The security of coal
supply is usually overshadowed by the environmental externalities of its usage.
Actually, coal was first largely replaced by natural gas for electricity generation and
household heating for this reason44, and then the replacement has further increased
due to the ToP import contracts for the natural gas.
Table-4. World’s proved lignite reserves as of 2004
Rank45 Country
Sub-bituminous and Lignite (million tonnes)
Anthracite and bituminous(million tonnes
Total (million tonnes)
Share of Total
R/P ratio
1 USA 135305 111338 246643 27.1% 245
2 Former Soviet Union (FSU) 132741 94513 227254 25.0% -
3 Russia 107922 49088 157010 17.3% - 4 China 52300 62200 114500 12.6% 59 5 Australia 39900 38600 78500 8.6% 215 6 Ukraine 17879 16274 34153 3.8% 424 7 Brazil 10113 - 10113 1.1% - 8 Germany 6556 183 6739 0.7% 32 9 Indonesia 4228 740 4968 0.5% 38 10 Turkey 3908 278 4186 0.5% 87 Source: BP Workbook 2005
Turkish energy policy also emphasizes the utilisation of underground natural gas
storage facilities to meet the seasonal demand fluctuations as well as to reduce the
supply disruption risk as a short-term security measure along with the oil stocks. First
underground gas storage project will be completed with a capacity of 1.6 billion m3
by mid-200646.
44 F. Gazel, Blue Stream: Genetic Code Depicted 55-56 (2003) – in Turkish. 45 This ranking is made according to the world lignite reserves. 46 The year 2006 program, p. 191, 207.
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Turkey also has a substantial budget to invest in domestic upstream offshore projects,
and international E&P projects in the Caspian Basin47.
5. CONCLUSION
Turkey is not blessed with rich indigenous hydrocarbon reserves. Therefore, its
economy inevitably relies on imports from the producer countries; oil from mainly
Russia, Iran, Libya, Saudi Arabia (Figure-3b and 4), and gas from mainly Russia and
Iran (Figure-6 and Table-1). The real energy policy issue is related with how much
dependency on a particular export source should be tolerated in order to reduce both
short and long term supply related risks, rather than a particular fuel type.
After the Cold War years, Turkey’s role has been changed to an important transit
country in the last two decades from being only a consumer country. For countries
with limited energy resources but that are in key locations, there is always
considerable benefit to be gained. Therefore, Turkey’s energy policy should reflect
this new character of the country. Over dependence particularly on the Russian oil and
gas imports has been seen as one of the main supply risk element. However, its share
in total supplies could reduce after the flow of additional Azeri oil and gas via the
BTC pipeline this year and the SCP pipeline in coming years. Turkey's long-term goal
of diversifying its fuel suppliers could then be met with these projects.
On the other hand, energy policies to reduce import dependence from any major
exporter country may also reduce the competitiveness of Turkey in the other markets
of that country, an example is Turkey’s stake in the Russian construction sector.
However, creating complex economic interdependency, in other words, wide
spectrum trade relationships, through energy cooperation could lower the disruption
risks from the suppliers. Russia’s willingness to redirect its gas to Europe through
Turkey after the recent gas trade disputes with its major transit route, Ukraine, is a
very good example of this energy cooperation. This is also relevant to the other
exporting countries with existing or potential pipeline projects to Turkey like Egypt48.
The planned pipelines further diversify the sources and reduce the risk of disruption.
47 Ibid 196, 205-207. 48 ‘Turkey, Egypt can cooperate in shipment of Egyptian gas’, BBC Monitoring – Energy, April 20, 2006.
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There is also a potential to increase the existing capacity. This policy approach, of
course would be advantageous only when the new oil and gas resources are to be
delivered to the world energy markets via Turkey. Already saturated Turkish gas
market, for example, may not be able to economically accommodate more gas.
Otherwise, over-supply would then impose an economic risk under the ToP contracts
since Turkey’s portfolio already imports more natural gas than it probably needs at
least until 2012 (Figure-11).
Given the fact that international energy cooperation has been increasing in the region
since the end of Cold War, the chances of an energy crisis leading to supply
disruption from Russia and Azerbaijan appears to be minimal in the short-term.
However, events over which it has little or no influence may make Turkey more
vulnerable to energy supply disruptions.
As a short term measure to increase the supply security, maintaining the critical fuel
stocks remain a policy tool. Besides oil stocks, Turkey’s investment in underground
gas storage facilities further reduces gas supply disruption risks.
From the perspective of security of supply being a risk related to ‘delivery of energy’,
the Turkish energy policy can be assessed as being effective in addressing supply
disruption risks in both short and long terms.
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BIBLIOGRAPHY
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Gazel, F. (2003) ‘Blue Stream: Genetic Code Depicted’, ASAM Avrasya Dosyasi, 9
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Yilmaz, O.A, and Uslu, T. ‘Energy policies of Turkey during the period 1923–2003’,
Energy Policy (in press).
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Stern, J. ‘The Russian-Ukrainian Gas Crises of January 2006’ Oxford Institute for
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