A recurring theme in Turkish political discourse has been an ambition to establish an energy hub to capitalise on the country's strategic location linking resource-rich countries to its east with European markets to its west. Israeli gas and new flexible supplies of liquefied natural gas can help Turkey deliver on the aim.
As Petroleum Economist writes in the article Israel's role in Turkey's gas hub, so far, Turkey's strategy has lacked clarity and the objective has been open to multiple interpretations, each reflecting the country's tortuous relations with its neighbours and the poor level of market liberalisation and regulatory reform that would be needed to create a viable gas hub. Yet the rationale is plain. Creating such a regional nexus would help guarantee Turkey's access to affordable energy resources in the long term, and the trading position would generate lasting economic and political benefits. Turkey's attention is turning to seaborne supplies—via both liquefied natural gas cargoes and the potential for piped gas from Israel. This combination, contracted under more flexible terms, would help Turkey to become an exporter to Europe and even a supplier of choice to Syria, when the country emerges from its civil war.
Russian gas has been a mainstay of Turkish energy for the past three decades, covering well over half of the country's annual gas imports. In addition to the Trans-Balkan line built in the 1980s, which supplies Turkey and the region, Russia also spearheaded the construction of Blue Stream, a pipeline feeding exclusively the Turkish market. In recent years, Russia bought controlling shares in the Turkish private downstream gas sector, signed an agreement to develop its first nuclear power plant and is now building TurkStream, a second pipeline across the Black Sea, which aims to sell gas to Turkey and, possibly, further to Europe by the end of the decade.
Yet despite its visible presence, Russia's position in Turkey's gas sector is now shrinking, for two main reasons. The first relates to the decline in Turkish gas demand combined with recent efforts to diversify supplies by buying more LNG on a short-or medium-term basis. Between 2006 and 2016, Russia's share of Turkey's gas imports shrank from 64% to 53%. The second factor is linked to a more aggressive stance regarding Russia—reflected in Ankara's decision to nationalise Gazprom's minority stake in Akfel Holding, Turkey's largest private gas importing group, last December. Although this nationalisation has been under-reported and neither Ankara nor Moscow officially commented on it, Russia seems to be reviewing its position in Turkey. In June, Rosatom, Russia's state-owned nuclear company, said it would sell a 49% stake in the $20 bn Akkuyu power plant, Turkey's first nuclear power facility.
This announcement was followed by reports that Gazprom would sell its majority stake in Bosphorus Gaz, a private gas importer. It also plans to pull out from, rather than fight to keep, its stake in Akfel Holding, effectively ending its control over Turkish private downstream operations. It's not a total retreat. Turkey remains Russia's second-largest gas market after Germany and, through TurkStream, will provide, at the least, a new route for Russian gas exports to Europe (allowing Moscow to avoid shipping its gas via Ukraine). It may even enable an increase in supplies, if the Trans-Balkan line remains operational. Nonetheless, as Russia reviews its Turkey strategy, Ankara should gain enough breathing space to reflect on its own energy domestic and regional energy strategy—and pursue new opportunities.
Storage and LNG
Turkey has depended on Russia not only because of the sheer size of the imports—which, at 30bn cubic meters a year, far outweigh the combined supplies from Iran, Azerbaijan, Algeria and Nigeria—but also because so much domestic demand is concentrated in a region close to Russian-controlled infrastructure. This is the highly urbanised northwestern Marmara region, the landing point for Russian gas.
In recent months, though, Turkey has worked to increase its gas-storage and importing capacities at onshore LNG-receiving terminals in the Aegean and Marmara Seas. Last year, it also chartered its first floating storage and regasification unit (FSRU), now located in the Aegean Sea and close to the high-demand centres.
LNG is an attractive option because if offers greater flexibility during periods of peak consumption. The terms embedded in the latest LNG supply contracts signed by US producers are also advantageous, offering more flexible pricing and allowing buyers to resell the imported gas. These new contract arrangements could form a benchmark for other gas exporters—an opportunity for both Israeli pipeline gas and LNG, and for Turkey's hub ambitions. The imports could meet local demand but also be re-exported, depending on demand and the commercial feasibility.
Energy security is critical to all this too. Turkey's total dependence on imports for gas exposes it to supply risks—a reason it wants to increase its use of domestic lignite coal and renewables in power generation and move ahead with nuclear energy. But coal and nuclear power bring environmental risks and renewables are intermittent. More gas is a solution, so long as it follows the age-old dictum first promoted by Winston Churchill that "safety and certainty lie in variety and variety alone".Israeli gas is the only new source that doesn't offer more of the same under a different guise. The 0.62 trillion-cm Leviathan offshore gasfield was discovered in Israel in 2010 and 50-75% of its reserves have been earmarked for exports. Turkey is one of the major target markets.
A 500-550km pipeline linking the field to Turkey would aim to export 8bn-10bn cm/y in the initial phase. Another 10bn cm/y could be added at a later stage for re-export. The pipeline's likely entry point would be at Iskenderun, in the southern Mediterranean Hatay region, and close to Turkey's oil terminal at Ceyhan.
Besides being a totally new source of supply, Israeli gas would help Turkey overcome supply shortages affecting its power, industrial and residential sectors during the peak winter consumption months. This would coincide with the off-peak season in Israel, allowing for exports to be ramped up.
Leviathan is a premium gasfield not just because of its size, but also because its gas is high quality, at 99.5% methane. And the supplies could be available within three years. In terms of meeting peak supply, it would also bring advantages over LNG, the spot prices for which can still be volatile. About 76% of long-term LNG contracts also remain linked to the oil price, a form of indexation Turkey is trying to move away from.
The commitment involved in international pipeline supplies—especially one that would need hefty sunken investment in a subsea line laid in water depths of up to 2,250 metres—is much greater than in the LNG business. So it would be backed by long-term government-to-government umbrella agreements.
Israel could beef up its energy security too. The connection between it and Turkey could be through a bi-directional gas pipeline, giving Israel assurance if its own resources started to deplete.
Above all, a complement of LNG and Israeli piped gas seems the best option. In recent months, Turkey mooted the idea of bringing a second FSRU into the Marmara Sea close to Istanbul to cater for peak demand periods. Another plan would see a third FSRU at Dortyol, in the southern Mersin region, close to the Syrian border and Ceyhan. With the right infrastructure in place—a new pipeline connecting the southern region to northern consumption hubs in Istanbul and Ankara, and a cross-border interconnector—LNG imported via the Dortyol terminal could feed both the Turkish gas market and, eventually, neighbouring Syria. Of course, much will depend on the evolving political relationship between Israel and Turkey. But if Ankara and Jerusalem understand the new stakes at play, a fully functioning hub should be possible-one that reflects the two countries' pragmatic response to the challenges of a fast-changing gas market.