Meeting on the margins of the NATO summit in Istanbul earlier this week, the Greek and Turkish defence ministers discussed still further measures to reduce their respective military’s deployments in the Aegean. With Greece also expressing strong support for Turkey’s European Union membership bid and a host of other steps aimed at rapprochement underway, the two old rivals seem to be taking every opportunity these days to declare their newfound friendship. Meanwhile, although this is good for peace in general, it is also bringing some important economic benefits. Central in these is a plan for a gas pipeline between the two countries that may see Turkey become an important intercontinental energy hub.
The Turkey-Greece pipeline is just one of several now under construction or in the advanced stages of planning that will one day crisscross Turkey. These are for both gas and oil, with the most famous of the latter variety, the Baku-Tbilisi-Ceyhan (BTC) route, already far advanced on the ground. What is concerning energy industry insiders now though is what comes next – and in particular, where the energy sources of the future will be located.
Partly, the long-term strategy reflects EU thinking about future energy requirements – which involve a desire to become less reliant on Russian gas, which currently accounts for the lion’s share of EU consumption. Turkey’s importance in all this, however, largely comes as a result of necessity being the mother of invention.
During the latter half of the 1990s, Turkey signed a number of gas agreements with its neighbours in order to try and fill a growing projected domestic energy gap. Iran, Iraq and Russia were the fortunate beneficiaries of what later turned out to be a partly exaggerated scare, with pipelines under the Black Sea and in from Iran carrying gas for which the domestic supply system – and demand – did not yet exist.
The solution, many now argue, is in re-export, although others point out the price of this may make the gas uneconomic. Meanwhile, the development of the Azeri Shah Deniz gas field in the Caspian has become an additional factor, with the BTC providing an existing route for Azeri gas to come through to Turkey alongside the oil. Turkey’s state pipeline corporation TPAO recently secured a $200m loan to fund its part of this gas pipeline and for its part of development of the Shah Deniz field.
Azerbaijan and Turkey have a re-export agreement, and industry insiders suggest a similar deal with Iran is also likely. This would leave Turkey in the position where it would be receiving a large amount of gas that it could then feed into markets elsewhere. Add in the EU energy strategy, and the result is a project known as the South European Gas Ring, or NABUCCO.
Central to this is the plan for a gas pipeline linking Turkey with Greece. A projected extension of this then crosses the Adriatic to Italy. From there, the Italian domestic network could take up some demand, while also feeding north into the rest of Europe. The Turkey-Greece section is planned to start at 750m cu metres a year, rising to 3bn cu metres a few years later, with an extra 8bn cu metres a year planned to go via this route to Italy.
Meanwhile, NABUCCO also envisages an eastern Balkan route, linking Turkey through to Bulgaria, Romania, Hungary and Austria, from where, once again, the rest of Europe could be supplied. This would bring the total annual capacity of the gas ring to 20-30bn cu metres per year.
That’s a lot of gas, with the question now being hotly debated as to which combination of countries would be its suppliers. One considerable obstacle is Russia, with which Turkey has no re-export agreement and which is set to lose out if the EU switches to gas sources from other countries.
There are also question marks over one of the potential suppliers – Iraq. Back in 1996, Turkey made an agreement with Baghdad to supply 10bn cu metres of gas a year, although this has since lapsed. The security situation there has also meant the resumption of this is indeterminable. Meanwhile, Egyptian gas is also knocking at the door, with the Egyptian-Jordanian gas pipeline intended to eventually reach Turkey too. There is also a gas agreement with Turkmenistan and the albeit-distant possibilities of a line from Saudi Arabia or Qatar.
However, much of how this turns out depends not just on supply, but on demand. How this grows over the next few decades will ultimately determine energy companies’ willingness to invest in new projects, along with pricing. On gas in particular, much depends on Russia’s responses, with consumers – and companies – more interested in getting the cheapest deal than in playing any energy “Great Games”. Whatever the case though, Turkey looks set to become a major energy transit route and distribution hub in the years to come.
