Plans to consolidate Turkey’s position as an energy transit bridge appear to have suffered a setback, with a major project to connect the Black Sea and the Eastern Mediterranean put on hold by both the Turkish government and one of the scheme’s key investors, though for different reasons.
There is already an extensive network of pipelines carrying both oil and gas running across Turkey, with connections linking to Azerbaijan, central Iraq and Iran, among others. Turkey’s domestic demands for gas are met in part by Blue Stream, an undersea pipeline running from Russia and coming ashore on the Black Sea coastal city of Samsun.
There are also a number of new projects in the works. The Trans-Anatolian natural gas pipeline, which is expected to have a capacity of 16bn cu metres, will carry 10bn cu metres of gas per year from Azerbaijan’s Shah Deniz II field into Europe, while 6bn cu metres will remain in Turkey for domestic use. Meanwhile, there is a proposal from Israel to run an undersea pipeline from its yet-to-be-developed offshore gas deposits to the Turkish coast, which will then be exported to Europe. The Turkish government and the autonomous Kurdish administration in northern Iraq have also been in talks over building a pipeline to carry crude from the fields within the Kurdish zone of control to export markets via Turkey.
One of these new projects, however, now appears to have stalled primarily due to political considerations. On March 27 Taner Yıldız, the minister of energy and natural resources, said the Turkish government could not accept the involvement of Eni, an Italy-based oil and gas firm, in the construction of a pipeline from the Turkish Black Sea port of Samsun to the southern port in Ceyhan, due to the company’s venture with Cyprus to explore hydrocarbons reserves in the Mediterranean.
Yıldız warned that the project, which is intended to carry Russian and Kazakh crude, could be put on hold if Eni continued to work with the Cypriot government. Turkey claims that developing fields in the eastern Mediterranean off the Cypriot coast infringes its rights and those of the Turkish Cypriot state, and has said it will ban companies working with Cyprus from involvement in Turkish projects.
“The Samsun-Ceyhan oil pipeline project is important for Turkey, but the country’s political principles are above all,” Yıldız said while appearing on CNN Türk, a local news network. “Therefore, we may freeze the project. Turkey will include on its blacklist all the companies cooperating with Cyprus on energy projects in the eastern part of the Mediterranean Sea.”
Just hours after the minister’s comments, Paolo Scaroni, the CEO of Eni, said the pipeline project had indeed been put on hold, though he cited economic rationale, rather than political tension for the decision. “This project is dormant as it is not profitable as long as the oil tanker rates to transport crude through the Bosphorus Strait remain at these [low] levels,” said Scaroni, while attending a conference in Rome. “I remain optimistic it will eventually be built, as it is very interesting.”
Scaroni’s querying of the economic viability of the project could suggest that Eni sees greater value in the leases it was awarded by the Cypriot government in January 2013 than it does in partnering with Turkish firm Çalık Holding to build and operate the pipeline to Samsun, a project that has an estimated price tag of up to $4bn.
Significantly though, the energy minister did not specify whether Eni would be frozen out of the two other operating projects it is already involved in: Blue Stream and the Baku-Ceyhan pipeline. The delay to the Samsun-Ceyhan project may not last long, however. Indeed, Yıldız said that Çalık could look for a new partner for the 555-km pipeline, which is planned to have a throughput capacity of 70m tonnes per year.
Turkey is keen to encourage energy routes that do not rely on tankers transiting the Bosphorus, wanting to reduce the number of vessels carrying hazardous cargo through the winding strait. Less often spoken of is the fact that Turkey cannot charge fees for use of the strait, one of the conditions imposed upon it after the Ottoman Empire’s defeat in World War One.
While the pipeline is expected to net Turkey billions annually, the current stand-off could significantly delay the financial benefits of the project. The government’s hard line over Eni and any other firms looking to invest in energy projects in offshore Cyprus could make potential investors in energy transit projects somewhat wary, raising the possibility of Turkey being bypassed by future developments.