Turkey: Meeting energy demands

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Faced with rising energy consumption, Turkey’s government has moved to meet growing demand by sealing a key gas pipeline deal with neighbouring Azerbaijan and stepping up efforts to diversify its power sources away from hydrocarbons imports.

In late June, Turkey finalised an agreement to construct a $7bn Trans-Anatolian natural gas pipeline (TANAP) that will carry gas from Azerbaijan’s Shah Deniz field to European markets. The pipeline will provide Turkey with access to approximately 6bn cu metres of gas each year.

Speaking at the signing ceremony, Prime Minister Recep Tayyip Erdoğan highlighted the benefits that the pipeline would bring, saying: “We firmly support the southern natural gas corridor projects that envisage transferring natural gas from the Caspian basin and Central Asia to Europe via alternative routes, in order to provide our own energy supply security and to contribute to the energy supply security of Europe.”

Construction work on the pipeline is set to begin in early 2014 at the latest, with the launch of the first phase of operations expected to coincide with the Shah Deniz field coming on-stream in 2018. Together with gas transportation facilities, TANAP will also have the capacity to accommodate gas from other parts of Azerbaijan and Turkmenistan.

The pipeline deal is a major boost for Turkey, which has struggled in recent years to meet its ever-expanding energy needs. At the Fifth Turkey Energy Forum last November, Erdoğan confirmed that the country’s energy demands were expected to grow by 6% annually until 2020.

Turkey’s fragile energy security status was evident most recently in its struggle to comply with the recently imposed US sanctions on Iranian oil. Bad weather last winter added to the problems, producing a spike in demand for gas, which coincided with disruptions in deliveries of natural gas from Iran and Azerbaijan.

The government is exploring a number of initiatives in its bid to meet rising demand and reduce dependence on Iranian oil. In June, the minister of energy and natural resources, Taner Yıldız, announced that the country had begun talks with Saudi Arabia to explore purchasing oil long term. The country’s sole oil refiner Tüpraş also agreed to buy 1m tonnes of oil from Libya as a one-time purchase while exploring possible future cooperation with the country.

In a separate move, Yıldız announced last month that Turkey planned to construct 23 nuclear power plants by 2023 as part of a bid to generate more of its own energy.

In addition, to strengthen the domestic coal industry the government recently introduced an incentive scheme under which Turkish coal will be offered free to major investors for the next 30 years, provided it is used for power generation.

Yıldız highlighted the importance the government attaches to coal as a source of energy at a June signing ceremony in Ankara for the leasing of a 600-megawatt (MW) coal plant that is set to be built in the southern province of Adana. “We can generate energy from natural gas, water, sun and wind,” he said. “However, we attach more significance to coal.”

While energy provision presents a number of challenges for Turkey, it is also making a significant contribution to the country’s economic growth. In the first quarter of 2012, Turkey’s economy expanded by 3.2%, with the energy sector recording the highest growth rate of 8.4%, data from the Turkish Statistics Institute showed.

Turkey’s energy sector is already attracting the attention of key international industry players. South Korean firm SK Gas is keen to tap opportunities in the liquefied petroleum gas segment, while the Portuguese energy company EDP is looking to capitalise on Turkey’s vast wind energy potential, regional media has reported. The country’s promising renewable segment has also generated support from the European Bank for Reconstruction and Development (EBRD), which recently announced a new financing package of €50m to İşbank for on-lending to local private companies investing in mid-size sustainable energy projects. The initiative forms part of the EBRD’s €700m mid-size Sustainable Energy Financing Facility, a key component of the EBRD’s support of Turkey’s long-term energy strategy.

There is vast potential in Turkey’s energy sector. Oil and gas currently make up 59% of energy supplies, and gas accounts for 50% of Turkey’s electricity generation, but Turkey has the potential to generate up to 90-100bn kilowatt hours (kWh) from hydroelectric sources, 120bn kWh from wind farms, 5bn-16bn kWh from geothermal power, 380bn kWh from solar energy, 35bn kWh from biofuel plants, and 108bn-116bn kWh from lignite power stations if it successfully attracts the necessary investment, research from the Turkish Union of Engineers and Architects’ Chambers shows.

The figures give a clear indication that as Turkey’s energy demands continue to rise, so too do the investment opportunities in both traditional and renewable segments.

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