HIGHLY CHARGED

Turkey 2011 | ENERGY & MINING | REVIEW: ENERGY

Seen as one of the most promising areas for development, Turkey's energy sector looks to attract private sector investment to meet growing domestic demand, while developing its role as an energy transit corridor for the region.

Turkey's energy sector has become one of the fastest growing in the world as a result of liberalization and in parallel, economic growth. The country is, however, a major importer of hydrocarbon energy, while its installed capacity of 50,000 MW has not developed as quickly as demand. The government targets 96,000 MW by 2020, and renewable energy sources are thus beginning to play a more prominent role in Turkey's generation mix. The government's plans for two nuclear plants have, however, run aground following the 2011 Fukushima incident in Japan. According to the Turkish Electricity Transmission Company (TEİAŞ), the demand for electricity will increase at an annual rate of 6% until 2023, with Taner Yıldız, Minister of Energy and Natural Resources, calling for yearly investment of between TL7 billion and TL8 billion in order to satisfy growing demand.

Oil consumption in 2009 was approximately 580,000 bbl/d in Turkey, having slumped from 690,000 bbl/d in 2007 due to the global financial crisis. Turkey imports 90% of its oil requirements, and the country is also a net importer of gas, with 1.3 trillion cubic feet (Tcf) consumed in 2008 and production coming in at just 25 billion cubic feet (Bcf) in 2009. The fuel retail market is big business in Turkey, highlighted by the presence of major foreign firms and large investments, such as OMV's purchase of Petrol Ofisi in 2010 for €1 billion.

The country is also playing a vital role on the East-West energy corridor, leveraging its position close to 71.9% of the world's proven gas reserves and 72.7% of its oil reserves through existing pipelines and plans for the development of the Nabucco gas pipeline, linking Central Asia to Europe and boosting Europe's energy security.


GAS

The consumption of natural gas has increased lately, hitting 1.3 Tcf in 2008, and showing no signs of slowing. Demand is being driven by industry, as it is the preferred fuel for industrial use as well as power generation. Approximately 53% of natural gas was used for power generation, 22% for residential use, and 25% for industrial use in 2009. The state-owned Petroleum Pipeline Corporation (BOTAŞ) is the main gas supplier, covering 66 provinces at the end of 2009, up from 63 at the end of 2008.

Turkey is a minor producer of natural gas, with total production estimated at only 25 Bcf in 2009. Gas production is mainly carried out by three companies: the Turkish Petroleum Company (TPAO), BP, and Shell. Of the 14 gas fields in Turkey, the largest is Marmara Küzey, an offshore field in the Sea of Marmara. The Black Sea also offers potential for gas, and in 2007, Toreador, a US-based producer, began operations in the Akçakoca gas field. Additional phases of Black Sea projects are expected to come online in the second half of 2011.

The majority of Turkey's gas imports come from Russia, with the gas travelling via the Blue Stream pipeline that crosses the Black Sea. The country also imports gas from Iran and Azerbaijan, and liquefied natural gas (LNG) from Algeria and Nigeria. Although BOTAŞ dominates the sector, the majority of the market is open to competition, with market liberalization leading to Shell becoming the distributor of a part of the volumes imported from Russia in 2007.

OIL

Although it imports 90% of its oil requirements, Turkey's domestic sector is huge. Of the 580,000 bbl/d consumed in Turkey in 2009, 90% came from abroad, mainly from Russia, Iran, Saudi Arabia, Libya, Iraq, and Syria. The country has estimated proven oil reserves of 270 million barrels, according to the Oil & Gas Journal, with production in 2009 of 53,000 bbl/d. Activity is, therefore, on the rise in order to better utilize the country's reserves.

The majority of Turkey's oil reserves and production take place in the Hakkari Basin. Additional reserves may be located under the Aegean Sea; however, no extensive exploration has been carried out due to territorial disputes with Greece. The Black Sea is now a region showing potential, and state-run TPAO has increased its offshore exploration activities. According to TPAO, up to 10 billion barrels of oil could be contained in offshore deposits, and a number of foreign companies have joined the hunt by forming joint ventures with TPAO, including ExxonMobil and Chevron. Currently, 70% of domestically produced oil is obtained by TPAO, whereas the remainder is mainly produced by Shell. Directly competing with the private sector, TPAO is the main exploration and production entity in Turkey, and has preferential rights, with any foreign involvement in upstream activities limited to joint ventures with TPAO. The presence of an increasing foreign presence in the retail fuel sector is also positive according to Atıf Ketenci, Chairman of the Fuel Oil Stations, Oil and Gas Companies Employers' Union (TABGIS). “We all have been educated by their presence," he said in 2010. Petrol Ofisi, controlled by OMV after a €1 billion buyout of Doğan Holding's controlling stake, has 3,140 fuel stations in the country and a market share of 32.8%. Second is Shell and Turcas, with a market share of 18%, with BP representing 10% of the sector and Total Oil 5.1%. Ketenci also commented that “OMV would bring important changes to the Turkish market," and as the sector leader, with a 22.9% share of gasoline, 24.8% share of diesel, 25.2% of fuel oil, 95.5% share of jet fuel, and 100% share of maritime fuel, OMV is set to revolutionize the role of distributors.

HUB

Turkey has concentrated its efforts on the transportation of Caspian oil and gas reserves to Western markets in the framework of the East-West Energy Corridor concept. Linking Central Asia to Europe, it is seen as essential for regional integration and European energy security.

The major component of the corridor is the Baku-Tbilisi-Ceyhan (BTC) pipeline, and Ceyhan, on Turkey's Mediterranean coast, is developing as a major port hub for oil from all over the Middle East and the Caucasus. Further development is underway at Ceyhan, including industrial zoning and the construction of power plants and refineries. As Sami Habbab, Board Member of Delta Petrol, told TBY, “Already the flow of oil projected for Ceyhan is 250 million tons per year, which is huge. That volume in itself is enough to make it a hub." The BTC pipeline can transport 1 million bbl/d and is 1,760 kilometers long, the second longest in the world. Under the Aktau-BTC agreement, oil is also transported across the Caspian from Aktau in Kazakhstan and pumped into the BTC pipeline. The second major component of the corridor is the Baku-Tbilisi-Erzurum (BTE) natural gas pipeline, which has a capacity of 1.05 Tcf. This pipeline is also planned to form part of the Trans-Caspian Natural Gas Project, tapping into the world's fourth largest natural gas reserves located in Turkmenistan, as well as those in Kazakhstan.

Other major gas pipelines include the Blue Stream pipeline, connecting Russia to Turkey via the Black Sea, the Iran-Turkey pipeline, the Romania-Bulgaria pipeline, and the Bursa Komotini pipeline, which connects Turkey to Greece. Turkey is also set to develop its role as a gas hub, linking the Caspian and Middle East with consumers in Southeastern and Central Europe with the proposed Nabucco pipeline project. The pipeline is planned to run approximately 3,000 kilometers from Erzurum in Turkey to Baumgarten in Austria, linking into the existing BTE pipeline. If Turkey realizes these projects, it will become Europe's fourth main artery of energy supply after Norway, Russia, and Algeria.

COAL

The Turkish economy is still heavily reliant on coal, as 30% of total primary energy consumption is derived from the organic rock. Turkey has total recoverable coal reserves of around 2.6 billion short tons, of which 583 million short tons (MMst), or 23%, is anthracite and bituminous (hard coal). In 2009 Turkey produced around 80 MMst of coal, with the consumption rate coming in at 102.5 MMst, making the country a net importer. Turkish Hard Coal Enterprises (TTK) dominates the sector, mining mainly in the Zonguldak region along the Black Sea. Lignite mining is handled by Turkish Coal Works (TKİ), working mainly in Southeast Anatolia. As coal-fired power stations remain an important energy source, there is increasing interest in exploiting Turkey's domestic coal reserves even further over the coming years.

ELECTRICITY

After having experienced a decline in electricity demand over the global financial crisis, a 4% increase was anticipated in 2010, with the country's electricity consumption reaching approximately 202 billion kilowatt hours (kWh). Over the same year, Turkey's primary energy generation also rose slightly to 29.2 million tons of equivalent oil (MTEP). In that respect, 72.4% of domestic demand was met through imports. It is in this context that Minister Yıldız has called for a yearly increase of between 2,500 MW and 4,000 MW in the country's installed generation capacity in order to meet the needs of a vastly expanding urban population and broadening industrial base.

The public sector share in electricity generation decreased from 78% to 26% in 2009, making the sector one of the most attractive areas for investment. In terms of production, state-owned Electricity Generation Company (EÜAŞ) currently owns 54% of total installed capacity, whereas it operated 91% before 2001 when the sector took the first steps toward liberalization. Other big players include Enka, Aksa, and İsken. The top 15 producers have a total capacity of 37,767 MW, generated by hydro, thermal, and wind technology. The country's total installed generation capacity is 50,000 MW. Conventional thermal sources make up the largest share of supply, and hydroelectricity comprises almost all of the remainder.

Sector restructuring continues following the March 2001 electricity law, which split up the Turkish Electricity Generation and Transmission Corporation (TEAŞ) into generation, transmission, distribution, and trade companies. Full privatization is expected to be complete by 2014. The final state-owned power distribution network was privatized in 2010, raising more than $5 billion. Privatization, it is hoped, will increase investments and generation capacity in order to meet rising demand. EÜAŞ currently owns plants totaling 21,000 MW of the country's total 50,000 MW of power, and around two-thirds of this will be privatized. With the exception of 22 strategic dams, the country is set to privatize most of its electricity generation plants. Among the assets up for privatization following the sell off of the distribution grid include 41 thermal and hydro power plants, representing 13,000 MW of installed power. Other plants currently being run on the build-operate-transfer model may also be privatized, and when electricity generation privatizations are complete the state will hold hydro generation plants with a capacity of 7,818 MW.

RENEWABLES & NUCLEAR

Wind power is gaining significance in this context, with 20,000 MW of generation capacity targeted by 2020, representing 20% of the total 96,000-MW target. At the forefront of the revolution is Alstom, which already has its components in 50% of Turkey's installed generation capacity. According to Adil Tekin, Country President of Alstom, the company is “planning to take a measured share of this [demand for wind power]". Wind contributed 1.1 GW to the country's total generation capacity of 46.5 GW. In 2009, 343 MW of new wind energy capacity was added, a 75% year-on-year increase, and at the end of 2010 total installed wind power capacity was estimated at 1,265 MW. Alstom, in a deal with Turkish Eolos Wind Energy Generation, has agreed to install and commission a 24 MW wind farm in Şenköy, which will have an estimated annual production of about 83 GWh.

In 2010, the installed geothermal electricity generation capacity was 100 MW, while direct use installations were approximately 795 MW in size. Turkey is also a significant country for the development of solar energy, with an annual total installed capacity of 7.8 GW. Hydroelectricity is also attracting attention, with the country boasting 128 billion kWh per year of potential. About 35% of that potential is used to generate electricity, with more plants under construction. Turkey's current production rate is 46 billion kWh per year, and both the private and public sectors are involved.

The nuclear issue has also reached prominence, with negotiations having been underway with Russia and South Korea on two possible nuclear plants. Akkuyu seems the most likely location for the Russian plant, with a preliminary plan for a four-reactor facility at a cost of $20 billion, run by Russia's Rosatom Corp, having being drawn up. A second nuclear plant in Sinop was planned to have been built by South Korean concerns, yet talks stalled. Further talks with Japanese interests were broken off after the Fukushima disaster, and this also seems to have put the brakes on both nuclear plants for the time being.