POWERING TOMORROW

Turkey 2012 | ENERGY & MINING | REVIEW: ENERGY

Turkey's energy sector has evolved from a drain on the current account balance to an area ripe for investment, as robust demand growth, high potential for renewable energy development, and a globally vital role as an oil and gas transit corridor combine.

Economic growth and market liberalization have made Turkey's energy sector one of the fastest growing on the planet. While far from meeting its own hydrocarbon needs domestically, the country has diversified its energy trading partners and is investing in a wider variety of renewables, as well as nuclear power. Turkey's geostrategic location has also made it a vital energy bridge between Asia and Europe, giving it access to a greater amount of fuels and greater regional influence.

TRANSIT

The country's location makes it a linchpin of the global energy economy. Neighboring states control 65% of the world's proven oil reserves and 71% of natural gas reserves, making the Anatolian peninsula a point of confluence for westward energy flows from Russia, Central Asia, the Middle East, and the Caspian region. Its current energy policy aims to expand pipeline, waterway, and port infrastructure to create stable and diverse connections between eastern producers and western consumers.


“Turkey is becoming a remarkable energy trade hub for supplies," Minister of Energy and Natural Resources Taner Yıldız told his counterparts at the International Energy Forum in Kuwait in March 2012. Both pipelines and tanker traffic give Turkey strategic leverage over the global energy market. In this respect, Turkey strives to maintain regional stability and prosperity, supporting initiatives that are “mutually beneficial and based on 'win-win' principles."

Major oil pipelines include the Baku-Tbilisi-Ceyhan (BTC) and Kirkuk-Ceyhan, which together have the capacity to transport 2.8 million barrels (bbl) per day to world markets. Currently under construction, the Samsun-Ceyhan oil pipeline will connect the Black Sea to the Mediterranean and make the port of Ceyhan a major export and processing terminal.

European and domestic demand for natural gas has also spurred pipeline development. The $7 billion, 2,000 kilometer Trans-Anatolian Pipeline (TANAP), will have an annual capacity of 570 billion cubic feet (bcf) of Azerbaijani gas and could be expanded to transport other sources. TANAP will be 80% owned by the State Oil Company of Azerbaijan Republic (SOCAR) and 20% by Turkey's BOTAŞ Petroleum Pipeline Corporation and will broaden Europe's choice of suppliers when completed in 2018.

Ankara's energy transit concerns go beyond pipelines. Significant spillage from the 5,500 tankers that navigate the Bosphorus strait annually would bring the regional economy to a halt. Thus, Prime Minister Erdoğan has backed plans to build Channel Istanbul, a 50-kilometer bypass that would alleviate shipping traffic and mitigate environmental threats to the historic waterway, transforming the city into two peninsulas and an island. The $10 billion project will take eight years to complete and will change the nature of shipping in the entire region.

GAS

Over the last decade, Turkey has been the one of the fastest growing natural gas consumers in the world. Industrial demand has sparked a 194% increase in consumption since 1999, peaking at 1,346 bcf in 2011, according to International Energy Agency (IEA) estimates. Yet domestic production satisfies only a small fraction of demand—the Turkish Petroleum Corporation (TPAO), BP, and Shell pulled just 24 bcf in 2011 from 14 gas fields, the largest at Marmara Küzey in the Sea of Marmara. Offshore exploration in the Black Sea has so far produced few results.

Russia's Gazprom currently provides the bulk of Turkey's gas via the Balkans and to Anatolia through the Blue Stream pipeline under the Black Sea. Turkey supplements this supply with imports from Iran and Azerbaijan, as well as liquefied natural gas (LNG) from Algeria and Nigeria. Pipelines provided 79% of imported gas with 21% from LNG in 2010, according to the Energy Delta Institute. Azerbaijan's Shah Deniz II field will meet future demand as 212 billion of the 570 bcf that will pass through TANAP has been marked for Turkish use.

Under the Energy Market Regulatory Authority (EMRA), Turkey has undergone 10 years of successful market liberalization, while rapidly expanding the natural gas distribution system through private sector investments in new regions of the country. Investment in the sector is helping to bring gas to remote regions across Anatolia.

OIL

Oil consumption in Turkey continues to grow in line with the economy. According to the US Energy Information Administration (USEIA), demand peaked at 690,000 bbl/day in 2007 with consumption decreasing somewhat as a result of the global downturn and settling at 646,300 bbl/day in 2011. Turkey imports roughly 90% of its petroleum needs, forming the lion's share of its current account deficit, mainly from Russia and Iran, with additional imports from Saudi Arabia, Libya, and Iraq. Despite political differences regarding foreign policy, Syria, Russia, and Turkey's energy links remain unbroken.

As of 2011, estimates by The Oil & Gas Journal put proven domestic reserves at 270 million bbl and an output of 55,000 bbl/day. While much of this production takes place in the Hakkari Basin near Iran and Iraq, exploration in the Black Sea has piqued the interest of TPAO, which claims that billions of barrels may lie offshore, although initial drilling expeditions have disappointed. Shell and TPAO will also be exploring in the Mediterranean and southeastern onshore regions starting this year. Political disputes with Greece have so far prevented major exploration in the Aegean, but the mounting financial crisis may pressure political leaders to cooperate.

Turkey's upstream energy ambitions include investments in developing hydrocarbon assets beyond its borders. With offices in Turkey, the UK, and Iraq, Genel Energy has entered into production sharing contracts with the northern Iraqi leadership to explore and develop new fields. This deal, and others like it, will not only fuel regional growth, but also increase Turkish economic and political influence, according to Genel Energy CEO Tony Hayward. “Genel Energy has evolved to become an ambassador for Turkish business," Hayward told TBY. “Our Turkish heritage and support places us in a compelling position, and we believe that it will help us to access new opportunities in strategically selected regions, particularly… in the Middle East and North Africa." Downstream, Turkey's refineries can process up to 715,000 bbl/day, according to the USEIA, with the state-owned Turkish Petroleum Refineries Company (TÜPRAŞ) controlling about 85% of capacity. Turkey's refining and retail sector has undergone significant privatization in recent years, with majors such as Shell, Lukoil, and BP expanding in the market.

COAL

Despite progress in energy diversification, the Turkish economy is still dependent on coal as a fuel source. With total recoverable coal reserves of around 2.6 billion short tons (MMst), Turkey is a minor player in this sector. In 2010 Turkish mines produced approximately 80 MMst of coal, with the consumption rate coming in at 102.5 MMst. According to EURACOAL, Turkey's indigenous energy resources consist of mostly lignite, making it heavily dependent on imports from Russia. Turkish Hard Coal Enterprises (TTK) dominates the sector, mining mainly in the Zonguldak region along the Black Sea. Lignite mines, operated by Turkish Coal Works (TKİ), are found mainly in southeast Anatolia. Although Ankara will continue to fight CO2 emissions, the reality of Turkey's consumption trajectory indicates that coal will remain on a growth path over the short and medium term at least.

ELECTRICITY

In the commercial sector, the International Energy Agency (IEA) foresees a marginal fall in overall electricity demand growth from 7.4% between 2000 and 2007 to 4.1% between 2010 and 2017. This breaks down to a drop from 5.9% to 4.4% for the industrial sector, and from 6.2% to 6.1% in the residential sector. By current OECD standards, this rate remains quite high, making the sector attractive for investment. In 2010 Turkey's electricity production was 211,000 GWh gross from almost 45 GW of established capacity. Of this, 98,000 GWh (46%) came from gas (two-thirds of this from Russia, most of the rest from Iran), 55,000 GWh (26%) from coal, and 52,000 GWh (24.5%) from hydro. Annual per capita consumption has risen from 800 kWh in 1990 to about 2,200 kWh in 2010, according to the IEA, a reflection of the tremendous economic development the country has undergone.

RENEWABLES

Thanks to its geographic location, Turkey has significant renewable energy potential with an abundance of hydro, wind, solar, biomass, biogas, and geothermal sources. Investment-friendly legislation, technology imports, and World Bank funding will create a $40 billion renewable energy market in 2012, according to the US Foreign Commercial Service, priming Turkey to become a global leader in renewables. In 2011, 19.56% of primary electricity was generated by renewable assets in Turkey. That same figure, according to Eurostat, was just 17% in the EU. Turkey's five-year clean energy investment growth rate in the 2004-2009 period was the highest in the G20.

Plans for nuclear power are a key for sustained economic growth. Turkey aims to build at least 23 nuclear facilities by 2023, according to the Ministry of Energy and Natural Resources, which states that the Fukushima incident has not affected the decision to move forward on nuclear. Russia's Rosatom will build a $20 billion plant at Akkuyu with a total output of 4,400 MW, which will go fully online in 2019.