Turkey's strategic location makes it a natural "energy bridge" between major oil producing areas in the Middle East and Caspian Sea regions on the one hand, and consumer markets in Europe on the other.
Turkey's port of Ceyhan is an important outlet both for current Iraqi oil exports as well as for potential future Caspian oil exports. Turkey's Bosporus Straits are a major shipping "choke point" between the Black and Mediterranean Seas. Finally, Turkey is a rapidly growing energy consumer in its own right.
Note: Information contained in this report is the best available as of August 2000 and can change.
Turkish oil consumption has increased in recent years, and this trend is expected to continue, with growth of 2 percent-3 percent annually in coming years. Oil provides nearly half of Turkey's total energy requirements, but its share is declining (as the share of natural gas rises).
Around 90 percent of Turkey's oil supplies are imported, mainly from the Middle East and Russia. Turkish imports from Saudi Arabia have declined in recent years as Iraqi oil supplies have gradually increased. Turkey's port of Ceyhan is a major outlet for Iraqi oil exports.
Turkey's oil production is accounted for primarily by three companies -- the Turkish State Petroleum Company (TPAO), and foreign operators Royal Dutch/Shell (Shell) and ExxonMobil.
TPAO alone accounts for nearly 80% of the country's oil output (currently running around 69,000 bbl/d, down from 90,000 bbl/d in 1991). Oil fields in the country's southeast (specifically the Hakkari Basin, Turkey's main oil producing area) are generally small, old, and expensive to exploit.
In addition to the Hakkari Basin, Turkey contains oil prospects in the Aegean Sea, and in other oil basins in the south and southeast.
In September 1994, TPAO became part of the Azerbaijan International Operating Company (AIOC), a consortium of foreign oil companies in a multi-billion dollar oil production-sharing agreement with Azeri state oil company Socar to develop three offshore oil fields in the Caspian Sea region.
TPAO holds a 6.75 percent share in AIOC. TPAO has established an oil exploration company in Kazakhstan (Kazakhturkmunay)as well, and also is active in other areas of the world, including the Middle East and North Africa.
For several years, it has been reported that as much as 70,000 bbl/d of fuel and fuel products were being smuggled into Turkey via tanker truck, mainly from northern Iraq. This "border trade" costs the Turkish treasury millions of dollars in lost tax revenue.
In March 2000, Turkey's National Security Council (MGK), concerned at lost tax revenues as well as harm to state companies Poas and Tupras, imposed controls on petroleum product smuggling from Kurdish areas of northern Iraq, Iran, Georgia, the Azeri enclave of Nakhchevan, Syria, and Bulgaria.
A previous crackdown on smuggling in May 1999 reportedly had little effect. As of July 2000, oil product smuggling into Turkey reportedly had been cut in half.
Oil and gas transportation is a crucial and contentious issue in the Caspian Sea/Central Asia regions. Turkey and the United States have been pressing for a "Western route" pipeline that would carry oil from Azerbaijan's port of Baku through Azerbaijan and Georgia and then across Turkey to Ceyhan, at an estimated cost of $1.8-$4 billion.
This would be a major part of the proposed "Eurasian Corridor" to bring Caspian oil and gas to international markets via Turkey, and to bypass Russia and Iran. Russia, on the other hand, is promoting a "Northern route" across the Caucasus to the Russian Black Sea port of Novorossiysk.
From there oil, would be transported through the Bosporus or via a proposed pipeline from Bulgaria to Greece and the rest of Europe. Other proposals include a pipeline to Georgia's Black Sea port of Supsa, and a swap arrangement with, or export pipeline through, Iran.
In November 1999, at the OSCE summit in Istanbul, the presidents of Turkey, Azerbaijan, and Georgia signed a legal framework intended to allow Baku-Ceyhan to begin.
Also, in March 2000, Azerbaijan reportedly reached a compromise agreement with Georgia on transit fees. One advantage which Baku-Ceyhan has over other potential options for Caspian oil transport is that Ceyhan can handle Very Large Crude Carriers (VLCCs), while the ports of Supsa (Georgia) and Novorossiysk (Russia) are restricted to smaller LR-2 tankers which can transit the Bosporus.
Another advantage for Ceyhan is that it can remain all year, compared to Novorossiysk, which is closed up to 2 months per year due to bad weather.
The cost of the Baku-Ceyhan route has been a major issue. Despite Turkey's assertions that Baku-Ceyhan would be economically viable, members of the AIOC have delayed choosing a route.
A key question is the volume of oil available for the pipeline; as of 1999, AIOC's production was 115,000 bbl/d, compared to the 1 million bbl/d which some analysts have cited as needed to make the pipeline economical.
AIOC has stated that the planned Phase-1 program to develop the Azeri-Chirag-Gunashli block, which will increase production to 400,000 bbl/d, will not begin until mid-2004-2005. In effect, full-scale development of the AIOC project will be delayed until a decision has been made on export options, including whether this oil will be exported via the proposed Baku-Ceyhan pipeline.
Refining and other downstream operations in Turkey are dominated by partly-state-owned company Tupras, which has four main refining complexes: Batman in the southeast, Aliaga near Izmir, Izmit near Istanbul (the country's largest refinery), and the Central Anatolian Refinery at Kirikkale near Ankara. In 1998, Tupras' market share of the Turkish refining sector was around 85 percent.
Tupras has a modernization program designed to switch output at its refineries towards lighter products. Turkey's sole private refinery is Atas, near Mersin on the Mediterranean coast, a joint venture of Mobil (51 percent), Shell (27 percent), BP Amoco (17 percent), and local company Marmara Petrol ve Rafineri Isleri AS (5 percent).
Current gas production (20 billion cubic feet -- Bcf -- from 14 gas fields) in Turkey meets around 5 percent of domestic gas consumption requirements. Major gas producers in Turkey include Arco, TPAO and Shell. Marmara Kuzey (North Marmara), which came onstream in May 1997, is the country's largest non-associated gas field.
Marmara Kuzey is located offshore in the Thrace-Gallipoli Basin of the Sea of Marmara. Most Turkish associated gas is reinjected into oilfields as part of an Enhanced Oil Recovery (EOR) system.
Turkish natural gas demand is projected to increase rapidly in coming years, with the prime consumers expected to be power plants and industrial users. Turkey consumed 370 Bcf of natural gas in 1998, accounting for around 13 percent of Turkey's total energy consumption, and nearly all imported.
Many analysts are skeptical of Turkey's rapid gas demand growth forecasts, in part over Turkey's financial ability to construct gas-fired power plants, as well as new pipelines and/or liquefied natural gas (LNG) facilities, quickly enough. Meanwhile, Turkey is pressing ahead with plans to liberalize the country's gas sector.
Natural gas is Turkey's preferred fuel for new power plant capacity to be added in coming years. This makes sense for Turkey for several reasons: environmental (gas is cleaner than coal, lignite, or oil); geographic (Turkey is close to huge amounts of gas in the Middle East and Central Asia); energy security (Turkey is seeking to diversify its energy import sources); economic (Turkey could offset part of its energy import bill through transit fees it could charge for oil and gas shipments across its territory); and political (Turkey is seeking to strengthen relations with Caspian and Central Asian countries, several of which are potentially large gas exporters).
The bulk of Turkish gas demand currently is met by imports, around 70 percent coming from Russia via the trans-Balkan pipeline, and the other 30 percent mainly from Algeria and Nigeria via LNG tankers. Turkey would like to diversify its gas import sources, and has signed deals with a variety of countries, including Egypt, Iran, Iraq, and Turkmenistan.
On December 15, 1997, Russia and Turkey signed a 25-year deal under which the Russian gas company, Gazprom, would construct a new gas export pipeline to Turkey for delivery of more than 500 Bcf of natural gas annually, with initial deliveries possibly starting in 2002. The $2.7-billion, 758-mile "Blue Stream" dual pipeline would run from Izobilnoye in southern Russia, to Dzhugba on the Black Sea, then under the Black Sea for about 247 miles to the Turkish port of Samsun, and on to Ankara.
When completed, possibly by 2002/2003 or earlier (Gazprom has stated that deliveries could begin in 2001), the Blue Stream lines will be the world's deepest underwater gas pipelines, and will require complex engineering to construct the pipeline (including a corrosive environment due to high concentrations of hydrogen sulfide at the bottom of the Black Sea).
Some analysts continue to believe the Blue Stream will not be built because it is too expensive and technically difficult, although in March 2000, the two main companies involved in Blue Stream -- Russia's Gazprom and Italy's ENI SpA -- announced that they had arranged $1.6 billion in financing for the project. Eventually, the Blue Stream project could be extended onwards to other Mediterranean countries, such as Lebanon, Syria, and Israel.
(Turkey and Greece also reportedly have discussed linking their gas grids). As of mid-2000, Turkey and Russia had begun construction on above-ground sections of the pipeline.
In June 2000, Turkey's parliament ratified an annex protocol to the Blue Stream agreement, granting tax exemptions to investors in the project. Turkey's overland section of Blue Stream is expected to cost $339 million.
A controversial plan to supply Turkey with gas is a swap deal between Turkmenistan, Iran, and Turkey, signed in 1996. Under this arrangement, Turkmenistan would export gas to Iran, which would then pump its own gas to Turkey.
In January 2000, Turkey and Iran announced agreement on postponing the gas deal's start to July 2001, more than a year behind schedule, due to lack of completion of two pipeline stages in Turkey (Iran announced in December 1999 that its portion of the project was ready).
The 46-inch 160-mile (260-km) line runs from Dogubeyazit, on the Iranian border, to Erzurum, Turkey.From Erzurum, the pipeline is to extend to Sivas, and then on to Ankara. Iranian gas used to supply the pipeline will come from the non-associated Kangan fields as well as from associated sources around Ahwaz. In late July 1999, the Turkish Treasury signed a $131-million loan with Japan's Marubeni Corp.
and Germany's WestLB to finance part of a gas pipeline in eastern Turkey (from Erzurum to Imranli) to transport either Turkmen or Iranian gas.
Turkey's gas deal with Iran has brought criticism from the United States for political reasons. However, because Iran will only receive transit fees for moving the gas to Turkey, the United States determined that Turkey was not in violation of the Iran-Libya Sanctions Act (ILSA), which imposes sanctions on companies investing more than $20 million in Iran's oil and gas industries.
Meanwhile, Turkey has steadfastly maintained that it needs to diversify its suppliers of natural gas away from Russia and that Turkmen and Iranian gas represent economically sound alternatives.
On May 21, 1999, Botas (Turkey's state gas generation and transmission company) and Turkmenistan signed an agreement on building a $2-$2.4 billion, 1,050-mile, gas pipeline from Turkmenistan, underneath the Caspian Sea, across Azerbaijan and Georgia (both of which would collect transit fees), and on to Turkey.
Gas deliveries of 565-1,060 Bcf per year could begin by 2002 or 2003, with additional gas possibly being sent onwards to Europe. The consortium is led by U.S. company Bechtel and including General Electric, Shell, and PSG International.
In mid-July 1999, a top Turkish energy official stated that the Trans-Caspian Pipeline (TCP) from Turkmenistan was still the preferred option for Turkey despite a large (as high as 35 trillion cubic feet -- Tcf) recent natural gas find in Azerbaijan's Shah Deniz field, which is located hundreds of miles closer to Turkey than Turkmenistan (Shah Deniz could be expensive to develop, but also could be linked into the TCP system; Azerbaijan has demanded half the TCP's capacity for Shah Deniz gas, while Turkmenistan has offered only one-sixth).
Turkish government officials previously have stated that a gas pipeline from Turkmenistan is a top priority, although it would compete against the proposed Blue Stream project, as well as against possible gas supplies from Egypt, Iran, and now Azerbaijan (gas deliveries from Shah Deniz -- 51 percent controlled by BP Amoco and Statoil -- could begin as soon as 2002/2003, according to BP Amoco).
Turkey claims that its gas demand growth will be fast enough to support multiple pipelines, but many analysts believe Turkey's forecasts are unrealistic, and that only one of the main options (i.e., Blue Stream, TCP, Shah Deniz) -- can be supported for some time. Meanwhile, progress on the TCP appears stalled at the moment, with the international consortium essentially having suspended operations for now, while Blue Stream appears to be proceeding.
On July 31, 2000, Shell said that time was running out for Turkmenistan if it wanted to proceed with the TCP, and that the more convenient gas supplies of Shah Deniz in Azerbaijan could supplant Turkmen gas.
Turkmen President Niyazov has insisted on upfront payment of hundreds of millions of dollars from the international consortium, and recently has discussed the possibility of exporting more of its gas to Russia.
Egypt is another possible source of gas for Turkey, either via an offshore pipeline which also would deliver gas to the Gaza Strip, Israel, Egypt, Lebanon, and Syria, or via LNG tankers, possibly beginning in 2004. This project would include construction of a $1.2-billion liquefaction terminal near Port Said on the Mediterranean coast, and a regasification facility at Izmir in Turkey.
Egypt and Turkey signed a preliminary agreement for LNG exports in 1996, but analysts have raised serious questions about whether the project is economically feasible.
In February 2000, the vice-chairman for natural gas at the Egyptian General Petroleum Company, Mahmoud Latif Amer, said that gas exports to Turkey would begin in 2004, but that a decision between pipeline and LNG options had not been made (given sufficient future demand, both export routes to Turkey theoretically could go forward).
New LNG terminals in Turkey are being planned, including one adjacent to the existing Ereglisi combined cycle gas turbine power station (which began operations in June 1999), a regasification terminal at Aliaga (near Izmir on the Aegean Sea), an LNG terminal at Iskenderun on the Mediterranean, and even the world's first floating LNG terminal (Botas reportedly has issued a tender for such a plant to be located at Izmit Bay, near Istanbul, for the next two winters).
Source:United States Energy Information Administration.
© 2000 Mena Report (www.menareport.com)