Turkey: The Prospect Of Becoming International Energetic Centre

TURKEY: THE PROSPECT OF BECOMING INTERNATIONAL ENERGETIC CENTRE
Sargis Harutyunyan

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19 March 2009

According to the special report "Turkey’s Energy Strategy"1 presented
by the Ministry of Foreign Affairs of Turkey in 2008, this country is
in close vicinity of 72,7% of proven oil reserves and 71,8% of proven
natural gas Taking into account the well-known geographic advantages
of Turkey it becomes clear which are the strategic objectives of
that country.

Though in previous years there a lot of work was done to
make Turkey the international energetic centre and the oil
pipeline "Baku-Tbilisi-Ceyran" which was opened in 2006-2007 and
"Baku-Tbilisi-Erzurum" gas pipeline and Turkey-Greece Interconnector
are first of all to serve international projects, but there are serious
reasons to believe that the main developments concerning that issue
are still to come.

Even today there are several factors, which speak to the tangible
growth of the role of the Turkey as the intermediary country in the
international energetic system.

Mainly after the Russian-Georgian war and recent gas conflict between
Russia and Ukraine European states began to take more seriously the
idea of getting Middle East, Caspian and Central Asian utilities
through the territory of Turkey. For example, in the issue of
natural gas the Europeans suppose that they have three alte rnatives
to Russia, i.e. Norway, Algeria and Turkey2, but even today it is
clear that the first two are not simply able to supply the necessary
amount of gas, so that it would efficiently lessen the dependence on
"Gazprom"3. Meanwhile, in the line of Turkey they get the access
to almost the half of the world’s proven gas reserves4. Of course,
in the past the Turkish direction has also been topical for Europe
but the new item is that now they reconsider the time schedule and
we are still to see the new indices5.

The second important factor is the American-Iranian and
European-Iranian negotiations and the end of the Iraqi campaign of
the US, which is planned for 2011. In case if those two processes
have a successful result European consumers may get the access to
two countries (Iran and Iraq) with reach utilities. Together those
countries possess 20,5% of world proven oil reserves and 17,5%
of proven gas reserves6. But the point is that for Europe and the
United States Turkey, in fact, is the only convenient option for the
transportation of that oil and gas to the European Union and to lessen
its dependence on Russia. For example the aim to reach the agreement
in strategic sphere of energy must be regarded as one of the reasons
of the current negotiations between the US and Iran. Energetic is
the only sphere, perhaps, which creates an opportunity for serious
agreements between Iran,20the USA and Europe.

And finally, the third factor is the aspiration of Kazakhstan and
mainly of Turkmenistan7 to enter western markets. Though till now
Russia has managed successfully to keep its control over energy
capabilities of Central Asian countries, one should not exclude
that the "opening" of Iran will create an opportunity for the US and
Europe to get to the energy resources of Central Asia. This is still
insuperable factor for Washington and Brussels the Azerbaijani-Caspian
and Pakistan-Afghanistan-Central Asia directions.

The aspiration of Turkey to become an international energetic centre
is not restricted to mainly energetic or financial aims. It is not a
mere chance that on January 2009 in Brussels during the talks with
the spokespersons of the EU on the possible accession of Turkey to
the European Union, the prime-minister Erdogan connected the issues of
the expediency of the "Nabucco", which will be built on the territory
of Turkey, and the accession of Ankara to the EU.

Of course, the problem of "Nabucco" can hardly have any essential
influence on the prospects of the accession of Turkey to the EU. It
seems unlikely that Ankara pins its hopes on it. This step by Erdogan
pursues the aim to show the approaches formed in the foreign policy of
Turkey while relating with the countries, which import energy carriers
and in the future with the countries, which sell those energy carriers;
to use the opportunities offered to an intermediary country.

If we try to formulate briefly that innovation, then Ankara intends
to bring the facilities of the country, which is an energetic center,
to the level of geostrategic position and military and political
capabilities, and this will only attach weight to the country in the
regional and global relations.

Though at present Turkey due to its inner capacities supplies only 30%
of its energy demand and the pattern of the main energy carriers are
as following:

The amount of the consumed, produced and imported oil and natural gas
in Turkey Oil, thousand barrels/ per day 1997 1998 1999 2000 2001 2002
2003 2004 2005 2006 2007 Con- sumption 630.58 629.07 626.53 666.88
618.62 657.73 644.97 661.37 659.33 677.62 690.55 Production 67.23
66.13 58.38 51.42 46.83 47.09 45.82 42.93 45.46 43.95 45.53 Import
563.35 562.94 568.15 615.46 571.79 610.64 599.16 618.44 613.87 633.67
645.02 The proven oil reserves of Turkey/ billion barrels 0.260 0.331
0.317 0.299 0.296 0.296 0.300 0.300 0.300 0.300 0.300

Natural gas: billion cubic meters annually 1997 1998 1999 2000 2001
2002 2003 2004 2005 2006 2007 Con- sumption 12.360 13.053 15.800 18.710
20.110 22.182 26.714 28.307 34.525 39.328 N/A Production 0.317 0.714
0.921 0.807 0.392 0.475 0.707 0.867 1.132 1.142 N/A Import 12.089
12.478 15.182 18.135 19.871 21.578 26.046 27.410 33.5 14 N/A N/A
The natural gas reserves of Turkey/ billions of cubic meters 11.142
11.035 11.821 11.214 11.071 11.071 10.714 10.714 10.714 10.714 10.714
Source:US Energy Information AdministrationO~I

There are at least two directions where Turkey tries to take over
the central role:

the import of the oil to the international markets The supply of Near
East or Caspian-Central Asian natural gas to the European Union The
decision of Ankara to initiate the development of nuclear energy,
perhaps, at the initial phase will have a local significance8, but
it should not be excluded that Turkey have a goal to take part in the
electric power buy and sell in the Central Asian and Balkan markets,
where almost in all the countries the economic growth dynamics can
be observed.

Oil One may say that Turkey has been involved in the sale of the
"black gold" since the beginning of the 20th century, when the Caspian
oil started to flow from the main oil terminal of the Russian Empire
Batumi through Bosporus and Dardanelles to the international market. In
the course of time the significance of the straits has grown and today
that dynamics keep going. Thus if in 1996 60 million tons of oil were
transported through Bosporus and Dardanelles then in 2006 the amount
of oil constituted 143.4 million tons. It is expected that this year
that number will vary between 190-200 million tons9.

But Ankara20started to think about the role of intermediary country
in the international oil market as far back as 1977, when "Kirkuk
(Iraq)-Ceyhan (Turkey)" oil pipeline was opened. The usage of the
pipeline was on the hold because of the war in Iraq in 2003. Later the
usage of "Kirkuk-Ceyhan" had been interrupted for many times because
of the attacks by Iraqi fighters. Though the technical feasibility of
the pipeline allows supplying 1.6 million barrels of oil, but at the
end of 2007 150-200 thousand barrels of oil were supplied to Turkish
seaport Ceyran. In 2008 that number had grown to 400 thousand. In the
near future, anyway, the pipeline can operate full out. On January 7,
2009 the minister of oil of Iraq Hussein al-Shahristani stated that
they were going to post an international tender for 9 biggest oil
pools and 2 biggest gas pools.

According to the presented calculations, if those gas pools start to
be used then daily oil production will rise from present 2.5 million
barrels to 6 million barrels in 4-5 years. Under such conditions
"Kirkuk-Ceyhan" oil pipeline will again operate full out.

As it is known, on July 13, 2006 in Ceyran the opening ceremony
of "Baku-Tbilisi-Ceyan" oil pipeline, which had been built since
the September 2002, took place. Though in August 2008 particularly
because of Georgian-Russian war the pipeline had to suspend its work
for about 20 days,20since the beginning of 2009 it had again started
to operate full out, providing 1 million barrels daily.

According to the memorandum of understanding signed by Italian "Eni"
and Turkish "Calik Energy" energetic companies on September 26,
2005, the parties initiated the construction of "Samsun-Ceyhan" oil
pipeline in 2007, which have to transit Russian and Caspian oil from
Samsun Black Sea port to Ceyhan. According to the plan the pipeline
will be ready in 2010 and its flow capacity will be about 1.5 million
barrels daily.

In accordance with the agreements between the minister of energetic
of Turkey Hilmi Guler and the minister of national infrastructure
of Israel Binyamin Ben-Eliezer, the parties made terms about the
negotiating on the construction of the oil pipeline from Ceyhan to
Israeli seaport Haifa10.

Though in recent period the relations between Turkey and Israel
deteriorated and there is no information about the results of the
negotiations, the fact is that neither of the parties stated about
the suspension of the programme.

Picture 1 Existing and planned big pipelines in Turkey

1. "Kirkuk-Ceyhan" oil pipeline, functions since 1977, maximal flow
capacity 1.6 million barrels daily.

2. "Baku-Tbilisi-Ceyhan" pipeline, functions since 2006, maximal flow
capacity 1 million barrels daily.

3. "Samsun-Ceyhan" pipeline, planned to start functioning in 2010,
maximal flow capacity 1.5 million barrels daily.

4. "Ceyhan-Haifa" pipeline, on the stage of negotiations.

5. At current moment about 3 millions barrels daily flow through
Bosporus and Dardanelles strait.

Serious investments are made in Turkey in the expanding of oil refining
capacities. According to the available programmes over the next few
years Turkey will double its capabilities in that sphere, mainly
expanding the capacities of the oil refineries in its Mediterranean
seaports (first of all in Ceyhan) up to 2 million barrels daily11.

According to the western sources if the aforementioned programmes are
implemented then Ceyhan will become one of the central points of the
oil market in the world and in accordance with some calculations it
will provide the transition of 5.5% of oil in the world12. According
to other data if all those programmes are implemented then in 2012 6-7%
of oil will flow through the territory of Turkey13.

Natural gas The achievements of Turkey in the sphere of natural gas
transition are even more impressive.

Since 2001 "Tabriz-Ankara" gas pipeline, which on average supplies
Turkey with 7.5 billion cubic meters of natural gas annually, has
been functioning. But in the recent period against the background
of the rapprochement of Turkey and Iran the active negotiations
are under way to supply Iranian gas through the territory of Turkey
to Europe and to 0D build on this purpose new Iranian-Turkish gas
pipeline. On November 17, 2008 after the memorandum of understanding
had been signed with the minister of oil of Iran Gholamhossein Nozari,
the minister of energetic of Turkey Hilmi Gulner stated, that Ankara
would invest about 12 billion in the production of gas on the 22nd,
23rd and 24th sections of the biggest "South Pars" gas field14 and
the construction of gas pipeline from Asaluyeh seaport, which is
situated on the Gulf coast, to Turkish Bazargan. The length of the
pipeline will be about 1.850km15.

Since the December 15, 2006 "Baku-Tbilisi-Erzurum" or South Caucasus
Pipeline, which annual transporting capacity is about 8 billion cubic
meters, has been functioning. It is supposed that this pipeline will
supply natural gas from Azerbaijan16 and, it is not excluded, also from
Kazakhstan and Turkmenistan17 to Turkish and then to European markets.

Ankara lays serious hopes especially on Turkmenistan. While
British Â"Gaffney, Cline & Associates LtdÂ" company was auditing
the general gas resources of Turkmenistan, on May 19-20, 2008 the
negotiations between the presidents of Azerbaijan and Turkmenistan
on the possibility of Turkmen gas transition to Turkey through the
territory of Azerbaijan took place in Baku.

In September, after the Georgian-Russian war, the minister of energetic
of Turkey Hilmi Guler and in October prime-minister Recep Tayyip
Erdogan visited Ashgaba t. On October 14, 2008 Â"Gaffney, Cline &
Associates LtdÂ" published the results of the audit: the general
amount of gas reserves in Turkmenistan was valued at more than 27.67
trillion. And on November 29 the tripartite negotiations between
Gurbanguly Berdimuhamedov, Ilham Aliev and Abdullah Gul took place;
again on the energetic issues.

"Tabriz-Ankara" and "Baku-Tbilisi-Erzurum" gas pipelines connect up
in Erzurum and they will be the main suppliers of "Nabucco" pipeline,
which is going to be built in the near future18.

"Nabucco" will connect Erzurum through the territories of Bulgaria,
Romania and Hungary with the biggest Austrian "Baumgarten" gas
centre. After the first stage of the construction of the gas pipeline
in 2014 it can supply about 8 billion cubic meters, and from 2019,
when the alleged construction of the second stage is finished19,
the discharge capacity of "Nabucco" will be 31 billion cubic meters
annually.

The second biggest gas pipeline, which connects Turkey and Europe,
is Turkey-Greece Interconnector, which was opened on November 18,
2007. Its annual discharge capacity is 11.5 billion cubic meters. It
is planned that the Turkish-Greek gas pipeline will go further in
the direction of Italy as Turkey-Greece-Italy Interconnector, which
construction must be over in 2012.

On November 17, 2005 the Blue Stream gas pipeline, which
connects R ussia and Turkey on the bottom of the Black Sea, was
opened. It is planned that in 2010 the gas pipeline will reach
its full flow capacity, i.e. 16 billion cubic meters annually,
and it is not excluded that it may have its continuation in
Turkey-Bulgaria-Serbia-Croatia-Hungary and Turkey-Lebanon/Turkey-Israel
directions.

There are also two projects, which have to get Egyptian and Iraqi
gas to Turkey.

The first is Â"Arab Gas PipelineÂ", which has to transmit Egyptian gas
through Jordan and Syria to Turkey. The pipeline up to Syria is built
and on January 4, 2008 Ankara and Damascus made terms to extend gas
pipeline to Turkey. Its construction should be over in 2011. According
to preliminary data Turkey will get through that pipeline annually
up to 5 billion cubic meters of natural gas and on the territory of
Turkey Â"Arab Gas PipelineÂ" will connect to Â"NabuccoÂ".

The second project purpose is to transmit Iraqi gas to Europe again
through the territory of Turkey. On August 7, 2007 in Ankara Turkey
and Iraq signed the memorandum of understanding in order to begin talks
on the issue, but till now there is no information about any definite
result. It is possible that the situation may change after putting
into operation new gas pools for which on January 7 an international
tender was posted.

And finally Turkey plans to build at least three terminals for getting
liquefied natural gas (LNG) in its seaports (Izmir, Ceyhan), which will
be able to get natural gas from all over the world. It is known, for
example, that the terminal, which is going to be built near Izmir, will
have to receive more than 7.5 billion cubic meters of gas annually20.

Picture 2 Existing and planned big pipelines in Turkey

1. "Tabriz-Ankara" pipeline, functions since 2001, maximal flow
capacity 7.5 billion cubic meters annually

2. "Blue Stream" pipeline, functions since 2005, maximal flow capacity
16 billion cubic meters annually

3. "Baku-Tbilisi-Erzurum" pipeline, functions since 2006, maximal
flow capacity 16 billion cubic meters annually

4. "Turkey-Greece Interconnector", functions since 2006, maximal flow
capacity 11.5 billion cubic meters annually

5. Â"Arab Gas PipelineÂ", planned to start working in 2011.

6. Â"NabuccoÂ" pipeline, planned to start working before 2020,
maximal flow capacity 31 billion cubic meters annually

7. "Turkey-Israel" pipeline; in the stage of negotiations.

8. "Iraq-Turkey" pipeline; in the stage of negotiations.

9. "Asaluyeh (Iran) – Bazargan (Turkey) pipeline; in the stage of
negotiations.

Nuclear energy Over its history the Republic of Turkey has tried
to initiate the development of nuclear energy, but it always faces
various odds: from financial problems to military coups. On November
8, 2007 Turkish parliament passed a bill, which supposes that till
2012 reactors with total capacity 5 thousand megawatt will start
working21. On November 20 of the same year president Abdullah Gul
ratified the bill. On March 24 of the last year the international
tender on the construction of the planned nuclear power plant in the
proximity of Mersin city, which is situated by the Mediterranean Sea,
was posted. In a half of the year, on September 24, 2008 it became
clear that only consortium, which included Russian "Atomstroyexport"
(Â"Ð~P& #xD1;~BомÑ~AÑ~B&#x D1;~@ойÑ~Mк& #xD1;~AпоÑ~@Ñ~B&#x C2;"), "Inter RAO EES"
(Â"Ð~XнÑ~ BеÑ~@ РÐ~PÐ~^ Ð~UЭСÂ"), and Turkish Â"Park TeknikÂ"
companies, made a bid. On December in 2008 the nuclear energy agency
of Turkey (TAEK) stated that the bid, made by the consortium, meets
the requirements. Though later, on January 19, 2009, when it occurred
that the price of one kilowatt of electric energy is much higher
than the present electric energy price at Turkish market22, and in
this context, it was not excluded that the international tender will
again be posted, on January 22 the minister of energetic of Turkey
Hilmi Guler stated that the works continued and the results of the
tender would not be annulated.

According to the information we have, the consortium will build four
Russian Â"ВВЭР -1200B B reactors near Akkuyu settlement, not far
from Mersin. These four reactors together will be able to generate
4.800 megawatt of electric power. The construction of nuclear power
plant will cost Turkey about $7.5 billion. It is planned that it will
have been ready by 201223. In the period of 15 years Turkey will buy
from the consortium about 415.5 billion KW/h electric power and pay
for it $86.3 billion. In accordance with Ankara’s calculations before
2020 the nuclear power plant will produce about 8% of electric power
in Turkey and in 2030 this will rise up to 20%24. Except Akkoyu NPP
Turkish government intends to build two other nuclear power plants. At
current moment the location of only one of those stations is known. It
will locate near the Sinop at Black Sea.

Conclusions and prospects:the connection with the national security
of Armenia The strategy of Turkey to become international energetic
centre pursues two aims.

The first aim is to ensure the proper presence of Ankara in global
decision-making in the ongoing process of the transformation of
international political and economic system. In the past it was done
mainly by being the NATO member and the most important ally of the US
in the Middle East and Muslim world. But in new conditions when the
weakening of NATO and the deterioration of the relations between
Turkey and the US can cause reduction of the weight of Turkey,
Ankara believes that the capabilities introduced to the energetic
centre-country are to compensate those losses.

On the other hand, the energetic strategy of Turkey must be considered
in the context of the changes taking place in regional policy of
the country.

If since the establishment of the Turkish Republic Ankara has been
the strong point of the western world in the Middle East, then today
Turkey tries to take on a key role of the Ottoman Empire in the
Middle East and Ankara’s transformation into the energetic centre
is to enhance the influence of Turkey in the region and direct them
towards Ankara. For example, from this point of view, the decision of
Ankara to initiate the process of the normalization of the relations
with Yerevan is more notable than the unprecedented sharp approach
of the Erdogan government to the actions of Israel in Gaza.

>From the point of view of the prospects, the security system Turkey is
going offer to the changing region (the Middle East, South Caucasus,
and the Balkans) is important. It is obvious that the transformation
of the energetic picture of the region (the transformation of Turkey
into the energetic centre is just it) cannot but cause the changes
in the regional security system. Perhaps "The Caucasian platform of
stability and collaboration" initiated by Ankara is the part of the
supposed offer of Turkey but it is almost out of question that the
main initiatives of20Ankara are still to come. A lot will depend on
the developments in Iraq, in the line of Syrian-Israeli relations,
in the relations with Russia, Iran and Armenia and the developments
in South Caucasus in general.

In case of Armenia, the essential factor is that the "transformation"
of Turkey and the formation of new situation in the Middle East can
"open" that region for us and increase the involvement of Yerevan
in this direction. From the practical point of view this means that
in the near future the developments in the Middle East may have even
more serious impact on the national security system of our country.

1Republic of Turkey, Ministry of Foreign Affairs, "Turkey’s Energy
Strategy", 2008.

2Libya may also be regarded as one of those alternatives but, taking
into consideration the fact that this country is only to "open"
for the western companies, Libyan direction is more regarded as a
perspective one.

As for the Liquefied Natural Gas – LNG, which would allow to import
gas from every part of the world, the expensiveness of this option
(today liquefied natural gas terminals are built only in Western
Europe) make it unacceptable for the Eastern part of the European
Union, which is the most dependant on Russian gas.

3Today "Gazprom" provides about 40% , i.e. 140 billions cubic meters,
of natural gas import in the European Union.

4According to the "BP Statistical Review of World Energy, June 2008"
eight countries of the Persian Gulf (Iran, Iraq, Kuwait, Saudi
Arabia, Bahrain, Qatar, United Arabian Emirates, Oman) and four
Caspian countries (Azerbaijan, Kazakhstan, Turkmenistan, Uzbekistan)
together possess 45,05% of proven natural gas reserves of the planet.

5It is known that the annual consumption of natural gas in the
European Union for 2007 was about 500 billion cubic meters, of which
300 billion cubic meters were imported, then the annual consumption
of natural gas in the EU will have been risen to 800 billion cubic
meters by 2020. And this is under the conditions when since 1970 the
production of gas in Europe has been reducing. If 29 years ago Europe
produced 90% of gas it consumed then in 2007 it produced only 40%
(source: Pierre Noel, Â"Beyond Dependence: How to Deal With Russian
GasÂ", November, 2008, European Council on Foreign Relations)

6Source: Â"BP Statistical Review of World Energy, June 2008Â".

7Here the steps made by Ashgabat recently should be mentioned. First
of all it is referred to the results of the audit of Turkmen natural
gas fields, published on October 14, 2008. The audit was carried out
by British "Gaffney, Cline & Associates Ltd" company. In accordance
with that report the general amount of gas resources in Turkmenistan
was valued at more than 27.67 trillion cubic meters, which ma ke this
country second after Russia (44.60 trillion cubic meters), from the
point of view of the available natural gas reserves. From political
point of view the decision of Ashgabat to publish all the report
should be regarded as claim to play a new role on the international
energy market.

8According to the prognosis of local Turkish authorities in coming
years the growth Turkey will have in energy sector will vary in
the range of 6-8% (source: of Turkey, Ministry of Foreign Affairs,
"Turkey’s Energy Strategy", 2008).

9Source: Republic of Turkey, Ministry of Foreign Affairs, "Turkey’s
Energy Strategy", 2008.

10Alongside with the oil pipeline the gas pipeline, water pipe,
high-voltage power line and fiber-optic cable are to be built.

11According to the latest data (for 2007), the amount is 714 thousand
barrels (source: US Energy Information Administration).

12Source: Turkey: Gul OKs Nuclear Plant Legislation, Stratfor,
November 20, 2007.

13Source: Republic of Turkey, Ministry of Foreign Affairs, "Turkey’s
Energy Strategy", 2008.

14It is planned that Turkey will produce about 17 billion cubic meters
of natural gas from that sections, and the half of that produced gas
it can use for domestic consumption.

15Iran offers to build separate gas pipeline to Europe through the
territory of Turkey (Â"Persian PipelineÂ"), which, having the length
more than=2 03.200km and costing about $6 billion, will transmit gas
directly to European market.

16Mainly Azerbaijani "Shah Deniz" gas-well, which is situated in the
Caspian Sea and produces about 8 billion cubic meters, is supposed
to supply natural gas for "Baku-Tbilisi-Erzurum" gas pipeline.

17With this purpose, in accordance with the plan, the annual flow
capacity of the gas pipeline will have to rise up to 20 billion
cubic meters.

18On the summit, which took place on January 26-27, 2009 in Budapest
and was devoted to the construction of "Nabucco", the decision was
taken that the beginning of the construction of the pipeline is
postponed and it will start in next two years. The cost has also
risen. Instead of previous $9-10 billion it was estimated $11.8-13.1
billion.

19It is planned to put the additional flowing plants on second stage
to increase the flow capacity of the pipeline.

20There is only one terminal near Istanbul for liquefied gas production
in Turkey today, which, for example, in 2004, imported from Algeria
about 4 billion cubic meters of natural gas, and from Nigeria –
about 1.3 billion cubic meters.

21 Let us mention that the specialist in that field from the West
doubt that Turkey will be able to implement that programme by 2012,
especially in the conditions of present financial-economic crisis. But
they add that Ankara can reach its goal for a longer=2 0period.

22Today the price for 1 KW of electric power in Turkey varies in the
range of $0.04-0.14. Meanwhile the consortium offers $0.21. Later
consortium agreed to reconsider and reduce the price.

23On December 13 after the negotiations between Russian president D.

Medvedev and Abdullah Gul Russian media reported that in 2009 the
consortium will get permission to build Akkuyu NPP and the construction
will start in 6 years.

24Source: Saban Kardas, Â"Is the Russian-Led Consortium Trying to
Overcharge Turkey for Its First Nuclear Power Plant?Â", January 26,
2009, Eurasia Daily Monitor.

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