Azerbaijan, Iran, Turkmenistan etc. – Contenders to Bring Gas to Europe Through Turkey or Not?

What countries will be able to use Turkey as a bridge to bring Caspian and Middle-Eastern gas to Europe?

For Simone Tagliapietra, an expert in international energy issues, only one country is a definite prospect to route gas to Europe through Turkey.

“If there is one certainty about the Southern Gas Corridor, this is Azerbaijan,” said Mr. Tagliapietra, a Visiting Fellow at Bruegel and Senior Researcher at the Fondazione Eni Enrico Mattei in Milan and Visiting Researcher at the Istanbul Policy Centre at Sabanci University in Istanbul.

Given the country’s current track record—it already delivers gas to Turkey through the South Caucasus Pipeline and is set to send gas from its Shah Deniz field to Turkey by 2018 and to Europe by 2019—there is no doubt in Mr. Tagliapietra’s mind as to the viability of Azerbaijan’s future through Turkey.

“The construction of the Trans Anatolian Pipeline, which will connect the South Caucasus Pipeline to the Turkish-Greek border is already initiated,” he says. “The construction of the Trans Adriatic Pipeline, bringing gas to the Italian market, will follow.”

In addition to those infrastructure projects, gas sales agreements have already been signed between Italy, Greece, and Bulgaria.

“For these reasons, we can consider secure the prospect of 10 billion cubic metres of gas a year from Azerbaijan by 2019 to the European market.”

After 2020, Mr. Tagliapietra said that more volumes could become available from Azerbaijan to for Europe.

“That will depend on the government, on the offshore fields of the country, and many technical barriers [which] might postpone such a process to 2025 or even later.”

The prospects for using Turkey as a bridge for other countries is not so certain, however.

Turkmenistan, for example, despite purportedly having large gas reserves, could also potentially use Turkey to route its gas to Europe—but it depends on a number of factors, the expert said.

“Turkmenistan is quite a peculiar case. It’s a big country with a level of reserves, which is actually very volatile because in 2006, British Petroleum estimated the level of Turkmen reserves at 2 trillion cubic metres, while today it is estimated at 18 trillion cubic metres—a major gap that will provide you with some idea of how much Turkmenistan’s gas reserves are currently still under-explored.”

That’s not the only issue standing in the way of Turkmenistan exporting its gas to Europe through Turkey either. In the past, though attempts have been made to do so, these attempts have all failed.

“There was talk of the Trans-Caspian Pipeline connecting Turkmenistan and Azerbaijan and then piping in the gas to Europe and that failed due to political reasons—the opposition of Russia and Iran, particularly, using the legal instrument of the legal statures of the Caspian Sea, which not clear yet. These legal points prevents the construction of the infrastructure,” Mr. Tagliapietra says.

Those difficulties have made Europe a less attractive prospect for Turkmenistan. Instead, it has turned to China to deliver its gas there. Currently, an agreement is in place between Turkmenistan and China to export 65 billion cubic metres a gas a year by 2020.

“Still,” he muses, “considering the big reserves of the country, exports to both China and Europe will be possible.”

Another contender for routing Turkish gas is Iran—but again, there is no certainty about the country Mr. Tagliapietra calls “the big elephant in the room of the international gas market.”

“It’s a country that owns 34 trillion cubic metres of gas reserves. The big paradox is that the country is a net importer of gas since 1997.”

Because of varying factors—the international sanctions that have prevented Iran from developing its gas market and unattractive legal framework Iran offers—Iran may after a time be in a position to supply gas to Europe—but only if a new legal framework will be put in place.

Moreover, once the current sanctions against it are lifted, Mr. Tagliapietra says, the country may have different priorities for its gas than Europe does.

First off, “with the new wave of investments in the aftermath of the nuclear deal, the country will most likely channel the gas produced to domestic consumption, in order to keep prices low, and in order to enhance the competitiveness of the economy, which is currently in a very serious state.

“Secondly the country will most likely use the gas to replace the oil it currently burns to create electricity in order to export oil, which is far more lucrative than gas”

Couple that with a prior commitment to supply Oman with 10 billion cubic metres a year for 25 years by 2017 and the poor political relations between Iran and Turkey, and the case becomes less certain still.

Currently, the two countries are currently under international arbitration because Turkey blames Iran for piping low-quality gas. And, “even during wintertime, Iran is not able to supply gas to Turkey according to its contract because it needs those volumes for its own domestic market,” the expert explains.

So if not Iran, how about its neighbour? Recently, the Iraqi government announced that its Kurdistan region has reserves of between 3 and 6 trillion cubic metres. If true, this could be a serious contender, Mr. Tagliapietra says, given its good relationship with Turkey.

Still, though geopolitics could prove to be the main barrier again.

“Until a stable security situation is reached, it’s not possible for international markets to operate properly in the region. If the EU is willing to go there and negotiate a future contract or a platform to deliver it to the European market, Turkey will be very much needed.”

That just leaves one serious prospect, which could be in a position to use Turkey to supply its gas to Europe: Israel.

“Unfortunately, over the past year, all the wells in Cyprus have proven dry, so Cyprus is not currently a real prospect for Eastern Mediterranean,” Mr. Tagliapietra says. “But Israel, which has a consistent level of reserves, estimated at 1 trillion cubic metres, certainly is.”

There are two possible barriers in the case of Israel though, he explained. First is the antitrust case involving Texas-based Noble Energy and Israel’s Delek, which is preventing investment in the Leviathan and Tamar fields.

“The second barrier is the lack of infrastructure,” he explains. “Over the past year, we had huge talks about all the possibilities for pipelines, LNG facilities and so on, but no solution has been found. A pipeline to Turkey might make a lot of commercial sense, just because of the Turkish market, but politically this prospect is unfeasible currently due to the tensions between Ankara and Tel Aviv.”

Azerbaijan might be a certainty to route its gas through Turkey to Europe. For all the other contenders, it’s anyone’s guess who might be the next to cross that bridge.

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