GGP: The Geopolitical Role of Turkey in the EU's Diversification Policy

The statements, opinions and data contained in the content published in Global Gas Perspectives are solely those of the individual authors and contributors and not of the publisher and the editor(s) of Natural Gas World.

The following is a chapter by Omid Shokri Kalehsar from the book Turkey as an Energy Hub? published April 2017.

1. Introduction

Over the last ten years, Turkey’s profile in global and regional affairs has risen dramatically. The country’s shift from defensive isolationism to becoming a major player in Middle Eastern, Caucasian and European affairs owes as much to an ideological break from the past in domestic governance and the revising of the security-centric mind-set of the old establishment as it does to the realisation of its geopolitical value. It is no secret that whilst Turkey has often struggled to maintain secure and reliable energy relations with its neighbours, policy makers are acutely proactive in attempting to formalise and develop such links in the hope of turning the country into a crucial juncture for oil and gas from the Middle East, Iran, the Caspian, and the Mediterranean, to transit for sale in the EU. Efforts to realise this goal have been continually hampered by the financial and political restraints of its potential partners, not least the strict sanctions placed on Iran, and that country’s falling out of favour with Turkey’s allies to the West.

2. Turkey’s Energy Profile

Studies show that the Middle East and Caspian Region are home to 73% of the world’s proven oil reserves, and 72% of its natural gas. Turkey is geographically located between this energy-rich region and energy-poor Europe. Due to this positioning, the country is a natural bridge between source countries and consumer markets, and can play a vital role in the energy security of Europe and diversification of supply sources. Additionally, the Turkish Straits, the waterway connecting the Black Sea to the Mediterranean, also have special significance in energy security, as approximately 3.7% of the world’s oil consumption are shipped through them on a daily basis.[1] The Oil & Gas Journal estimates that Turkey's own proven oil reserves total 295 million barrels, located mostly in the country’s South-Eastern region. Turkey’s proven natural gas reserves mark a total amount of 7 bcm.[2]

2.1 Turkey’s Energy Strategy

In December 2014, a new Strategic Plan from the Ministry of Energy and Natural Recourses of Turkey (2015-2019) was introduced by Taner Yıldız, former Turkish Minister of Energy and Natural Resources. The new strategic five–year plan aims to increase the share of wind, solar, hydroelectric and biomass resources in Turkey’s energy production facilities. Turkey is planning to construct the world’s largest solar energy centre and aims to meet about 50% of its electricity needs from renewable sources by 2030.[3]

The main pillars of the Strategic Plan are to provide supply and demand security, raw material supply security, diversification of energy sources, an increase in natural gas storage capacity and an increase in the share of renewable energy available. Furthermore, the plan encourages greater attention to energy efficiency, environment-friendly energy policies, development of national technology and scientific research, as well as furthering the pursuit of an active role both in the regional and world energy market.[4] Throughout last year, Turkey placed importance on domestic and renewable energy resources for electricity production. At the same time, consumption of natural gas is increasing and using natural gas in homes and industries has been found to be more beneficial than using natural gas for electricity production.[5]

3. Europe’s Energy Profile

The European Union (EU) holds relatively meagre energy reserves: about 1% of world’s proven oil reserves and about 2% of the world’s proven natural gas reserves, as well as 4% of world’s proven coal lay within its territory. By 2020, it is expected that up to two-thirds of the EU’s energy consumption will be imported.[6] The EU is the second-largest consumer of energy in the world, taking around 17% of the world’s total energy output. The EU’s total primary energy consumption (TPEC) is comprised of natural gas (23.8%), oil (30%), nuclear (14.4%), coal (18.2 %), and renewables (12.6%).[7]

Europe is the world’s largest market importer of natural gas, a situation that is unlikely to change in the immediate future, given that over the last decade its own production capacity has decreased year on year. Europe’s share of gas imports has grown from 48.9% in 2000, to 62.5% in 2010. Most of the natural gas imported by the EU is supplied via pipelines, but during last few years the share of LNG has increased and reached at least 15% of all gas imports by 2011.[8] Russia is the EU’s main natural gas supplier and its contribution to overall imports in 2015 alone amounted to 30%, or 161.5 bcm.[9]

Natural gas plays a crucial role in Europe’s energy mix and makes up 23% of primary energy consumption. In 2015 it was found that gas fuel was mainly applied to power generation (31.7%), household use (27.2%), and the service sector (10.8 %). The IEA predicts that European natural gas consumption will increase to 618 bcm by 2035.[10] Looking into the future, the EU is planning to invest more in energy infrastructure, which the EU Commission estimates will require around 89 million EUR in investment by the end of the decade. The EU is in the process of investing around 9.2 billion EUR in infrastructure projects between 2014 and 2020, hoping to strengthen intra-European networks and extend the overall pipeline systems beyond their current size by a huge 135,000 km.[11]

3.1 European Energy Strategy

By 2014, in the wake of the Ukrainian crisis, the EU faced the reality of its overwhelming dependency on Russia for energy supplies and thus planned the formation of an Energy Union. The Energy Union aims to create an internal, sustainable, common and single market among member states, as well as a body capable of monitoring bilateral energy cooperation between countries to ensure a balanced diversity of supply. According to Miguel Arias Cañete, EU Commissioner for Climate Action and Energy, the Energy Union is not to be created on the basis of being in opposition to any country’s individual aims, but aims at securing energy for all member states.[12]

After the Ukrainian crisis, when Russia was accused of using natural gas as a political tool, the European Commission published a plan for reducing its energy dependency, especially on Russia, as soon as 26 May 2014, with the Communication ‘European Energy Security Strategy’. According to this document, the European Commission outlines once more the need to boost the EU’s energy security, particularly in terms of natural gas supplies. The suggested strategy is structured on eight key pillars aimed at creating closer ties between member states following the principle of solidarity, while at the same time respecting national energy choices.

The European security environment has a multi-dimensional structure, including European, Mediterranean and Middle Eastern security fronts. In this regard, the security of energy supplies would form yet another part of the continent’s security perception. Turkey is able to play a key role as a stabiliser in the region by controlling a reliable stream of energy resources to Europe. Furthermore, Turkey expects a contribution from energy partnerships with the EU.[13]

In line with one of the Energy Union’s main pillars, the EU is attempting to diversify its energy sources. In this regard, it has at least five options; 1 – The Middle East and North Africa, 2 – Russia and Central Asia, 3 – Central Africa, 4 – Oil and shale gas resources, and 5 – North American LNG. Many of these sources can be transited via Turkey’s territory – especially natural gas from Central Asia, (Azerbaijan, Turkmenistan), Iran, Iraq Kurdistan, and the Eastern Mediterranean (Cyprus, Israel, Egypt). As the struggle between the West and Russia has deepened over Ukraine, the EU has begun to consider its options vis-à-vis weakening Russia’s monopoly on the European natural gas market. The easing of US and EU sanctions against the Iranian energy sector over the last year has encouraged Iran to declare its readiness to supply natural gas to Europe. Iran’s role in delivering gas to Europe represents a potential alternative in the diversification of the European energy sector. Iran is trying to bring more foreign companies into its energy sector, whilst holding the second largest natural gas reserves in the world (33.6 trillion cubic metres). Instability in the Middle East, especially in Iraq, means that the proposed and already operating pipelines, which mark an extension of the EU-proposed Southern Gas Corridor, seem to be increasing the significance of Turkey in the transportation of Iranian gas to the European market.[14] The most logical route for Iranian gas is via Turkey. It should be noted that at present, Turkey is the only Iranian gas importer. If sanctions were to be eased and foreign companies able to invest in Iran’s energy sector, the country could supply 10-20 bcm of natural gas to Turkey and Europe by the early 2020s.[15]

4. Natural Gas Potentials for EU Diversification

4.1 Iran 

The capacity of Iran’s oil and gas production decreased dramatically under the sanctions placed on the country by the EU and the United States following an international dispute over Iran’s attempts to build a nuclear program. However, after the 2015 P5+1 agreement the country has begun to reinvigorate its oil and gas production and export capacity. Tehran is seeking target markets for its renewed oil and gas production and Europe is interested.[16] But now Iran has officially stated that gas transportation to Europe is no longer their priority because of the continent’s waning economic value. In May 2015, Rokkendin Javad, CEO of the National Iranian Oil Company, said that “Given the gas-price decline in Europe, the economic viability of the project has probably decreased. Besides, the market share of single shipments of LNG has grown.” According to the minister of petroleum, the gas price in Europe has made infrastructure projects such as pipelines economically unviable.[17]

However, within the natural gas sector Iran could be an option for Europe to reduce dependency on Russian gas, and this is an issue which Iranian oil officials have repeatedly mentioned. It should be noted that the country’s own high consumption of gas together with the amount of gas injected into storage tanks as well as existing exports (to Oman, Iraq and Pakistan) means that the volume of gas available for export elsewhere is severely reduced. Another barrier in this area is the lack of necessary infrastructure for gas exports to Europe.[18]

4.2 Turkmenistan

Turkmenistan holds the world’s fourth largest natural gas reserves and wants to play a key role in Eurasian energy security. The country aims to raise its natural gas production to 250 bcm by 2030, of which 200 bcm shall be exported. Saparmyrat Nyýazow, the first President of Turkmenistan, is aiming to use the country’s natural resources in its development and accordingly prepared the ‘Economic, Political and Cultural Development Strategy to 2020’. During Berdimukhamedov’s administration, this was extended to the oil and gas sector’s 2030 Development Plan. This plan has two strategic priorities: 1) Ensure Turkmen energy resources have access to new markets (including refined products) through a multi-vector gas transportation system; 2) Implementing modern technologies to improve oil and gas production. The Turkmen government acknowledges the need to import expertise and machinery for exploration and deep drilling to meet production targets.[19]

Turkmen natural gas has the potential to reach Europe via lines going though Iran-Turkey, Russia, or Azerbaijan-Georgia-Turkey. However, in seeking ways to realise its potential for exporting gas to Europe, Turkmenistan faces an enormous challenge. Iran and Russia could soon collectively dominate the Turkish and European natural gas market and neither will be interested in such a strong position being diluted, even slightly, by another country’s entry into the market.[20] Turkmenistan is planning to export 20-30 bcm gas to Europe. This is of far greater importance for Turkey. Trans-Caspian projects are expected to supply Turkey with additional natural gas resources (Turkey’s natural gas demand will increase by 77% from now until 2030) and also help the country to achieve its goal of becoming a regional energy hub between Central Asia and Europe.[21]

4.3 Kurdish Regional Government

Due to the ongoing Kurdish minority issue in the Southeastern part of Turkey, which also affects Iran and Syria, Ankara is interested in supporting the financial interdependence of the Kurdish Regional Government (KRG) of Iraq, by signing a deal with the KRG to export petrol. However, this would not travel through the Baghdad-controlled Kirkuk-Ceyhan Pipeline, but through a bypass expanding from central KRG (Taq-Taq field) to the Turkish border where it would be connected to the line leading to Ceyhan. During 2016, Turkey imported about 700000 barrels per day, according to KRG Natural Resources Minister Ashti Hawrami and is planning to increase that volume in the years to come.[22] Such an import of oil from KRG would help in Turkey’s ambition to become an energy hub. Turkey and KRG are planning to build a second oil pipeline to Ceyhan port and another natural gas pipeline aiming to feed Turkish power plants. Turkey is interested initially in importing up to 353 bcm of natural gas annually but hopes to double this quantity over time.[23] However, Turkey has a problem with the Iraqi central government in importing oil and gas from the KRG in North Iraq.

Figure 6: Iraqi Constitution

Source: Council of Representatives of Iraq. Iraqi Constitution. Article 111 http://www.iraqinationality.gov.iq/attach/iraqi_constitution.pdf [20.12.2016].

4.4 Eastern Mediterranean Natural Gas

Over the last decade huge amounts of natural gas reserves have been discovered in the Eastern Mediterranean. This region has thus become a centre of attention for oil and gas companies as well as countries with adjacent shorelines. The biggest natural gas reserve has been found in the Exclusive Economic Zone (EEZ)[24], which is shared by Israel and Egypt. Another reserve was found by US and Israeli companies near the Cypriot coastal shelf and soon became the cause of renewed tension between Turkey and Greece as the main reserves are located closer to the Turkish enclave of Cyprus.

4.4.1 Egypt

In 2015, the Italian energy company Eni found the Zohr gas field, an offshore natural gas field located in the Egyptian sector of the Mediterranean Sea. The field is located in the Shorouk concession, a concession with an area of 3,765 square kilometres (1,454 square miles), for which Eni was awarded the drilling rights in 2013.[25] After the discovery of this ‘supergiant field’, it was estimated that Egypt could become energy-independent and would as a result be able to use energy diplomacy in improving relations with Israel and its Arab neighbours. The Discovery of this field also has geopolitical repercussions.[26] The Zhor field is close to other gas fields in the region such as Aphrodite (Cyprus) and Leviathan (Israel), which will make possible a coordinated development of the fields, using economies of scale to put in place a competitive regional gas export infrastructure. Egypt already has LNG export infrastructure in place in Idku and Damietta, which is currently sitting idle. Putting this into use would allow gas to be exported from Zhor and other Egyptian fields not used in the home market. Domestic demand is increasing and it is fair to assume that some export capacity would be left for Israeli and Cypriot gas.[27]

4.4.2 Israel

In December 2010, the Leviathan gas field was found in the Eastern Mediterranean off the coast of Israel. This gas field is located 1,645 metres deep, in the Levantine basin about 130 kilometres west of Haifa, Israel and holds an estimated 622 bcm of gas. It is expected that gas production from this field might be initiated as early as the first quarter of 2019, and it is also estimated that the initial phase of supply will provide for the domestic market as well as exports to both Jordan and Egypt. With the aim of benefiting from the EU’s search for greater natural gas alternatives, in November 2014 Israel proposed that EU countries should invest in an underwater pipeline from Israel to Cyprus, then on to Crete and mainland Greece, from where the gas could then be pumped to European Countries. But it is estimated that such a pipeline project requires around $10 billion in investment. However, there is another route, which could facilitate exporting Israeli gas to the EU from Turkey. The distance of a line from Israel to Turkey would be around just 500 kilometres, which is less than half of the distance of the first option. Such a project could cost the more favourable sum of $2 billion.[28] This depends greatly on Turkey solving its long outstanding political problems with Cyprus, because in the event that the transporting of Israeli gas is given the go-ahead, this could form yet another bone of contention around the island’s sovereignty.[29] According to Ambassador Mattew Bryze, over the next 4-6 years the Eastern Mediterranean gas may be able to play a key role in Turkey’s efforts to diversify its supplies of gas away from Russia. In the short term, Turkish companies would be more than willing to divert 8-10 bcm of the gas for domestic consumption.[30]

4.4.3 Cyprus

Cyprus has a proven gas reserve of around 142 bcm located in the Aphrodite field and also plans to exploit the contents of its deep waters in the Eastern Mediterranean.[31] However, there is an ongoing dispute over defining the ownership of its continental shelf and the Exclusive Economic Zone between Greece and Turkey.[32] By March 2015, Greece had initiated an international tender to access the feasibility of a proposed pipeline that would link Israel’s gas field to Europe via Greece. But due to financial as well as topographical issues, such a pipeline is not feasible at present. Firstly, seismic activities in Greek waters present major construction and transport risks. Secondly, the pipeline’s required length of around 675 kilometres, at depths of about 800 to 2000 metres, would make the project cost-prohibitive. A pipeline from Cyprus to Crete alone would cost around $20 billion. Furthermore, as natural gas demand in the EU is supplied at a flat rate, if the Eastern Mediterranean sought to compete with other suppliers in general and GAZPROM especially, it would have to sell at a comparatively lower rate, which places more risk on the prospect of recovering the investment.[33] It seems that exporting Cypriot gas from Turkey is the best option. Turkey’s energy demand is increasing and it must, therefore, diversify its energy sources to reduce dependency on one sole supplier. [34]

5. Conclusion

According to the Strategic Plan of the Turkish Ministry of Energy and Natural Resources (2015-2019), diversification of energy resources is a top priority. In addition, Turkey is interested in using its geographic position in the region to become an energy transit country and regional hub for oil and gas from the Caspian Basin, Central Asia, and Iran, to European markets.

At the end of 2015, and especially after the Ukrainian crisis, the EU decided to give more attention to the diversification of its energy resources. Diversification of energy is one of the main pillars of the Energy Union.[35] The EU prefers to supply natural gas from other countries and is keen to break GAZPROM’s monopoly on the EU energy market. However, EU energy demands are ever-increasing and some countries already depend on Russia for almost all of their energy needs.

This has led to talks between the EU and other powers, aimed at investigating the utility of investing in such plans as the Southern Gas Corridor and TANAP projects, as well sourcing supplies from the Shah Deniz 2, none of which will be realised quickly. At present, there are no further realistic choices available in the short-term. However, further ahead and though progress has been slow, with only Azerbaijan being active in forwarding its Southern Gas Corridor plan, the EU’s eyes are firmly set south-east, on Turkmenistan, the KRG and Iran. The only real route for transporting gas from these countries into the EU is through Turkey, but the EU is strictly against the use of Russian infrastructure or Russian resources for transit purposes.

However, there is a huge reserve of supplies in the Eastern Mediterranean and this could conceivably be transited from Turkey to the EU. Turkey’s energy demand is increasing and such a reserve is ideal to help the country diversify its own needs, as well as those of Europe. For exporting Cypriot natural gas via Turkey and also transiting Israeli gas via Cyprus, Turkey and Greece will have to work harder to solve the issue of the EEZ and the Turkish Cyprus problem. As energy analyst Necdet Pamir has mentioned, the EEZ can ensure both the avoidance of any conflict in exploration or drilling operations for offshore oil and gas in the region; and exporting routes from such region is also very important.[36]

Turkey is interested in using its geographical position to play a key role in the energy market. The geostrategic position of Turkey is also mentioned as an integral part of former Turkish Prime Minister Davutoğlu’s famous political piece, ‘Strategic Depth’ and the Justice and Development Party has incorporated Turkey’s geographical position into its calculations on foreign policy. However, Turkey needs more investment in infrastructure to increase the capacity of its refineries and natural gas storage facilities. It could be argued that energy would help Turkey to improve its relations with the EU and enhance its candidacy status. Both sides could use the increased energy and diversification of energy resources to strengthen beneficial relations and gain mutual advantage from an energy agreement. That said, many of these plans are still in the early stages of development, and it will take years for them to come to fruition. However, in the meantime it remains to be seen what advances will be made in the short term, and how quickly Turkey’s ambitions as a transit country materialise.