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Produced for GMF | 30 October 2014
By Mehmet Öğütçü[1]
Overview
With energy prices declining, economic slowdown beginning, geopolitical tensions flaring up in Eurasia, the Middle East and East Asia, and investors taking a wait-and-see attitude, we are undoubtedly going through yet another tumultuous time in history that will likely have a bearing on energy security for both Turkey and the broader energy producing, transiting and consuming regions around it.
In this changing world, Turkey is well positioned in flexing its political, military, economic and “soft power” muscles to potentially become a key regional force by virtue of its large energy market, regional trading hub position for cross-border flows and security provider.
Turkey is a country that grows fast, is urbanized and hosts a growing middle class with a visible consumption tendency of oil and gas – not far off compared to China in economic growth and with an increase in energy demand. Given its large gap in energy supply, Turkey depends heavily on the world energy system to secure the necessary fuel for rapid economic growth – no credible choice other than importing natural gas and oil. More than half of Turkey’s electricity production is based on natural gas that it cannot domestically produce.
Despite Turkey’s emergence as the world’s 16th largest economy, energy is still its softbelly. For a nation with almost $ one trillion GDP size, aspiring to be among the world’s top ten over the next decades and possessing limited reserves of oil, natural gas and hard coal, energy is not seen only as a matter of supply and demand, import and export, and a major component of its international competitiveness; it is clearly a national security matter.
Indeed, Turkey is energy poor particularly in hydrocarbon resources. At present, domestic resources meet only 30 percent of Turkey’s total energy demand, while the rest comes from a diversified portfolio of imports – 98 percent in natural gas and 93 percent in oil[1]. Natural gas accounts for an increasing share of the energy mix in Turkey, and it has overtaken oil to become the most important fuel in terms of volume consumed. Although the Turkish government supports developing the country as a natural gas export hub, Turkey is extremely vulnerable to supply disruptions and may have insufficient pipeline and storage capacity to keep up with both greater exports to Europe and increasing domestic demand.
According to the US Energy Information Administration, Turkey imported nearly 671,000 barrels per day of oil, 44 billion cubic meters (bcm) of gas and 32 million tons of coal in 2013[2]. The country has abundant lignite reserves (the seventh largest in the world), but most are low quality and cannot be used in power generation or industry without serious environmental consequences.
Turkey’s consumption of coal has increased from 16 in 2000 to 29.3 percent in 2010, while oil dropped from 40.6 percent to 26.1 percent and natural gas increased from 30.4 percent to 37.3 percent in the same time period. Turkey has the potential to generate 140 billion kilowatt hours of electricity per annum, but uses only 35 percent of its hydroelectricity potential[3].
There is an ambitious target to have renewables provide almost a third of Turkey’s power needs, but they can only be a solution in small provinces – it is impossible to install windmills in locations where the bulk of energy is consumed such as in İstanbul. Nuclear energy is considered to be a “must” for Turkey’s need for additional energy and diversification agenda. To that end, an agreement was signed with Russia for the construction of a nuclear plant in Mersin’s Akkuyu district. For another one planned for Sinop, a memorandum of understanding was signed with Japan’s Mitsubishi and France’s Areva[4].
Turkey’s excessive dependence on external sources does not bring only the question of heightened energy security concerns – it also brings about serious financial drain on the economy. Turkey’s energy import bill is expected to total $181.3 billion in the next three years. According to the Government’s economic programme for 2015-2017, $56 billion will be spent on energy imports until the end of this year, increasing to $57 billion in 2015, around $60 billion in 2016 and $64 billion in 2017[5].
[1] Ministry of Foreign Affairs – Republic of Turkey, Turkey’s Energy Strategy- available onlline at: http://www.mfa.gov.tr/turkeys-energy-strategy.en.mfa in September 2014
[2] http://euroasianews.com/turkeys-energy-imports-will-amount-to-181bn-over-the-next-three-years/
[3] Currently there are 172 operational hydroelectricity power plants in the country, while 148 more are being constructed and construction has yet to start for 1418 planned hydroelectricity power plants.
[4] These two nuclear power plants are expected to cost some $40 billion as a result of which Turkey aims to develop know-how to construct similar power plants using nuclear fuel on its own.
[5]http://www.dailystar.com.lb/Business/Regional/2014/Oct-10/273571-turkeys-energy-imports-to-cross-181b.ashx#ixzz3GoRxTU00
[1]Chairman, Global Resources Partnership (UK), and Executive Chair, The Bosphorus Energy Club (Istanbul). Mehmet has more than 30 years of successful track-record in government, diplomacy, international organisations, banking, and energy business. He served, inter alia, as a Turkish diplomat, advisor to the Prime Minister, on the international staff of the IEA and OECD as principal administrator, BG Group Director and Invensys chairman of advisory board. Currently based in London, Mehmet works as an independent non-executive director on the board of Genel Energy plc, and a special envoy for The Energy Charter in Brussels for MENA/Eurasia. He advises major energy and finance corporations on investment deals, fund raising, strategic stakeholder alignment and risk mitigation strategies. Mehmet is fluent in Turkish, English, French and Chinese (conversational). The author is grateful for the substantial research support provided by Sila Uysal and Melis Öğütçü.
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