Aytuna Consulting

International Petroleum Consulting

Turkey : Its Energy Market and Strategic Importance

Turkey is located between Europe and the oil rich countries of the Middle East and the former Soviet Republics around the Caspian Sea. The country is surrounded by important oil producing basins and its territory is cut by a large network of oil and gas pipelines that supply Europe. She is an important ally for the western world and is the new “energy bridge” between the west and oil producing countries. Turkey has very good relations with her neighbors and shares historical, cultural and religious ties with them.

A Safe Center Oil and Gas Transportation Routes

The location of the country is gaining in importance for being in the center of the safe oil and gas transportation routes, especially after the inauguration of the Baku-Tbilisi-Ceyhan (BTC) oil pipe-line on July 13th, 2006, with a capacity of 1MM bopd for the Azeri’s oil. The BTC is 1760m long pipe-line starting from Caspian Sea, Azerbaijan via Georgia and ends in Ceyhan, Turkey on the Eastern Mediterranean Sea. It is owned by several international oil companies; BP, SOCAR, Unocal, Statoil, TPAO, Eni, Total, Itochu, Inpex, ConocoPhillips and Amerada Hess. It is estimated that by the end of year 2010, Ceyhan will become a terminal and a hub of approximately 6 percent of the world oil and products trading. The BTC pipe-line is designed to be operational for 40 years. In the Caspian region, 18-35 billion of oil and 236-377 TCF of gas has been proven. The old “Silk Road” is reborn with a new name “Oil and Gas Silk Road “ in Turkey, a country considered by many to be the cradle of the civilization. Now it can aptly be considered “the cradle of new pipe line”; a hydrocarbon road for the safe oil and gas transport.

There are two major gas-pipe lines that run from Russia and feed the Turkish gas market: One onshore pipe line; passing through Ukraine, Romania, Bulgaria and Ankara (built in 1985) and the other ; passing under the Black Sea, called the Blue Stream Gas Pipe Line (built in 2005), called BSGPL. In addition, a third and important oil pipe line runs from Kerkuk, Northern Iraq to Ceyhan. However, this line is subject to disruptions in the oil flow due to unforeseen circumstances in Iraq. Several other gas pipe-line routes are being discussed; one MOU is signed with Austria, another gas pipe is being discussed with Greece and Italy as well one with with Russia. The Austrian gas pipeline project is called Nabuco. The second oil pipe-line to run under the Black Sea for Russian oil is to reach the Mediterranean port of Ceyhan and to be extendable to Israel. Also, Turkey buys gas from Iran via another gas pipe-line where the line ends in Erzurum (Eastern Turkey). The feasibility of Egypt-Israel-Turkey gas-pipe line is being discussed between the governments.

Safe oil and gas transportation has vital importance for the western world, the Central Asian countries, Iraq as well as Turkey. The economy of Azerbaijan, Kazakhstan, Turkmenistan and others are solely dependent on the exportation of oil and gas. Turkey is the most secure, politically stable and secular democratic country in the region and she intends keeping all the pipelines open. Recently, the Government of Kazakhstan has decided to join the BTC, to use the pipeline to export her oil to the free world via Ceyhan.

Pipelines in Turkey
(Courtesy of Botaþ, Ankara, Turkey)

The Istanbul Bosphorus and Canakkale (Dardanelle) Straits can no longer handle the heavy marine traffic as both are already in access of their capacity of 50,000 ships per year. This means 137 ships of varying sizes per day in addition to the local ferries and commuter boats. Currently, they handle 120MM bbl of oil per year; which means that a total of 343M bbls of oil is being transported by 2 to 4 big oil tankers every day. Every year, several major oil tanker accidents happen and marine traffic is halted for 15-25 days. Also each winter the traffic stops for more than a month due to for dense fogs. Furthermore, several tens of nearly miss accidents are reported every year. The BTC has just been completed on time and it is operational, giving a big relief to the people who live in Istanbul and Dardanelles. Both straits are located on the one of the worlds’ most dangerous the most busiest and the narrowest water ways (1-3km wide) where 12 million people live nearby and the most dangerous cargoes pass under two the suspension bridges; 64m high, 1km long bridges over a water depth of 60-80m.

Reserves and Market

Turkey is not very rich of her hydrocarbon resources and the domestic production can not meet her needs. The population of the country is 70 million and half of the people live in cities. It is one of the fastest growing economies and is the 19th largest economy. of the world . Every day 650M bbls of oil is being consumed of which 600M bbl is being imported and 50M bbl is produced domestically. Turkish National Oil Company (TPAO) alone produces about 32M bbls and the others the rest. Turkey imports more than 92% of the oil from her neighbors and 98% of the gas from Russia, Iran, Nigeria and Algeria (LNG). In 2005, Turkey consumed 210MM bbl of oil and 600B SCF of gas and nearly all of it were imported.

In the country, there are six power plants (built in 1998) that run with the imported gas from Russia but due to recent price hikes by the Russians, the gas price and electric bill have sky rocketed in the country and the Government is trying to survey all options, including exploring more in the onshore and offshore locally and abroad. The company seeks some opportunities in Libya, Kazakhstan, Azerbaijan and others. On the same token, Turkish National Oil Company (know as TPAO) farms out the offshore Black Sea deep exploration licenses. TPAO carries the exploration / production activities on behalf of the Government in the country and abroad. The Government of Turkey has issued new incentives for the domestic and international oil companies who would like to invest and explore in Turkey, such as; has lowered the corporate income tax down to 20% from 45% and a new Petroleum Law is pending in which the Government Royalty is to be reduced to 3-8% (compare to fix rate of 12.5% for onshore and offshore fields under the current law) on a sliding scale and more incentives will be given for offshore (depending on water depth / production rates and secondary recovery techniques and more). Also, there are no custom taxes and no 18% VAT for the oil companies who would like to invest and explore in Turkey.

There is no market problem selling the domestic production of oil or gas. The four Turkish refineries (recently privatized) guarantee to buy and pay the world market price for the domestic produce, regardless of the gravity of the oil. The two refineries are located inland; one near Ankara, Kirikkale, and one in Batman, SE Turkey. The others are located on the coast line of Izmir, on the Aegean Sea and in Izmit, on the Marmara Sea. Also, two more International refinery applications have been made by major international oil companies and those are being considered by the Government, one at the Black Sea town of Zonguldak and the other one on the Eastern Mediterranean Coast, near Ceyhan.