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Projects and Possibilities: Turkey’s Future Role as a Transit Country for Central Asian and Caspian Natural Gas to the EU

February 28, 2007

By Mehmet Efe Biresselioglu

Nowadays, energy diplomacy is more crucial than ever for the EU. There is a strong need for a long-term EU common energy policy in order to enable the bloc to meet its future energy needs. Turkey is likely to play an important role in the EU’s energy strategy.

Energy has always occupied a central place in the thinking of the European Union, as it is one of the main reasons for the union’s existence. In 1951, the European Coal and Steel Community (ECSC) was established in order to reconstruct the energy sector of the post-war era. Six years later, in 1957, the European Atomic Energy Community (EURATOM) was established.

The main problem, then as now, was the recognition of energy as a national priority rather than as a communal one. The sector could not enjoy the benefits of a common approach, as all too often it meant clashing with national interests, i.e., the sovereignty of the members of the community.

The situation regarding the energy sector and energy policies of the community remained untouched even at the time of the setup of a single market (1992). The main attempt by the European Commission thereafter came in 1999, when the energy and transport policies of the European Union were combined under one Commissioner.

The EU is still trying to set up a common energy policy today. Its objectives include security of energy supplies, the improvement of competitiveness of energy markets, and the protection of the environment. It is accepted by all members of the union that energy must be taken into account in foreign and security policy-making, as well as in the external trade policy-making of the EU, in order to achieve the future security of energy supply towards the EU.

Global Energy Trends and the European Union

In the 21st century, global energy trends are developing along different lines than in the previous century. The new global energy tendency is shifting from energy dependency towards energy independency. In this process, different aspects should be taken into account, such as alternative energy source, renewable energy and external supplies.

These global trends are not different for the European Union. It is faced with high oil and natural gas prices, increasing energy dependence and energy access uncertainties. Beside these, the European Union has its own energy problems. There is a unity problem inside the EU on energy policies. It is always difficult to reach a consensus when it comes to energy. Also, its high energy dependency on concentrated regions such as Russia, Middle East and North Africa; and problems of transportation from such frequently turbulent regions, are creating security challenges for energy supply. The European Union is therefore making a great effort in order solve all the problems that it is facing. It is establishing and supporting bilateral, multilateral and regional dialogues on energy security and supply.

The latest EU energy strategy is “A European Strategy for Sustainable, Competitive and Secure Energy,” a separate document from the main EU Security Strategy, which is “A Secure Europe in a Better World“, released in March 2006.It is clearly stated in this strategy that the EU has problems because of its energy dependency on Russia, Northern Africa and the Gulf.

European Import Dependency on Natural Gas

European Union members share 2 percent of the world’s proven gas reserves. Natural gas accounts for 25 percent of the EU’s total energy consumption, and the EU accounts for 17.4 percent of the world’s total natural gas consumption, according to the EIA’s European Union Analysis. The EU is a net importer of energy. It is importing more then 40 percent of its natural gas consumption and the commission expects this import dependency to rise from 40 to 55 percent by 2010, to 67 percent by 2020 and to 81 percent by 2030, according to the European Energy Outlook 2020.

EU gas imports are usually coming from concentrated regions except Norway (an internal supplier of the EU). The other major suppliers are Russia, the Middle East and the North African countries.

a. Natural Gas Suppliers of the EU

Country : Volume

Russia: 131 bcm

Norway: 62.6 bcm

Algeria:33.5 bcm

Libya : 0.5 bcm


b. Natural Gas Suppliers of the EU (in LNG form)

Country:Volume

Algeria: 18.80 bcm

Nigeria: 10.75 bcm

Middle East:5.40 bcm

Source: World Energy Outlook 2005 by IEA

As we can understand from the tables above, most of the EU’s natural gas import is regional, via pipelines, with the exception of LNG exports. Russia is exporting more than 40 percent of the EU’s natural gas needs, while African countries supply around 18 percent. Half of the African gas is exported in LNG form, which is important for the Mediterranean and Atlantic coasts of Europe; however, they are strongly lacking in market in Central and Eastern Europe.

The most considerable amount of imported gas is of course from Russia. The EU’s natural gas dependency on Russia is very high and volatile. The bloc was faced with an unexpected situation in 2006 when Russia suddenly cut the supply and stopped exports destined for the EU through pipelines via Ukraine. Also, the gradual exhaustion of North Sea gas resources is pushing the EU to come up with new energy policies.

The Central Asian and Caspian Regions as Alternative Gas Suppliers to the EU

One of the major alternatives for Europe, garnering ever-increasing attention, are the Caspian and Central Asian producers. Yet the EU has no direct dialogues with these regions. The bloc maintains bilateral energy cooperation with Russia, Kazakhstan, Turkmenistan and Azerbaijan. But the EU is lacking a region-wide policy and any arrangements towards this region, such as the ones it maintains with Arctic Region, ECSEE, Africa (Gulf of Guinea), the Balkans, North Europe, the Mediterranean andOPEC.

The Caspian and Central Asian regions should be taken into account in order to diversify the energy dependence of the EU. Yet as the opening of the Baku-Tbilisi –Ceyhan Pipeline has brought Azeri oil to global markets, the world has started to pay more attention to the region. We can now see a bandwagon effect in action, for other alternative pipelines to carry natural gas and for other suppliers in the region, in addition to Azerbaijan, to integrate into the system and angle to use it.

c. Proven Reserves in The Caspian and Central Asian Region

Country: Proven Gas Reserves

Azerbaijan:1550 bcm

Iran: 358 bcm

Kazakhstan:1840 bcm

Russia:3168 bcm

Turkmenistan: 2860 bcm

Uzbekistan: 1870 bcm

Source: BP

Kazakhstan‘s, Turkmenistan’s and Uzbekistan’s situation is different than that of Azerbaijan. They are much more dependent on Russia because of their need to use Russian pipelines to export their natural gas. Although this is currently the only way for these three countries to export their natural gas stocks, these pipelines are not always reliable, as they are not modern and not protected against corrosion.

However, Russia is using their dependency in order to profit as much as it can. For example, while Russian gas which enters Ukraine is more or less $95 per tcm, at its start in Turkmenistan, the gas’ price is only around 30-45$ per tcm.

Turkey‘s Role as a Transit Route to the EU

There are three alternative projects which will allow the Caspian/Central Asian region to sell their natural gas towards EU via Turkey.

 

Tabriz-Erzurum Pipeline: activated in 2001, this pipeline carries Iranian natural gas to Turkey. It has a capacity of 20 bcm/y, but it is currently using only one-quarter of this capacity.

South Caucasus Pipeline: also known as the Baku-Tbilisi-Erzurum pipeline, this is a parallel natural gas pipeline to the BTC. It will carry Azeri natural gas to Turkey and can possibly be extended to Kazakhstan by building a pipeline between Azerbaijan and Kazakhstan.

Trans-Caspian Gas Pipeline: the result of an agreement between Turkey and Turkmenistan for building a pipeline from Turkmenistan to Azerbaijan, Georgia and finally Turkey, the Trans-Caspian Pipeline will have a capacity of 20 bcm/y. However, Caspian maritime disputes over territorial waters are proving a challenge to this project. Currently, this project is suspended because of an agreement between Russia and Turkmenistan obliging the latter to not sell natural gas via any other way than Russia.

Turkey is expected to be a major conduit for Caspian and Central Asian natural gas towards EU because of its geographical location and Turkey’s possibility to become a third largest gas exporter to EU after all these projects will come to reality.

Turkey‘s energy strategy was stated clearly by Turkish President Ahmet Necdet Sezer in the opening ceremony for the BTC pipeline. “Turkey’s energy strategy is devised on the basis of its national requirements and the world energy needs directed by global developments,” he said. “In this context, we aim at making Turkey a transit country in the East-West and North-South axes, transforming the Ceyhan Terminal into an energy trade centre and following the Baku-Tbilisi-Ceyhan Oil Pipeline, the realization of the Samsun-Ceyhan Oil Pipeline and the Baku-Tbilisi-Erzurum and the Trans-Caspian Natural Gas Pipeline projects.”

There are two main projects from Turkey towards the EU to carry Caspian and Central Asian Natural gas

Nabucco Pipeline Project:this will allow Turkey to export Caspian natural gas to Europe via the Balkans. As Turkey has signed an agreement with Azerbaijan to import gas with a reselling option, it is placing much importance on this project. It could be one of the two projects enabling Turkey to export natural gas to the EU, other than the South-European gas ring. This project, estimated to have a capacity of around 25-30 bcm/y, would send gas to European energy markets via the Balkans. It will have to be achieved through the cooperation of Turkey, Bulgaria, Austria, Hungary and Romania.

South European Gas Ring Project: the 2003 signing of an intergovernmental agreement between Turkey and Greece, as well as a Sale and Purchase Contract between the relevant organs of the two countries (namely, BOTAS and DEPA), paved the way for an energy project expected to be completed during 2007, with future expansion to Italy possible. Recently, a deal was signed by DEPA and Edison for just such an expansion. This second part of the project will come on stream around 2011. The gas ring will allow Turkey to export natural gas towards Europe via Greece. Its starting capacity is 0.75 bcm/y, with a long term capacity of 11 bcm/y.

It should be noted that the Nabucco pipeline and South European Gas Ring project do not compete with one another. Both will help secure the energy diversification and independency of the European Union from Russia. Turkey’s role is crucial for European energy security through such energy diversification. As a transit country, Turkey is important for both sides of the east-west corridor, the connector route between the producer regions to the east and energy-hungry Europe.

Because of its geographical position and larger geo-political trends, in the future Turkey has a good chance to become one of the four suppliers of natural gas for the EU, along with Russia, Middle Eastern countries and North African ones, by exporting the natural gas of Caspian and Central Asian regions.

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