ROUTES WITH NO ALTERNATIVES

This spring season to become a season of changes and transformation in every respect. The same is true of Türkiye. The country is now in the midst of election campaign, with presidential and parliamentary elections slated for May 14.

Meanwhile, the recovery efforts in the disaster zone affected by two devastating earthquakes on February 6, killing more than 50,000 people, continue uninterrupted. Türkiye's Ministry of Industry and Technology estimated cumulative damage from the quakes at $105 billion. Damage to industrial facilities is estimated at $9 billion. About 5,600 businesses in 34 industrial zones suffered significant or moderate damage.

Although this has indefinitely postponed a number of projects, it has not stopped th implementation of strategic plans in the country. Türkiye still aims to establish the International Gas Trade Hub by the end of this year, and is preparing to become a producer of gas at the end of April. "We will not allow any obstacles or political calculations to prevent Türkiye from achieving the goals set for the 100th anniversary of the republic," President Recep Tayyip Erdogan said.

Gas from the Black Sea

The possibility of Türkiye becoming a serious gas producer became obvious in the summer of 2020, when President Erdogan announced in his televised address to the nation that a large gas field (300 billion cubic metres) was discovered in the Black Sea near Sakarya at a depth of 2,100 metres. Since then the estimate of natural gas reserves in the Turkish Black Sea shelf has been increased to 710 billion cubic meters by the drilling of new wells. It is estimated to be enough to cover 33 years of Türkiye's demand for gas. Local authorities expect the first Black Sea gas to start flowing into the domestic market at the end of April this year. Thus, Sakarya will go down in history as the world's fastest offshore field development project, implemented in three years - from exploration to first production.

Turkish Minister of Energy and Natural Resources Fatih Donmez said that the goal is to reach the maximum level of gas production in the Black Sea within four years. This will reduce imports of gas by 30%.

In the first stage, it is planned to produce 10 million cubic metres of gas. In the second stage, the production volume will increase to 40 million cubic metres.

In total, Türkiye plans to drill 40 production wells in the Black Sea region by 2027-2028 and to produce 40 million cubic meters per day or up to 15 billion cubic meters per year. According to publicly available sources, the country's authorities intend to invest $10b to develop the gas fields in the Black Sea.

Minister Donmez said that 10 production wells have already been drilled in the field. "We will continue to drill more than 30 additional wells in the second phase. I hope we will complete the drilling process by 2026," he said.

Türkiye is currently fully dependent on gas imports, most of which come from Russia. Putting the Sakarya field into commercial production will not completely solve the import substitution issue, but it will partially cover demand, which is already important. It is believed that the huge domestic source of gas can help reduce high energy prices—a major factor to curb inflation. However, this is highly questionable by Turkish experts, who point to the disproportionate volume of gas consumption in the country (55-56 billion cubic meters in 2022) with the volume of future production. Experts point out that if the projections come true, daily production from the Black Sea will cover about 29% of consumption during the cold winter season, while the annual production will only meet 3.5% of total consumption, a level that will not allow prices to fall. Nevertheless, Sakarya will undoubtedly make a positive contribution to the country's economy. For example, having its own and considerable gas reserves will be a good argument when negotiating new gas purchase agreements and gas prices with suppliers.

Trade hub

Meanwhile, as Ankara prepares to start producing its own gas, it is also trying to strengthen Türkiye's role as a transit country and to become a full-fledged gas seller in the Mediterranean region.

Authorities believe that the legal framework for the Gas Trade Hub is nearing completion and that the hub can begin operations as early as this year.

"We are still committed to our goals. The hub can be operational within a year. Now we have our own gas [from the Black Sea]. We consume about 55-60bcm of gas annually. Hence, we can supply the system (gas pipelines within the hub, R+) with 100bcm of gas. If we plan well, we will be able to export 40bcm of gas," Donmez noted.

According to the minister, the operation of the hub will be regulated by local legislation. Amendments to laws are likely to be introduced after the presidential and parliamentary elections. "The amendments have been approved in the relevant committee and now they have to be adopted by the parliament," Mr. Donmez said.

Nevertheless, many questions remain regarding the creation of a new gas hub in Türkiye. For example, Russia's role in this project is unclear, although it was Russian President Vladimir Putin who in October 2022 put forward the idea of creating a hub in the country, which would have received the volumes lost during transit through the Nord Stream. He explained that the idea was to build another pipeline system and create a hub in Türkiye through which gas could be delivered to third countries. Especially European countries, if they are interested.

Türkiye responded positively to the initiative and said it has much of the infrastructure in place for a hub in Istanbul. But there are still questions. In early March, Turkish officials raised the issue of Russian investments into the hub, since Moscow was the initiator of the project and needed it in the first place. Moreover, there are buyers willing to buy gas from the hub yet.

Is the Trans-Caspian pipeline cancelled?

Apparently, the Turkish officials are willing to expand the capacity of their own networks to supply Europe with gas alternative to Russian gas.

"With Europe having decided not to buy any more oil and gas from Russia, there are two possible alternatives to compensate. The first option is the gas coming from Azerbaijan to Türkiye. We can increase the capacity," Turkish presidential spokesman Ibrahim Kalin said.

The second alternative, he says, is energy resources in the Eastern Mediterranean.

"For political reasons, the plan was to bypass Türkiye and transport gas to Greece via Cyprus. However, this was abandoned because it would have been too expensive. There is no third alternative. Türkiye is present in both of the remaining alternatives," Kalin added.

In addition to Azerbaijani gas, Ankara also sees good prospects for transit of additional volumes from the Caspian region through its territory to Europe via the Southern Gas Corridor system. Türkiye's main bet is Turkmenistan. The trilateral Memorandum of Understanding on the development of cooperation in the energy sector between Turkmengaz state concern, the Ministry of Energy of Azerbaijan and the Ministry of Energy and Natural Resources of Türkiye signed in December 2022 was a success of the Turkish diplomacy that will make it possible to transport the Turkmen gas to Europe.

The Trans-Caspian gas pipeline project with an annual throughput capacity of 30 billion cubic metres through Azerbaijan and Georgia to Europe has been discussed with Türkiye's active participation since 1999. Meanwhile, Baku has repeatedly pointed out officially that Turkmenistan should be primarily interested in the implementation of this project. Judging by the recent statement made by Azerbaijani President Ilham Aliyev in Berlin at a meeting with the heads of leading German companies, Baku's position on this issue has not changed.

"The Trans-Caspian project is not our project. We are considered a transit country in this project. We have already publicly stated many times, including myself, that we are ready to provide the necessary transit for our friends and partners in the Caspian Sea, if they decide to build the pipeline. But as far as I know, the issue has not been resolved yet because of uncertainty over the source of financing," Aliyev said.

"We will be happy if someone decides to build it, as we will be able to profit from transit and provide good services to our neighbours in the East and in the West," the Azerbaijani leader added.

He reminded that the Trans-Caspian gas pipeline project has been discussed for many years: "As far as I remember, it has been discussed at least in the last ten years. Since then we have implemented various projects, including the Baku-Tbilisi-Ceyhan, Baku-Tbilisi-Erzurum and the Southern Gas Corridor. We are building a green energy transmission line to Europe, but the issue of the Trans-Caspian gas pipeline is still discussed. That is the situation."

Ashgabat has reiterated its interest in expanding gas exports, but in his March 16 statement the made at the summit of the Organisation of Turkic-speaking States in Ankara, Chairman of the Popular Council of Turkmenistan, Gurbanguly Berdymukhamedov, did not refer to Europe, but to Türkiye.

"As Turkic states, we can bring the Turkmen heat to every Turkish family through our diversification policy and strengthening our legal framework. Above all, Turkmenistan is ready to consider supplying its gas to Türkiye even today," Berdymukhamedov said.

He suggested that a power transmission line (!) should also be laid to Türkiye in parallel with the gas pipeline. "This concerns hydrocarbon resources only. With regard to energy, if there is a need, we can also construct a power transmission line in parallel with the gas pipeline," he said.

Time will show whether these statements remain as declarations or come true. Obviously, Ashgabat is not that interested in exporting gas to Europe via Azerbaijan, being content with the nearest markets. This is logical. To implement the project, Turkmenistan will have to look for investors on its own to build an underwater pipeline connecting Turkmenistan with the Southern Gas Corridor System in Baku, find buyers for Turkmen gas and negotiate with the Turkmen side on guarantees of its sales volumes and prices.

Moreover, the idea of an underwater pipeline, which for years has stumbled over the unresolved legal status of the Caspian, is unlikely to find favour with Russia and Iran now that it has been resolved. And even if the latter do not put up any obstacles, the pipeline is not a near-term prospect and for technical reasons. The SGC has a maximum annual capacity of 10bcm. Although this volume will be doubled by 2027, this capacity is already contracted to Azerbaijani gas.