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Turkey: a future energy hub?

Turkey’s importance in world energy markets is flourishing – both as a regional energy transit hub as well as a consumer, according to a U.S.-based Energy Information Administration and other data. Turkey’s role as an energy hub has become increasingly important due to it geopolitical value.

While some countries have been blessed with natural hydrocarbon resources, Turkey has an important geostrategic location. Located at the gateway of two continents, Turkey historically served as an intersection of east-west and north-south trade routes. Turkey is viewed as the natural corridor between newly emerging energy sources and the energy-hungry and industrialized western economies.

Over the past ten years, Turkey has enjoyed an average economic growth rate of 5.2 percent a year, a trend which started to fluctuate in 2011 according to economists. In fact, the economic boom was built with the income provided by the ruthless privatization program instituted by the AKP government. The same economist explained that the AKP-led privatizing drive was a “revenue maximizing privatization,” making large amounts of cash readily available to invest in all kinds of profitable ventures, particularly property development and real estate.

Petroleum and other Liquids

During the past decade, Turkey’s economy developed, along with its petroleum and other liquids consumption has increased. With limited domestic reserves, Turkey imports nearly all of its oil supplies.

As of January 1, 2014, the Oil & Gas Journal (OGJ) estimated Turkey’s proved oil reserves at 295 million barrels, located mainly in the southeast part of the country. Turkey’s oil production peaked in 1991 at 85,000 barrels per day (bbl/d), but then it diminished each year and  touched down  at 43,000 bbl/d in 2004. Even though Turkey’s production of liquid fuels has heightened marginally since 2004, it is far short of what the country consumes each year.

In 2010 and 2011, Turkey’s economy was one of the fastest growing economies in the world at more than 8% (inflation) per year , and Turkey’s oil consumption grew with this economic expansion. While economic growth slowed in 2012 and Turkey’s economy only grew at just over 2% from the previous year, total consumption of liquid fuels in Turkey increased by 6% in 2012. Turkey’s economy grew by 4% over 2013, and total consumption of liquid fuels in Turkey increased by another 6% in that year. Its domestic production, however, shows no signs of any significant growth in the short term (Source: EIA).

turkey eia

The extraordinarily favorable position of the Asia Minor peninsula offers great transit potential for raw materials from the Caspian Sea, Russia and even the Persian Gulf/Middle East and Northern Iraq.

Read more: Turkey growing as an energy hub

Legislation and government

Sector organization

Although there are a number of international firms operating in Turkey, the state-owned firm TPAO has preferential rights in petroleum exploration and production.

Türkiye Petrolleri Anonim Ortaklığı (TPAO) is the main exploration and production entity in Turkey. As a state-owned firm, TPAO has preferential rights, and any foreign involvement in upstream activities is limited to joint ventures with TPAO. Overall, TPAO produced about 75% of the total oil output in Turkey in 2011, according to the IEA.

The government offers several types of tax breaks to encourage exploration and production, including lower corporate tax rates, exemptions from import duties for material and equipment, and exemptions from value-added tax for exploration activities.

Let’s talk about numbers:

Consumption and imports

In 2013, Turkey’s total liquid fuels consumption averaged 734,800 bbl/d. More than 90% of crude oil consumption and significant quantities of petroleum products came from imports. According to the IEA, Turkey’s crude oil imports are expected to double over the next decade. In 2012, the majority of Turkey’s crude oil imports came from Iran, which supplied 35% of the country’s crude oil. Russia, once the largest source country of Turkey’s crude oil, has fallen behind Middle East suppliers in terms of volume and is now the fourth-largest supplier of crude oil to Turkey.

crude oil supply turkey

turkey net trade

Transit and infrastructure

Turkey plays an increasingly important role in the transit of oil. It is strategically located at the crossroads between oil-rich Former Soviet Union and Middle East countries, and the European demand centers.

As the European Commission stated in 2011, Turkey should be encouraged to deepen its gas market, increasing liquidity and contract flexibility. This process will pave the way for the emergence of an “energy hub”, which would provide greater energy security. Implementing measures for the transit of Azerbaijan gas via Turkey would be an important step toward the opening of the Southern Gas Corridor. In this regard, the implementation of Trans Anatolian Project (TANAP) would be one of the most important developments after the now-operational Baku – Tbilisi – Ceyhan (BTC) pipeline project in realising Turkey’s energy hub aspirations. This analysis examines the role of TANAP in helping Turkey to realise this long-standing policy dream: to become an energy hub and a key player in global energy security.

Subsequently  after the signing of the agreement in 2012, TANAP is scheduled to be operational by 2018, with investments of 12 billion USD. The project is the first step toward the realisation of the fourth energy corridor – the Southern Gas Corridor – which is expected to carry up to 31 bcm of natural gas to European markets. It will lay down crucial infrastructure, enabling Turkey to serve as a main conduit for regional energy sources such as Leviathan in East Med, Shah Deniz in the Caspian, Ajil in Iraq, South Yolotan in Turkmenistan. Although it is not certain that all those resources will be transported via Turkey, the creation of the necessary pipeline network and infrastructure will make Turkey attractive to upstream companies, putting Turkey in an advantageous position within the regional energy game. With the inclusion of additional volumes, as a hub state Turkey could offer up to 80-100 bcm of natural gas to be traded in and through the country.

turkey russia pipeline
The new pipeline proposed by Russia through Turkey in order to avoid Ukraine passage
tanap pipeline
TANAP pipeline starting from Azerbaijan and ends in Italy

 Sources: eia.gov, mecp.org, dailysabah.com, hazar.org, wikipedia,

Read more:

From books:

Turkey’s Energy Sector: All the article above is described analytically in this book : good quality price-content.
Geo-Politics of the Euro-Asia Energy Nexus: The European Union, Russia and Turkey (New Security Challenges):  European Energy Security identifies the EU’s main energy security challenges and looks at Turkey’s possible role in this policy area.
Turkey Oil and Gas Industry Business and Investment Opportunities: Turkey Oil and Gas Industry business and investment opportunities and contacts

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