2021, a critical juncture on Turkey’s energy strategies

Turkey’s long-term supply contracts, accounting for a third of gas imports will expire this year making 2021 a critical one for the country’s short to mid-term energy strategies.

The so-called “Western pipeline,” the very first pipeline to bring Russian gas to Turkey starting from 1997, is about to get “retired,” and some of the contracts with the Russian company Gazprom may not be extended.
The Western line, which is traversing Ukraine, Moldova, Romania, and Bulgaria, is being replaced by the new pipeline TurkStream that already started to bring Russian natural gas directly from the Russian port into Turkish soil in Thrace, crossing the Black Sea. This is the second direct pipeline between Russia and Turkey, as the pipeline “Blue Stream,” has been operative since 2003.

What makes 2021 crucial is that five long-term contracts signed with Russian Gazprom (one with state-owned Botaş, and the rest with four different private companies) are due to expire this year.

Long-term contract with Azerbaijan and Nigeria to expire in 2021

Also, Turkey’s contract with Azerbaijan on the purchase of gas from the Baku-Tiflis-Erzurum pipeline, as well as the 22 years long contract to buy LNG from Nigeria will also expire in 2021.

But the main bulk of the negotiations are set to be made with Russia; as other long-term contracts with Gazprom are due to terminate within the next five years.

In contrast to the 1990s, one would expect Turkey to seek better terms from Russia as the changing conditions benefit Turkey.

First of all, Turkey’s effort of diversification has been paying off. In addition to Baku-Tbilisi- Erzurum pipeline Turkey buys Azeri gas from the Trans Anatolian natural gas pipeline, (TANAP) which as the name suggests crosses Anatolia until the Greek border. Turkey purchases Iranian natural gas and has increased significantly its purchase of LNG, as it offers a much cheaper option.

The progress in renewable energies has been surprisingly impressive, while the discovery of a natural gas reserve in the Black Sea might also factor in during negotiations with Russia.

Despite those diversification efforts, however, Turkey continues to pay higher prices compared to other European countries due to the long-term oil-indexed contracts with “take or pay” clauses.

US-Russian energy competition in the Balkans

While Moscow might approach Turkey’s statements about the discovery in the Black Sea with a pinch of salt, it will have to take into account the Russian-U.S. energy competition which due to the shale gas revolution in America has taken a new form.

In the 1990s and throughout the 2000s American governments have supported politically all the pipeline projects that would bring the Central Asian energy resources to the international market via Turkey to decrease Europe’s dependence on Russia. Some of these projects were successful like the Baku-Tbilisi-Ceyhan oil pipeline and Baku-Tbilisi-Erzurum gas pipeline. Others, like the ones designed to bring Turkmenistan gas, remained on paper.

Currently, the U.S.-Russian competition continues in a different form thanks to the shale gas revolution which transformed the United States from an energy importer to an energy exporter. The U.S. has set its eyes on the Western Balkans, as it has started to sell LNG to Bulgaria via the terminal in Greece.

Russia on the other hand is planning to extend the TurkStream 2 as far as Hungary. Azeri gas has already started to be transported as of last year to Southern Italy via Albania, thanks to the Trans Adriatic Project (TAP), which operates as an extension of TANAP.

Given the LNG competition, TurkStream and TANAP are highly important for both Moscow and Baku, which should be an additional factor strengthening Turkey’s hand.

Lack of transparency

Turkey, however, needs to have the answer to crucial questions before starting negotiations with its suppliers. What will be Turkey’s energy needs in five, 10 to 25 years? To what degree it should count on the reserves said to be found in the Black Sea? Should Turkey stay away from natural gas due to the EU’s green deal? What should be the share of the private sector?

To what degree the Akkuyu nuclear power plant project, which is expected to be undertaken by Russia, and the geopolitical rivalries in Syria and Libya will be a factor in these negotiations?

There are no clear answers to these questions; first and foremost while the energy sector was never transparent in the past as well, it has become even more opaque under the AK Party administration.

The relevant institutions like BOTAŞ, TPAO, and Energy Ministry refrain from providing information, and with the lack of clear data, it becomes difficult to hold healthy debates on the issue.

With meritocracy becoming a nostalgic concept and many former officials forced to leave BOTAŞ, TPAO, and the Energy Ministry, there are doubts as to how many competent officials are left in these institutions, to make healthy projections for Turkey’s future needs.

Meanwhile set aside the pro-government media, even the so-called opposition media is busy debating conspiracy theories instead of debating Turkey’s energy policies.

At the end of the day, this leaves us with huge energy bills to pay with.