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Proving up Black Sea gas deposits is a priority for Turkey, as this will enable it to reduce its dependence on imported fuel, particularly from Russia where pricing disputes are the order of the day. Turkey remains part of the gas transit equation, which gives it extra negotiating power when it comes to purchase agreements.
The main trends and developments we highlight for Turkey's oil and gas sector are:
- Demand for gas will rise quickly as household and industrial use spreads, and additional gas-fired power stations are built. We are assuming 46.2bn cubic metres (bcm) of Turkish consumption by 2016. Practically all of this gas will be imported, although Türkiye Petrolleri Anonim Ortakligi (TPAO)'s recent exploration success in the Black Sea could mean there are risks to the upside in terms of domestic supply, and risk to the downside in terms of imports.
- Russia's gas export monopoly Gazprom said on October 2 2011 that Turkey's state-run pipeline operator Botas had chosen not to renew its long-term gas supply contract. The deal, originally signed in 1986, expired in December 2011. Botas had purchased 6bcm annually from Gazprom under the agreement. Other Turkish buyers are expected to take Russian gas, thus continuing the trade between the two countries.
- In October 2011, the Turkish government announced that it had reached a transit deal for gas from Azerbaijan's BP-operated Shah Deniz field, although energy officials provided few details. For nearly two years, both sides have talked about a deal that would see as much as 10bcm transported from the Shah Deniz field and through transit networks in Turkey. In February 2012, Azeri state energy company SOCAR, said it expected the two governments to sign an agreement for the Trans Anatolian Gas Pipeline (TANAP) by March or April 2012.
- The company also said that BP, Statoil and Total were interested in taking part in TANAP and that it might offer part of its 80% share in the project to these companies. However, SOCAR Chairman Rovnag Abdullayev said his company 'will remain as the main shareholder, leader and operator of this project'. Turkey's state-owned TPAO and Botas own the remaining 20% of TANAP. The project will have an initial transfer capacity of 30bcm, although it is initially expected to carry 16bcm, Costs are estimated to be US$5-7bn and the pipeline is planned to start operations in 2017.
- Beyond the Black Sea, Turkey is also considering exploration in the booming Eastern Mediterranean upstream, particularly for gas. TPAO Chairman and President, Mehmet Uysal, said in November 2011 that his company will farm-out licences for seismic work and exploration off the cities of Iskenderun and Mersin. He added that the firm was seeking 50-50 partnerships. Energy Minister Taner Yildiz said in February 2012 that about 10 international companies had made applications to undertake exploration off Mersin. Citing unnamed Energy Ministry officials, Bloomberg reported that companies interested in Turkey's Eastern Mediterranean frontier included BP, Total, Chevron, ConocoPhillips, Genel Energy, OMV, Perenco and RWE.
- Turkey's stance in the Mediterranean is increasingly assertive. The country's relationship with Israel has deteriorated and it has opposed drilling plans off Cyprus as it has yet to formally reach an agreement over the sovereignty and maritime borders of the island-state. Turkey has threatened to place military vessels in the Mediterranean Sea to impede what it considers to be provocative exploration. The long feud between Greece and Turkey over maritime borders could exacerbate diplomatic tensions in the region in case of exploration in the Aegean.
- Our forecasts suggest that, beyond the weakness of 2009-11, Turkish oil consumption will rise to more than 711,000 barrels per day (b/d) by 2016. Oil imports are likely to top 664,000b/d by this point, with domestic crude and gas liquids supply of an estimated 47,000b/d.
- The cost of oil imports ais expected to reach US$22.6bn by 2016, with a gas bill of US$20.6bn for that year. The combined oil and gas import costs for 2016 are therefore put at US$43.2bn. Turkey's dependence on imports leads to high volatility in the country's energy bill. Our anticipation of slower growth in China and a worsening eurozone debt crisis clearly pose a downside threat to global demand and prices, which could provide some relief to Turkey in terms of expenditure. Thus, our assumption of OPEC basket oil prices falling from US$107.52 per barrel (bbl) in 2011 to US$99.38/bbl in 2012 could help Turkey mitigate the consequences of a growing import requirement.
Click for Report details:Turkey Oil and Gas Report Q2 2012