Turkey: Security is vital to country’s role in oil and gas transit

Three years ago, Kurdish militants in eastern Turkey claimed responsibility for a bomb attack on a pipeline that transports crude oil from offshore fields in the Caspian Sea to the markets of energy-hungry Europe.

The pipeline, which opened in 2006, is an impressive piece of engineering. It extends almost 1,770km (1,100 miles) from Baku, Azerbaijan’s capital, through Tbilisi, the capital of Georgia, and through Turkey to Ceyhan on the Mediterranean coast.

But for Turkish policymakers, the August 2008 bombing was a stark reminder that security challenges form an essential component of Turkish energy policy as the nation seeks to live up to its self-proclaimed image as the region’s most important place energy transit.

Turkey buys almost all its oil and gas from abroad, and its fast-growing economy is sure to require ever larger volumes of imports over the next decade.

At the same time, it lies at the crossroads of the supply routes that connect Russian, Caspian and central Asian producers with consumers in western, eastern and southern Europe.

Annual energy transit fees provide Turkey with a tidy sum of money that would be at risk if oil flows were interrupted by domestic terrorism or regional conflicts, such as the 2008 Russian-Georgian war.

The interconnection between the country’s domestic energy needs and its role in hydrocarbons transit was well illustrated in a landmark agreement signed in October by the Turkish and Azerbaijani governments.

Under this accord, Turkey committed itself to buying up to 6bn cu m of gas from Azerbaijan by 2017 and to facilitating the flow of another 10bn cu m through its pipelines to markets in Europe.

This deal is important because it highlights Azerbaijan’s potential as an alternative to Gazprom, the state-dominated Russian company, which at present is the main gas supplier to Turkey and a number of European Union countries.

Azerbaijan’s Shah Deniz gas field, in the Caspian Sea 70km south-east of Baku, is one of the world’s largest gas development projects. When the field’s second unit comes fully on-stream in 2016, Shah Deniz is expected to produce about 25bn cu m of gas a year.

But one big question remains unanswered: which pipeline will the consortium that controls Shah Deniz use to deliver gas to Turkey and Europe? For the past decade EU governments have pinned their hopes on Nabucco, a project whose partners include Austria’s OMV, RWE of Germany and Botas of Turkey.

Delays, cost overruns and an inability to nail supply deals have plagued Nabucco from the start. According to Günther Oettinger, the EU’s energy commissioner, the project may end up costing €10bn-€14bn ($13.6bn-$19bn) rather than the originally estimated €7.9bn.

But the strategic imperative – as EU governments see it – of reducing dependence on Russian gas, is such that they are keen to make Nabucco work.

Moreover, the project should receive a boost from Germany’s decision this year to abandon nuclear power once and for all, as well as from an Italian referendum that rejected the Berlusconi government’s plans to resume atomic energy production.

When some of the EU’s biggest economies spurn nuclear power, gas delivered through Turkey becomes an even more vital part of the European energy mix.

From Turkey’s perspective, Nabucco is just one of several possibilities. A second project, known as the Interconnector Turkey-Greece-Italy (ITGI), would link Azerbaijan to these three countries.

Because much of the necessary infrastructure is already in place, the cost of ITGI is put at only €1.25bn and the project is expected to be completed by 2015.

A third project, the €1.5bn Trans Adriatic Pipeline (TAP), would carry Azerbaijani gas through Turkey to Greece, Albania and southern Italy. Meanwhile, the Russian-backed South Stream project envisages the flow of Russian gas to international markets through Turkish territorial waters in the Black Sea.

For Turkey, none of these options presents a political and security challenge of the type contained in Cyprus’s decision in September to drill for gas in the eastern Mediterranean.

The exploration is being conducted by Noble Energy, a Texan company, in waters that are internationally recognised as belonging to the Greek Cypriot-controlled government of Cyprus. A potential bonanza awaits Cyprus, for an adjacent Israeli gas field was last year discovered to hold abundant reserves.

Turkey says the Cypriot government has no right to drill for gas on behalf of an island that, since 1974, has been divided into a Greek Cypriot south and a Turkish Cypriot north.

But Ankara knows it has little support from other countries for its view. This may explain why, in spite of some aggressive-sounding rhetoric, Turkey’s response has been fairly restrained.

The Turks despatched the Piri Reis, an exploration vessel, to an area close to the Cypriot drilling, but not so close as to provoke a diplomatic or military incident.

Even so, EU diplomats suspect the the discovery of further gas riches in the eastern Mediterranean, coupled with the lack of a comprehensive solution to the Cyprus problem, would draw a more robust response from Turkey

Financial Times