- The Writer holds听an MSc in Eurasian Political Economy & Energy听from King鈥檚 College London and听also an听MA in European Studies from Sabanc谋 University.
听In my previous analyses, I have addressed the question of whether Turkey can fulfill its potential as a provider of energy security for Europe through the framework of an energy trading hub as opposed to an energy bridge or corridor. The benefits to and impediments against Turkey becoming an energy hub will be put in focus to ascertain if this long-awaited vision can become a reality.
The conditions that Turkey鈥檚 needs to put in place to achieve its goal have previously been elaborated, but the reasons behind this motivation need听further investigating.
Firstly, being a genuine energy hub would help Turkey become more influential in its surrounding region. Secondly, Turkey鈥檚 international standing in the global arena would be enhanced, and would strengthen听Turkey鈥檚 credentials as a key regional state contributing to the region鈥檚 overall energy security. Turkey would also be in a better position to decide what role it would ultimately pursue in regional energy geopolitics.
To this end, it has a significant potential role in:-
a)听听听听听 Offering the EU additional energy security, through gas surplus with storage capacity that can be utilized during peak or crisis periods;
b)听听听听听 Providing benefits to end-users through gas-to-gas competition through a liberalized market, 听as well as potentially opening up new gas markets where new-comers can offer competitive pricing; and
c)听听听听听 Alleviating the gas supplier supremacy in the EU gas market by offering alternatives.
Turkey鈥檚 main motive should not be solely based on security of energy supplies. The country should also aim at increasing the volume of gas stored to allow spare capacity from diversified sources to support its aim of becoming an energy trading hub.
Many of the pressing challenges that stand in the way of Turkey becoming a genuine energy hub in the region can be overcome provided that the following requirements are fulfilled:-
Firstly, the weight of gas-to-gas competition should be internalized. Secondly, the transition towards flexible and dynamic market contracts varying from short-term to spots and hub pricing should be integrated and supported with a new legal and regulatory framework. And thirdly, a greater volume of liquefied natural gas should be utilized and integrated into the system to balance the risks associated with pipeline-based gas.
Recent discoveries and potential improvements should be taken into account with regards to Turkey鈥檚 ability to create spare capacity as an alternative supply for the EU gas market. With the assumption that the ongoing TANAP project becomes operational; South Cyprus and Israel should听be able to find common ground and construct a seabed pipeline connecting Turkey. In addition should the Kurdish Regional Government (KRG) come to a final agreement with the central government in Baghdad over control of oil in the KRG region; and should the overall Liquefied Natural Gas (LNG) capacity in Turkey increase to such a level that can balance pipeline-based gas in the long run, these extra volumes of gas could become available with the support of well-established storage facilities. This should ensure that Turkey鈥檚 current energy corridor position is elevated.
However, among all other impediments to Turkey鈥檚 ambition, the regulatory environment is the most significant. Once the long-planned liberalization of the Turkish gas market is implemented, in line with the development of market-based pricing, many more private companies would be able to contribute to the increase in gas volumes to surplus levels, similar to that of Austria鈥檚 Baumgarten. Therefore, priority should be given to a major regulatory overhaul to liberalize the gas market.
The second area which Turkey needs to work towards change is in the improvement in gas storage and other physical infrastructure, such as pipeline networking. At present during peak times, extra capacity has to be available to meet increasing demand. With the consumption of approximately 50 billion cubic meters (bcm) of gas in 2015 in Turkey, the current operational gas storage facilities in Turkey are insufficient.
In addition, price fluctuations and changes in seasonal demand have also put a strain on Turkey to the extent that the construction of additional gas pipelines has become one of the prerequisites for alleviating these and other similarly unpredictable circumstances.
A third hindrance is the nature of the conventional natural gas agreement itself. As long as Turkey practices the inflexible long-term, oil-pegged, and take-or-pay contracts, with the many complications they bring, the gas hub requirement of being 鈥榓 place where energy is bought and sold鈥� will not be realized.
Turkey鈥檚 successful advancement to the status of gas hub can only be realized with transparency, broad liquidity and flexibility, a deregulated gas market created on the premise of political will and market culture, and the provision of non-discriminatory access to gas storage as well as to multiple gas supplies with the help of larger financial players. These obstacles should be interpreted to mean that progress towards becoming a liquid trading hub will remain a distant goal for Turkey unless such shortcomings are addressed. If Turkey wishes to take full advantage of its potential, it will clearly need to be more assiduous in pointing out its shortcomings.
- Opinions expressed in this piece are the author鈥檚 own and do not necessarily reflect Anadolu Agency's editorial policy.听
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