- The Writer holdsÌýan MSc in Eurasian Political Economy & EnergyÌýfrom King’s College London andÌýalso anÌýMA in European Studies from Sabancı University.
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Although numerous conditions for Turkey becoming an energy hub have been detailed in my previous analyses, the underlying reasons why Turkey should endeavor to fulfill this ambitious aim needs to be further clarified.
Firstly as a genuine energy hub, Turkey’s influence in its surrounding region would be enhanced. Secondly, Turkey’s international standing in the world arena would be strengthened. This in turn would ensure that its credentials not only as an economic and military power but also a key regional state contributing to the region’s overall energy security would be reinforced. Turkey would also be in a better position to decide which role it would ultimately play in regional energy geopolitics. To this end, it has a significant potential role in:
a)ÌýÌýÌýÌýÌý Providing the EU with additional energy security through surplus gas supplies, with storage capacity that can be utilized during peak or crisis periods.
b)ÌýÌýÌýÌýÌý Offering benefits to end-users through gas-to-gas competition, with its liberalized market as well as potentially opening up a new gas market where newcomers can offer competitive pricing.
c)ÌýÌýÌýÌýÌý Relieving EU gas consumers, who are heavily reliant on single suppliers, from the perceived political leverage created by energy exporter country’s supremacy in the market.
A carefully constructed framework aimed at obtaining hub status and an explanation how to achieve this target along with its real benefits to Turkey and its surrounding area should further be explained at various state levels. However, the infrastructural, commercial and political complications that impede Turkey’s progress towards becoming an energy-trading hub need firstly to be addressed.
Among all other impediments to Turkey’s ambition, its regulatory environment is the most significant. To take advantage of its unique geographic position and become a hub, Turkey needs to take measures to improve its standing, and progress from its status as an energy transit corridor towards that of an energy hub. Once the long-planned liberalization of the Turkish gas market is realized, in line with the development of free pricing and gas-to-gas competition, many more private companies would be able to contribute to the increase of gas volumes to surplus levels, similar to that of Baumgarten or Rotterdam that I have elaborated in my previous week’s analyses. Therefore, a major overhaul in regulations needs to be implemented, starting with gas market liberalization, which requires transparency along with a well-established competitive gas market to become operational.
The second area which Turkey needs to work at is the improvement of gas storage and other physical infrastructure, such as its pipeline network. With the consumption of approximately 50 billion cubic meters (bcm) of gas in 2015 in Turkey, the currently operational gas storage facilities in Turkey are in short supply, therefore the capacity needs to be boosted to a volume that would meet the potential increased demand at peak times. Although Turkey’s current storage capacity can only meet five percent of its current demand, the current ongoing investments in this field will strengthen Turkey’s hand in the years ahead once the projects are completed.
As well as the problem of inadequate storage capacity, price fluctuations due to volatile oil prices and changes in seasonal demand have also put a strain on Turkey to the extent that the construction of additional gas pipelines have become a necessity to cope with unpredictable supply and demand dynamics.
A third hindrance is the nature of the conventional natural gas agreements. These agreements have been based on inflexible, long-term, oil-pegged, and take-or-pay contracts. With the many complications these contracts bring, the gas hub requirement, described by senior non-resident fellow at Atlantic Council, John Roberts, as being “a place where energy is bought and sold� will not be realized.
In recent years price reforms in natural gas, especially in short-term spot market prices, has attracted a great deal of attention. The spot market offers greater flexibility both in terms of the prices and volume of gas needed for peak times especially in hard weather conditions. To benefit from spot market pricing, a transition towards flexible and dynamic market contracts, varying from short-term to spots and hub pricing, should be integrated and supported within a new legal and regulatory framework.
ÌýThese obstacles therefore mean that progress towards becoming a liquid trading hub is still a far-off goal for Turkey unless these barriers are overcome in the coming years. To take full advantage of an energy trading hub, Turkey clearly needs to be more conscientious in addressing its shortcomings, and only then will it be in a position to accomplish its ambitious energy trading hub vision.Ìý
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- Opinions expressed in this piece are the author’s own and do not necessarily reflect Anadolu Agency's editorial policy.Ìý
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