Russia vs. Turkey: Geopolitics and Energy Security
December 1, 2015
Russia may have just made a major mistake in securing its position in the future of the Middle East. Aside from Russia’s tentative relationship with Iran, Russia had also seemed to have been courting a very powerful Sunni democracy in Turkey. Turkey is very important for Russian gas, making up 58% of Turkey’s gas imports and 19% of Russian exports. Turkey, because of a lack of both transportation and storage, pays double the European price for gas ($13-$15 per mmBtu).
So when Turkey shot down a Russian jet, whether knowingly or unknowingly, Russia’s reaction was rather rash and not forward-looking in the least. Imposing sanctions on Turkey and potentially ending future energy projects between the two countries could prove difficult for Russia in the long run.
Because Turkey is what they call a premium market when it comes to gas exports. Everyone wants to send gas to Turkey; however, most projects are either sanctioned or just not ready yet. Because Turkey pays double the amount for gas relative to the European gas markets and six times the price of American markets; Iran, Qatar, Azerbaijan, Israel, Egypt, Cyprus, and the U.S. are looking for access to Turkey’s gas market.
In 2014, Turkey imported 1.7 trillion cubic feet (Tcf) of gas. By 2018 there will be several projects that will come online and provide Turkey with a consistent and secure energy source.
Small projects include Cheniere Enegy’s (LNG) Sabine Pass LNG export facility, which starts exporting 0.1 Tcf of gas per year in 2016. Baku, Azerbaijan will expand its natural gas pipeline by 0.6 Tcf of capacity to Erzurum, Turkey. And finally, Kurdish gas from northern Iraq will be added to deliver 0.4-0.5 Tcf of capacity to the Turkish border.
It’s important to remember that although the Kurdish PKK in Turkey are considered terrorists, the Iraqi-Kurdish are not; in fact, they are an important source of energy to Turkey by providing 1.6 million barrels of oil per day from Kirkuk, Iraq to Ceyhan, Turkey.
But the two major projects that are likely to have the largest impact on Turkey’s future supply is the largest deposit in the world, located in the Persian Gulf between Qatar and Iran, and a recent mega-discovery in the Mediterranean.
The first is the world’s largest gas deposit that happens to be controlled by Iran and Qatar: the South Pars/North Dome offshore Persian Gulf resources, with 1,260 trillion cubic feet of gas. This resource would supply all of Turkey’s demand for over 700 years. The deposit produces an estimated 37 billion cubic feet per day (Bcf/d) and that is while Iran is still under sanctions.
Qatar, a strong Turkish ally, has proposed a direct natural gas pipeline to Turkey. With 18% of Turkey’s LNG exports coming from Qatar, there may be further growth with a direct gas pipeline.
On the other hand, Iran provides Turkey with 20% of its total natural gas through pipelines. Iran would like to expand its exposure to Turkey through the Iran-Iraq-Syria pipeline that would then direct gas to Turkey. Iran hopes the proposed pipeline would be an alternative to the Qatar-Turkey pipeline and would pipe 14 trillion cubic feet per year. This could potential replace Russian imports into Turkey and give Shia-dominant Iran tremendous geopolitical leverage with a Sunni-dominated Middle East power and NATO ally.
Finally, the newest player that would wish to access Turkey is controlled by Noble Energy (US) and Eni (Italy). Currently, the U.S. runs the show in the Mediterranean and not because of its influence over Israel, but because of Noble Energy (NBL). Noble is a Texas-based company that had the US government bargaining with Israel to export gas from the Leviathan and Tamar fields. As part of the bargaining campaign with Israel, the two major holders of the projects, Delek Group, will have to sell its stake in Tamar and Noble, gradually reducing its stake in Tamar to 25% in the next 6 years.
These fields hold over 30 Tcf of gas and Noble will still hold operational control over both fields. In 2018-2019 these two fields are expected to produce exports of 1.3 Tcf of gas per year, or 77% of Turkish gas imports in 2014.
Finally, Eni (E) just discovered Zohr, off the Egyptian coast. This is the largest single find in the Mediterranean, and it is expected to come online in 2018. Many surrounding Arab nations require more gas and the Mediterranean will serve that purpose.
There are several existing projects in the Mediterranean that can supply gas to various markets in the Arab world. They includes large LNG projects and several pipelines both looking for reversal, expansion, and new construction.
The proposed Arab Gas Pipeline would transport gas from Egypt through Jordan, Lebanon, Syria, and expand to Turkey with 0.4 Tcf of gas capacity. This would not only secure energy supply for these Arab countries in dire need of a stable source of gas, but it would help build the energy bond between Arab nations and their Israeli counterparts.
Turkey’s main focus, as Russia’s relationship sours, has been energy security. If Turkey manages to replace Russian gas with the various projects listed above it could remove Russian geopolitical and energy influence in the Middle East. That gas could spread to Europe and slowly diversify market shares across Western Europe and the Middle East. This may go down in history as one of the defining political and economic moves that pushes Russia to rethink its politics and forces Putin to start conceding some of his power.