Natural Gas Europe had the pleasure to discuss Eastern Mediterranean gas matters with Dr. Sohbet Karbuz. Dr. Sohbet Karbuz currently works at Mediterranean Observatory for Energy (OME), an energy industry association based in Paris, as director of its hydrocarbons division. Before joining the OME in 2004, he was with the International Energy Agency in Paris. Previously, he worked as research associate and manager at several institutions in Austria, Germany, Italy and Turkey. This interview was inspired by OME's new book on the future of Turkey’s energy sector.

How optimistic are you about Turkey’s energy future?

Turkey’s future, stimulated by a booming economy and population, an export-oriented industry and a blossoming domestic market, looks bright. The energy needed to fuel this growth will depend greatly on the paths chosen. In this context, the country finds itself at a historical crossroads in its development, as the energy policy choices it makes today will shape Turkey’s energy future and its ability to attract the considerable investments required in the energy industry, in addition to a hefty bill for energy imports from foreign sources. The total energy investment needs by 2030 is estimated at USD260 billion (in 2012 dollars), of which two-thirds for the electricity sector alone. The cumulative energy import bill will range from USD1.1 and USD1.4 trillion to 2030. In OME’s new book on Turkey’s energy future, two scenarios are presented and each scenario will carry important consequences on Turkey’s energy outlook in 2030. The Conservative Scenario takes into consideration past trends, policies in forces and ongoing projects but takes a cautious approach regarding the implementation and timing of policy measures and planned projects. In a way, it is kind of business and politics as usual scenario. The Proactive Scenario assumes effective achievements in lessening the dependence on imported fuels by giving emphasis to production of domestic resources, stronger efficiency programs and a more diversified energy supply mix including more renewable energy. These will require unwavering political will, strong policies and measures, as well as sizeable investments, especially by the private sector. Anticipating the future is sometimes a wishful exercise; the reality in 2030 will most likely be somewhere in between these two scenarios. Nevertheless, this approach has with no doubt the merit to give very useful insights about the challenges and opportunities the authorities, the energy industry, investors and not least, the consumers are bound to face in Turkey to the horizon 2030. The approach of different scenarios is a clear invitation, and perhaps a roadmap, for eventual in-depth analysis of the energy mix for Turkey.

In a nutshell, how would you describe Turkey’s energy future?

What our scenarios are indicating is that energy demand in Turkey is going to double by 2030 with hydrocarbons still playing a major role in the energy mix. Electricity demand will increase substantially triggering sizeable generating capacity additions. Turkey will thus need to double its electricity generating capacity by 2030. If developed vigorously and accurately, renewables could make-up more than two-thirds of this additional capacity. In Turkish electricity market while we foresee a golden age of coal, the future of gas is fast approaching at a crossroad. According to OME projections, energy demand in Turkey is set to double by 2030 in the Conservative Scenario. Fossil fuels will still largely dominate the energy mix accounting for over 85% of the total in 2030. The share of renewables (including hydro) would remain unchanged at around 10%. Therefore, the energy mix would be roughly similar to that of today with the exception of nuclear. This path is clearly unsustainable, as, in addition to the existing burden of over reliance on fossil fuel imports, it would lead to an increase in electricity intensity and a doubling of energy-related carbon dioxide (CO2) emissions. In the Proactive Scenario, energy demand would be 19% lower in 2030 compared to the Conservative Scenario, energy intensity would also be 19% lower and CO2 emissions would be reduced by 26%, which is not negligible. The cumulative energy savings until 2030, 415 Mtoe, would be equivalent to the past four years worth of Turkey’s primary energy demand. This Scenario would allow for, not only a reduction in demand for all fossil fuels, but also a diversification of the energy mix itself. The energy mix would thus include a bigger share of renewable energy sources, accounting for over 15% of the total energy mix by 2030, and nuclear for 9%. While it would still be dominated by fossil fuels, their share would be reduced substantially, to 76% compared to 90% today.

How significant is Turkey’s indigenous production in comparison to its consumption?

From the supply side, Turkey is not richly endowed with oil and gas, but has large lignite resources and substantial potential of renewable energy resources and energy efficiency. However, today only one quarter of the energy demand is met by domestic production. According to OME forecasts, this share would increase to 32% in the Conservative Scenario and to 43% in the Proactive Scenario by 2030. From both demand and supply sides, the Proactive Scenario is clearly more sustainable than the Conservative one and improves the security of supply of the country. Turkey is not a rich country with respect to conventional oil and natural gas deposits. However, offshore areas and most of the internal basins remain unexplored. In addition, there are numerous potential unconventional gas resources in basins located in different geographical regions. Growing interest in offshore areas and unconventional gas has recently given an impetus for investment in the Turkish upstream market.

How important is the role of natural gas in meeting Turkey’s energy need?

The role of natural gas in meeting Turkey’s growing energy need has become increasingly important since it was introduced as a source of energy on a commercial scale with the start of imports in 1987. A fast growing economy, industrialisation and concerns about growing air pollution in big cities have played a major role in tremendous increase in gas consumption. Today, gas has become the fuel of choice in fuel of choice in industrial and household consumption as well as in power generation. Domestic production is far from satisfying the growing demand for gas. Turkey relies heavily on import, mostly on long-term take-or-pay contracts. Import volumes have grown rapidly in the past years and exceeded 45 bcm in 2012, making Turkey one of the biggest markets in Europe. The government however wishes to reduce the weight of natural gas in the energy mix and bring energy security forefront in its energy policy. According to OME forecasts, the volume of gas imports and consumption will continue to increase in the Conservative Scenario but will remain relatively stable under the Proactive Scenario. In the Conservative Scenario, the demand for gas exceeds 80 bcm in 2030. Over 60% of the increase in gas demand will be driven, as is the case today, by the growing demand coming from the power generation sector. In the Proactive Scenario the demand for gas increased slightly until the beginning of the next decade and remains nearly flat at around 50 bcm afterwards, mainly due to substantial reductions in the use of gas for power generation. OME scenarios suggest that the share of gas in electricity generation will decline from about 45% in 2012 to 38% in 2030 and onwards in the Conservative Scenario, whereas in the Proactive Scenario it will drop to 11% in 2030. Depending on which path the future of gas demand will take, its impact will be remarkable, it will either maintain Turkey’s dependence on natural gas imports, hence weighing further on the country’s energy bill, or will unleash it from this heavy burden. Net gas imports will follow the same trend as demand for gas. Contracted natural gas volumes will peak at 57 bcm in 2021.

Is Turkey likely to face a supply gap once existing supply contracts expire?

Even if expiring contracts of BOTAS and private sector are extended, and also for existing but uncontracted LNG import capacity is fully utilized there would still be a supply gap by 2022 in the Conservative Scenario. If uncontracted LNG import capacity is not fully utilized then the problem would occur as early as 2018. In the Proactive scenario, where net gas import requirement is expected to be much lower that the Conservative Scenario, there would not be any serious concern until 2022. Indeed, already contracted supply volumes, would be in excess of import requirement. Supply deficit issue that would occur afterwards could be solved either by extending some of the existing contracts or by replacing those volumes from new suppliers and routes in order to improve the supply diversity. 

What factors are likely to contribute in enhancing Turkey’s natural gas security?

Turkey has an extensive gas transport infrastructure, composed of several international pipelines as well as two LNG import terminals. In addition, the country has an ever-expanding national grid. In 2013, total gas import infrastructure capacity was 57 bcm. When the project underway comes online, this capacity will be sufficient to meet the expected gas import need in the Conservative Scenario. In the Proactive Scenario, however, even the existing import capacity would suffice to meet the expected import need. Having sufficiently large contracted gas volumes and in place gas import infrastructure capacity does not guarantee gas supply security, especially in countries like Turkey where seasonality in consumption is high. The lack of enough natural gas storage is the weakest part of the natural gas system in Turkey. If all the planned underground storage projects are realized, gas storage capacity would be around 12 bcm in the early next decade. However, these speculative projects might not be sufficient to address security of supply concerns. Besides, although the Turkish gas system is capable of handling annual gas consumption, it may be incapable to handle seasonal peak demands.

How do you see the role of Turkey in Euro-Mediterranean energy security?

Turkey’s centrality can play a pivotal role particularly in the Euro-Mediterranean energy market. The country has served as a crossroad for trade and civilization for centuries and this trend is easily transferrable to the energy sector, as Turkey is quickly becoming an international energy center linking demand and supply centers of East and West, North and South, and whose role will remain crucial over the coming decades. Yet, the role Turkey will play in the future strongly depends on its domestic and regional policy choices.

Karen Ayat is an analyst and Associate Partner at Natural Gas Europe focused on energy geopolitics. She holds an LLM in Commercial Law from City University London and a Bachelor of Laws from Université Saint Joseph in Beirut. Email Karen karen@minoils.com Follow her on Twitter: @karenayat