AFTER WORLD ENERGY CONGRESS

After World Energy Congress

October 21nd, 2016

 

The World Energy Congress is the premier international forum for energy leaders to seek solutions to challenges in global energy dynamics. The main theme for the Congress in Istanbul was “Embracing New Frontiers”, reflecting Turkey’s energy vision.

 

23rd World Energy Congress was held between October 10th and 13th in Istanbul, marking the importance of geography in changing global energy dynamics. The Congress brought together heads of governments, energy ministers and leaders from energy, finance, business and academia around the world who sought answers to most burning issues surrounding the energy sector today. The most important event of the Congress was the signing of the intergovernmental agreement between Turkey and Russia on TurkStream energy project.

 

Changing Energy Dynamics

Declining Energy Prices

Price per barrel has fallen sharply over the past months, leading to significant revenue shortfalls and causing budget deficits in many energy-exporting nations, including Saudi Arabia and Venezuela. In the absence of strong economic growth in advanced economies, energy demand is unlikely to pick up soon.

According to IEA (International Energy Agency) September 2016 report, growth for oil demand is slowing at a faster pace than initially predicted. On the other hand global oil supply is rising. OPEC countries have decided to make measures against the oil glut, but whether they are going to be able to implement them remains to be seen.

The same can be argued for natural gas. Though there is a debate about the future of hydrocarbon resources, natural gas is expected to provide clean and reliable energy for many decades to come. However, feasibility of giant energy projects are increasingly questioned, as other sources such as LNG might provide more flexible trading alternatives.

 

 

Renewable Energy and Environmental Concerns

In the meantime, use of renewable energy is becoming a more significant policy topic. Countries that seek self-sufficiency in energy invest heavily in use of domestic resources. In addition, Paris Climate Conference (COP21) in December 2015, where 195 countries adopted the first-ever universal, legally binding global climate deal was the turning point in the fight against climate change. The agreement set out a global action plan to put the world on track to avoid dangerous climate change by limiting global warming to well below 2°C.

 

Turkey’s Energy Strategy

With a rapidly growing economy, Turkey has become one of the fastest growing energy markets in the world. Turkey has been experiencing rapid demand growth in all segments of the energy sector for decades. Over the last decade, Turkey has been the second country, after China, in terms of natural gas and electricity demand growth. Projections show that demand growth trend will continue.

The chart below demonstrates that Turkey is heavily dependent on natural gas for electricity generation, which accounts more than 40% of resources, followed by hydroelectricity at around 25%.

 

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However, Turkey is dependent on natural gas imports by 99%, which indicates that it should seek for reliable natural gas suppliers. Half of Turkey’s natural gas imports come from Russia.

 

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Therefore, Turkey pursues a two-pronged strategy of increasing its energy independence on the one hand and becoming a regional energy hub on the other. The first requires use of national resources, especially renewables. The latter requires investing in energy projects that are not only significant for energy supply security, but also have geopolitical impact in the region.

 

Energy Independence Through National Resources

Turkey continues its efforts to increase the share of renewable energy sources to 30% by 2023, with investments in hydroelectric energy taking the lion’s share. Building of hydro power plants is government’s priority. It should be noted that there are locally organized opposition against these projects due to environmental effect.

 

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Excluding hydroelectric, wind power take the in renewable, followed by geothermal. However, Turkey has recently announced investment plans in solar energy as well.

 

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Turkey aims to gradually add nuclear power into its energy mix to reduce its dependency on imported fossil fuels. By 2023, Turkey plans to generate 10% of the total electricity supplies from two nuclear power plants that are to be built in Mersin/Akkuyu and Sinop.

 

TurkStream and Turkey as an Energy Hub

Turkey is geographically located in close proximity to more than 75% of the world’s proven oil and gas reserves. Its unique location provides opportunities for Turkey in terms of ensuring its own energy supply security but also brings responsibility with regard to regional energy security. Turkey continues to be a significant energy bridge, and the goal strengthening its position between East-West and South-North Energy Corridors to become an energy trade hub is thus duly reflected in its energy strategy.

An important project in this context is TurkStream, which will directly connect the large gas reserves in Russia to the Turkish gas transportation network, creating a reliable source of energy for Turkey and south-east Europe. The offshore component of the system will be constructed by Gazprom. The offshore pipeline will consist of two parallel pipelines running through the Black Sea, each with the capacity of 15.75 billion cubic meter per year. The pipelines will enter the water near Anapa, on the Russian coast, and come ashore on the Turkish coast some 100 kilometres west of Istanbul, near the village of Kiyikoy.

 

 

Gazprom's CEO Alexey Miller said in an interview with Russian TV channel Russia 24 that the the construction of the TurkStream pipeline project will begin in 2018. Expected delivery of the first natural gas is the end of 2019. Miller said all sections of the pipeline will be financed and built by Gazprom, while the transport infrastructure on the territory of Turkey, as well as the gas receiving terminal will be built by Turkish BOTAS. Commenting on a possible competition with Gazprom’s another mega-project, Nord Stream II, Miller said that the two pipeline projects had completely different target markets.

According to Miller, the gas discount mechanism, as announced after the signing of the IGA on 10th of October, will be determined according to the volume of the gas supplies in the Turkish market. The project marks the breakthrough of bilateral relations between Turkey and Russia, after the shooting down of the Russian jet near Syrian border. The project will ensure reliable energy supply to Turkish energy market, as well as to the countries in Southeast Europe.

 

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