Turkey is a conduit for oil and gas from many sources to many markets. The 1970s saw the first of twin oil pipelines from northern Iraq to the Turkey’s Mediterranean terminal at Ceyhan, and the 1980s saw the first of the great Soviet gaslines down the western Black Sea coast to Turkey, together with a second Iraqi oil line. The 1990s ushered in the ongoing debate on how to bring the Caspian’s new hydrocarbon riches to market and saw Turkey’s own east-west gas artery as well as the construction of much of the connecting supply line from Iran.
Yet somehow all these accomplishments have been overshadowed since 2000 by other developments. This decade has seen the completion of the Iranian gasline, plus the world’s deepest undersea pipeline which brings Russian gas to Turkey. It also brought the one-million-barrel-a-day Baku-Tbilisi-Ceyhan oil pipeline and the South Caucasus gas pipeline from Azerbaijan to Turkey, as well as the laying for a new pipeline to carry Iranian or Azerbaijani gas from Turkey to Greece.
And there’s much more to come. Turkey is making active preparations to receive pipeline gas from Egypt and is discussing expansion of the Blue Stream system that carries Russian gas under the Black Sea. That would be the start of one of Europe’s most ambitious energy projects yet, the €4.6bn Nabucco gasline to convey gas from Turkey to a central, European hub at Baumgarten in Austria.
All in all, taking the many other active projects there into account, simply by using existing lines to their full capacity, Turkey is likely to find itself the conduit for around 5% of global oil exports. And if all the new lines get built, it could wind up being the country through which around a tenth of the world’s oil exports are piped, and perhaps – though this very much depends on Iran’s future as a major gas exporter – anything up to 12-15% of global pipeline gas deliveries.
The sheer volume of global exports is cause enough for not only Europe, but the world as a whole, to pay serious attention to Turkey’s role as a transit corridor. But there are other issues, both political and environmental, that Europe particularly needs to take into account.
The environmental issue essentially relates to the role of the Turkish Straits – the Bosphorus and the Dardanelles – in bringing Russian and Caspian crude oil to market. In 2005, an estimated 121m tonnes of crude oil reached world markets via the Black Sea, to which should be added almost 30m tonnes a year of oil entering the Black Sea and two-way flow of oil products through the Bosphorus. One corporate analyst considers that in 2010 the volume of crude oil reaching world markets via the Black Sea will climb to 140m tonnes a year and by 2015 it will reach 150m.
The consensus is that using the Bosphorus for so much traffic constitutes a serious environmental hazard, since tanker traffic has to contend with eight major bends and in places is only 700 metres wide. New traffic regulations have improved safety, but at a cost of increasing delays, which is why the world’s major energy companies are asking whether they should develop at least one Bosphorus bypass and persuade shippers to use it. This will not be easy, as the 1936 Montreux Convention bans Turkey from levying tolls on passage through the Straits. From the shippers’ point of view, therefore, only the cost of any future delays through the straits, that would justify their using a bypass. Another element is the complex equation whereby the more shippers use Bosphorus bypass pipelines, the more they risk being placed at a financial disadvantage because reduced traffic through the straits will benefit less environmentally conscious companies who stick to free transit through the Bosphorus. Yet Istanbul now has 15m inhabitants, so an environmental accident in the Bosphorus could be catastrophic.
It is, though, the political aspects that are most problematic. Two years ago, it seemed that if there were one issue on which the EU and Turkey agreed fully, it was energy. But a major Russian campaign to woo Turkey as a corridor for its gas exports – and the prospect of serving as a corridor for increased Russian oil exports as well – has since contributed to EU-Turkish tensions. The external aspect of the EU’s current energy policy is largely predicated on the need for diversification of energy suppliers, particularly to ensure that Russian gas sales to the EU are in as competitive a marketplace as possible. To this end, the EU has backed two projects involving Turkey; a gas interconnector between Turkey, Greece and Italy, and the much larger Nabucco pipeline that would bring Middle East and Caspian gas to Austria from Turkey, through Bulgaria, Romania and Hungary.
Several factors have now caused significant changes and delays to Nabucco. Initially, it was to use Iranian gas, but with the unresolved dispute over Iran’s nuclear ambitions there is no current prospect for major Iranian gas deliveries to Europe. Instead, the focus has turned to Azerbaijan, which is also seen as the initial source for gas input into the Turkey-Greece-Italy interconnector, but this too is running into trouble. Azerbaijan’s giant Shakh Deniz gas field was due at the end of 2006 to start delivering commercial quantities of gas through Turkey to Greece. But now, say Azerbaijani sources, Russia’s Gazprom is threatening to completely cut off deliveries of gas to Azerbaijan, which means Shakh Deniz would have to cover Azerbaijan’s own heavy requirements at the expense of its export commitments. Georgia is also embroiled in a gas supply and pricing dispute with Gazprom, and has been asking Azerbaijan to increase the volume of its gas deliveries. In effect, therefore, Russian pressure has forced a major delay on planned southern European gas developments, as no Azerbaijani gas is likely to be available for onward delivery to Greece until 2008.
This is also causing Turkey to re-evaluate Russian moves concerning transit across Turkey. Until recently, Turkey’s strategy was to encourage Russian gas deliveries through Turkey, using the Blue Stream system, even though this posed a direct challenge to Nabucco. For its part, Gazprom has spoken of developing a “Southstream” pipeline to ferry gas to central Europe via Turkey, that would run parallel to Nabucco. Gazprom’s idea, it seems, is to complement its controversial “Northstream” pipeline under the Baltic, taking gas to Germany without passing through Ukraine or Poland. But as there really isn’t room for two competing lines like Southstream and Nabucco, Gazprom’s move appears to be designed to pre-empt Nabucco.
Turkey has clearly been hoping that cooperation with Gazprom might yield Russian cooperation on the Bosphorus bypass issue. This would take the form of sending large quantities of oil through the projected Samsun-Ceyhan line rather than through Moscow’s favourite option of a line from Bourgas in Bulgaria to Alexandroupolis in Greece. But Turkish diplomatic sources now say it looks as if Ankara would have to pay too high a price for its oil transit ambitions. The way that Russia has acted in implementing energy cut-offs to some of the ex-Soviet republics (although never to European customers who pay in hard cash) is now prompting a re-think in Ankara. The bottom line is that Turkey and Europe may be coming round again to the view that, in energy at least, their interests are the same.
Much will depend on the answer to one as yet unresolved question. Is Russia seeking to reduce gas exports to various ex-Soviet states because it is genuinely concerned at the low level of the prices they are prepared to pay, or because it is facing very real problems in meeting supply commitments? Russia has three very different markets: the commercial, hard cash-paying energy consumers of the EU and Turkey, the formerly subsidised states of what was the USSR, and the very heavily subsidised Russian domestic market, that has a per capita consumption rate more than two-and-a-half times that of the EU. Turkey’s negotiations on the extension of Russian gas imports after their initial agreements run out in 2010 should help provide an answer to this key question.
John Roberts is Energy Security Specialist with Platts, the world’s leading independent source of energy information. He is currently writing a study for Chatham House entitled: “Pipeline Politics: The Caspian and Global Energy Security”.