Q&A: Turkey's gas find is equal to all Greek Cypriot findings combined

On Friday, Turkish President Recep Tayyip Erdogan announced the discovery of 320 billion cubic meters of natural gas in the Black Sea. Turkey hopes that it will bring decisive advantages in the energy, economic and political sectors. TRT Deutsch spoke about this with the energy and geopolitics expert, Suha Cubukcuoglu. He is a member of the advisory board of the Maritime Forum of Koc University in Istanbul.

 TRT WORLD: Turkey has discovered 320 billion cubic metres of natural gas in the Black Sea. How significant is the discovery?

SUHA CUBUKCUOGLU: This is a major breakthrough for Turkey. After many years of trial runs, Ankara finally said that it is in the game. Previously, the Israel-Egypt-Cyprus tripartite pact had made major discoveries in the eastern Mediterranean (East Med) since 2010.

The group had evaluated production, transfer, and export options amid a tense standoff with Turkey and TRNC. For the first time, Turkey has announced a gas discovery of this size, which is roughly equivalent to Greek Cypriot findings to date all combined. The amount is a mid-size discovery, it’s larger than most reserves in the East Med. It would take 1-2 years to do appraisal runs and determine the exact volume feasibly recoverable from the field. Then, another 4-5 years would be needed to implement the chosen transport option, taking in a total of about 6-7 years to monetize the project.

Turkey, however, has set an ambitious goal to go live in 2023 by the republic’s centennial anniversary, by then to have completed all required steps.

What political signal does the fund send abroad?

SC: This is an important step towards Turkey's economic independence, as energy imports account for the majority of the country's current account deficit. It puts pressure on the Turkish lira, increases inflation to double-digit figures and causes budget deficits - not to mention the fact that it also draws on the country's precious foreign currency reserves.

The monetisation of the discovery, albeit in three to four years, would give Turkey a significant advantage in the talks over the main gas/LNG suppliers, namely the US and Russia. The main ramification is to reduce Turkey’s energy dependence on Russia.

Another point: this is a significant resource and can tip the balance in negotiations with the EU. Having secured the bonanza in its pocket, it is prudent to now expect Turkey to take an even tougher posture against acts by the EU-allied group consisting of France, Greece, and Greek Cypriots in the East Med.

What does this mean for the Turkish energy basket?

SC: There is more room for Turkey to manoeuvre and now build the best energy mix in its portfolio, to subsidise renewable/clean energy projects, and to have a freer hand in charting the course of its regional foreign policy. The total worth of the field, as it stands, is estimated to be $50-$60 billion, which is about 7-8% of Turkey’s GDP.

What is the composition of Turkey's current energy basket?

SC: Turkey's energy import bill amounts to $ 41 billion per year. The energy is purchased from a large number of countries near and far. Currently, Turkey is 99 percent dependent on foreign gas supplies and 95 percent dependent on oil supplies.

The imported gas volume is 45-50 billion cubic meters per year, part of which is consumed in the form of liquefied natural gas (LNG). The US recently overtook Russia in the share of gas deliveries to Turkey when LNG spot prices collapsed due to the economic downturn in the Covid-19 period.

There is, therefore, a fine balance between long-term contracts with Russia, Central Asian imports in Turkey's energy mix and LNG supplies from the US, Middle East and Africa. On the one hand, Russia's weight in Turkey's energy policy is shrinking in the gas market.

In the same breath, however, the joint nuclear power plant project, Akkuyu, forms a counterweight to this. In the short term, Turkey remains dependent on foreign supplies for energy policy, but the discovery in the Black Sea is an important milestone, one which gets the country on the road to energy independence. This is only a question of time, effort and determination.

The Turkish Finance Minister, Berat Albayrak, described the discovery as "a shift of axis" for Turkey. How do you interpret this statement?

SC: Turkey has a trade deficit both with the developed countries of the West and with the emerging markets of the Asia-Pacific region such as China and Russia. 75 percent of Turkey's energy consumption is imported in one form or another. Although Turkey has made progress in renewable energy and has reached a capacity equivalent to almost half of its installed capacity, demand for oil and gas, particularly in the transportation and industrial sectors, remains high.

As the case in the USA, for example, shows, renewable energy technologies are not (yet) the best way to achieve the ideal energy supply. In other words, an optimal mix of nuclear energy, hydrocarbons and geothermal energy is needed to meet modern requirements.

The "shift of axis" that Minister Albayrak is talking about is probably the official start of the realization of Turkey's long-term potential to replace energy imports with local resources and one day become a net energy exporter. The repositioning of Turkey as a "price shaper" away from a "price taker" in the energy sector is no longer a dream. When the energy import bill shrinks, Turkey will redirect urgently needed capital to invest in cheaper, greener and sustainable energy projects. This will significantly change Turkey's foreign policy towards Europe and the Middle East and put it in the position of a regional center of power.

Will the Turkish energy company TPAO seek the support of larger oil companies or will it rely on independence?

SC: TPAO has aggressively hired top talent in recent years to fill its ranks with high-calibre, qualified professionals in their field, but this is just a start. Turkey is yet to have a deep-sea production experience to undertake a project of similar size on its own. In the short-term, major oil companies such as Chevron, Exxon, Qatar Petroleum, and ENI would be candidates to bring this know-how, as well as perhaps then work alongside with TPAO teams in a knowledge-sharing scheme.

Also important is to purchase equipment, machinery, and pipeline/liquefaction technology to transport and export gas. These are crucial areas that presumably TPAO has already laid out plans to address in the near term.

Will the new energy find be mainly accessible for the domestic market or also for export?

SC: At least initially, the new energy will be primarily accessible to the domestic market. Turkish industrial plants require gas-generated electricity, so most, if not all, of the recoverable gas will be used for power generation and to support back-up capacity and electricity storage to balance renewable energy.

Could Europe become an export market?

SC: Turkey has abundant gas pipelines that feed into the European grid under long-term contracts, so the Black Sea find is unlikely to be on the list for immediate export. Europe is striving to diversify its energy supply, but Russia, the USA and African producers are the main players in this market. The break-even price for the Turkish Black Sea field would probably be far above what the EU can negotiate. Europe already buys gas from Russia at a 70 percent discount on the price Turkey pays. On the energy markets, volume and economies of scale are important. Therefore, Turkey's export potential is low at the moment, until new resources are discovered, but Turkey has a strong, stable local market.

Recently we have observed tensions with Greece over energy reserves. How does the discovery in the Black Sea influence the dynamics in the Mediterranean?

SC: Greece, like Turkey, is a net energy importer. Its goal is to not just become an energy hub but also a supplier for the region. Recent years witnessed Athens try to gain a strategic advantage that benefits the emerging Greece-Cyprus-Israel-Egypt alliance by making it possible to transport offshore natural gas from the Levant to Western Europe, thus bypassing Turkey as a transit hub, despite the latter being the more economically feasible route. East Med gas, first and foremost, is expensive to produce.

It faces political risk if not to mention price risk and market off-take risk. Deep seabed contours are uneven and put an epic engineering challenge on extracting and exporting gas. Major energy companies such as Noble, Exxon, and Shell halted or delayed their activities for at least a year if not beyond, and even according to some, until 2025. Chevron acquired a controlling stake of Noble in the Greek Cypriot so-called Aphrodite gas field in Block 12, but its future is unknown. The trend is to delay further energy exploration in the East Med as companies become ever-more selective in their investments.

What needs to happen in the eastern Mediterranean to ensure that a sensible energy solution can be found there as well?

SC: Gas riches beneath the East Med may remain there indefinitely unless parties reach a comprehensive settlement to resolve their differences over disputed zones and agree on options to monetise extracts. This is unlikely to happen soon. Under economic burden, Greece may be in a rush to map out its EEZ with the backing of its allies, but Turkey’s hand is now stronger than ever before. It has a moral advantage to sustain full pressure in the field to defend its rights and continue unabated its seismic research, drilling, and extraction projects as Greece and Greek Cypriots come to a halt due to their dependence on third-party support.