Turkey’s expanding energy outreach and its
geopolitical implications
Mehmet Öğütçü
The Brussels Energy Club
8 November 2012
Issues for discussion
• Changing dynamics in world energy
and geopolitics
• Turkey’s economic fundamentals
• Energy emerging as a “soft-belly”
• Quest for energy security
– Increased domestic production and efficiency improvements
– Diversification of suppliers: Russia, Iran, Azerbaijan (and transCaspian), Iraq, LNG and others as suppliers
– Fuel diversification including renewables
– Overseas investment in equity oil and gas
• Turkey’s EU accession and energy dimension
• Turkish strategic energy priorities vs. foreign policy
actions
• Key messages
Changing geopolitics: A new world order
in the making?
• The talk of a new world order is no longer a
fantasy. Happening.
• Failure after 9/11 to put in place an effective
global policy, Iraq and Afghanistan setbacks,
energy dilemma, food and water crisis,
worldwide economic crisis and rise of the
BRICs.
• All these have created much broader balanceof-power implications.
• We are back to great-power politics, shifting
alliances and spheres of influence in favour of
Asia-Pacific.
• The West is no longer in charge alone.
Russia, China, India and the rest of G-20 are
set to shape the new emerging world system
in finance, politics, environment and energy.
9
“Game-Changing” developments in
world energy
• A powershift is underway in
world energy, with the rise of
new consumers and changing
NOC and IOC balance of
interest
• Tight supplies, but also new
unconventional fuels, nuclear,
LNG and technologies
• Environmental concerns and
climate change are omnipresent
• Energy security, yes but for
whom
• Price
volatility
and
underinvestment
causing
supply crunch
• New geopolitical dynamics and
risks unfolding
World primary energy demand: up and up
5
Energy security, yes but for whom?
• Various definitions, depending on
who’s talking: producers, transit
countries, consumers or investors.
• “Reasonably priced, reliable, timely
and environmentally friendly”
energy.
• Energy security is intertwined with
the environment, economic, foreign
and social policies of an economy.
Energy
Security
• Political vs. Financial costs;
Opportunity vs. Risks involved.
• Malacca Strait, Strait of Hourmous,
Bosporus, critical infrastructure
• New definition is required.
5
Natural gas as a “game-changer”
• With the advent of shale gas, LNG
and emergence of new producers,
new pricing arrangements, natural
gas is becoming a key gamechanger.
• It offers key advantages for
promoting energy security
– Gas is available and flexible – it can meet
energy needs in domestic markets or via
LNG and long-distance pipelines
– Unconventional reservoirs are opening up
new possibilities
– Many alternative suppliers dot the horizon
– Fuel substitution to gas reduces emissions
– New price mechanism away from oilindexation
7
EU-27 gas demand/supply outlook to 2030
(SOURCE: ENI)
8
Indicative costs for potential new sources
of gas delivered to Europe, 2020 ($/MBtu)
23
Now our main topic…
Ukraine
in case, you do not know where it is…
Romania
Russia
Black
Sea
Bulgaria
Istanbul
Ankara
Caspian
Sea
Georgia
Azerbaijan
Armenia
Turkey
Aegean
Sea
Cyprus Syria
Mediterranean
Iraq
Sea
Strategic location
Iran
Sound economic fundamentals
•
Although economic
conditions deteriorated
rapidly in early 2009, the
come back was very strong
in 2010
•
Nominal GDP (US$bn) and GDP growth (%)
8.9%
1,000 6.9%
10%
5.5%
4.5% 5.0%
4.7%
800
5%
0.7%
600
Turkey is the fastest
growing economy in Europe
with an 8.9% real GDP
growth in 2010
400
526
200
742 (4.8%) 736
617
659
781
847
0%
913
(5%)
(10%)
2006 2007 2008 2009 2010 2011E 2012E 2013E
Real GDP Growth (%)
Source TUIK, SPO, Medium Term Economic Programme 2011-2013, October 2010
•
GDP per capita (‘000 USD)
13.5
11.4
11.5
9.2
9.5
7.0
7.5
12.2
10.6
10.4
10.1
8.6
7.6
5.8
4.6
5.5
Turkey
6.7%
Luxembourg
5.0%
Slovak Rep.
4.9%
Hungary
4.7%
Korea
0
Nominal GDP (US$bn)
Top 20 OECD Countries’ Real GDP Growth (2011E2017E)
3.5
3.5
4.5%
Czech Rep.
4.1%
Australia
3.9%
Mexico
3.8%
Greece
3.6%
Norway
3.5%
Finland
3.2%
UK
3.1%
Ireland
3.1%
Sweden
3.0%
Spain
3.0%
Iceland
2.9%
Poland
2.8%
Switzeland
2.8%
OECD
2.6%
US
2.6%
0%
1.5
'02 '03 '04 '05 '06 '07 '08 '09 '10 '11E '12E '13E
Source State Institute of Statistics, Treasury
2%
4%
Avg. annual real GDP growth
Source OECD Economic Outlook No:86
6%
8%
Macroeconomic overview
•
Despite a fall in foreign
direct investments in the
recent years current level
remains much higher than
historical figures
•
Foreign direct investment ($ in bn)
Current account & trade surplus / (deficit)
20
0%
2006
(2%)
15
(4%)
25
22.1
20.2
19.5
10.0
8.4
Collé en image
1.7
1.1
(6%)
(6.1%)
2.8
(8%)
(10.3%)
19932002
avg.
2003
2004
2005
2006
2007
2008
2009
2010
2010E
2011E
2012E
(5.9%)
(5.7%)
(9.7%)
(9.4%)
(5.4%)
(9.0%)
(5.4%) (5.3%)
(9.3%)
(9.3%)
(10%)
(12%)
Current account balance/GDP
Source Central Bank Republic of Turkey
14
11.9
11.3
12
10
8
5
4
4
3.4
3.2
MENA
Latin
America
2
0
World
Euro Area Developing
Asia
Trade balance/GDP
Source SPO, Medium Term Economic Program 2011 - 2013, October 2010
Export Growth (Avg. annual growth rate 2001-2009)
6
2009
(6.3%)
8.9
0
•
2008
(2.3%)
10
5
2007
Turkey
Source Turkstat, IMF World Economic Outlook, April 2011
Economic growth prospects
Turkey is the 16th largest
economy in the World in
terms of GDP based on
PPP
•
World’s 20 largest economies (GDP based on Purchasing Power Parity, USD trillion)
16
14.7
10.1
8
4.3
4.1
2.9
2.2
2.2
2.2
2.1
1.8
1.6
1.5
1.4
1.3
1.0
1.0
0.9
0.8
0.8
0.7
0.2
0.2
0.2
0.2
0.2
0
Turkey is the 6th largest
economy in Europe in terms
of GDP based on PPP
•
Europe’s 20 largest economies (GDP based on Purchasing Power Parity, USD trillion)
4
2.9
2.2
2
2.1
1.8
1.4
1.0
0
Source IMF, World Economic Outlook, April 2011
0.7
0.7
0.4
0.4
0.3
0.3
0.3
0.3
0.3
Demographics
•
By 2025 the population will
have risen to 85.4m,
growing with a CAGR of
1.2% over 30years
Turkey has one of the
youngest populations in
Europe with c.26% of
Turkish in the 0 - 14 age
bracket
The average age of the 72m
people is only 29 years,
against 40 years in the EU
•
Turkey’s population evolution (m)
90
59.8
64.3
77.6
73.0
68.6
81.8
85.4
60
30
Population breakdown by age groups (2010)
Turkey
Slovak Rep.
Poland
Europe
Hungary
Romania
Russia
Czech Rep.
Ukraine
Bulgaria
26%
15%
14%
15%
14%
15%
15%
14%
14%
14%
0%
20%
0
Urbanization is an
increasing trend in Turkey
with the share of urban
population in total
increasing from 44% levels
in 1980 to 76% in 2010
1995
2000
2005
2010
2015E
2020E
•
•
100%
56%
35%
30%
25%
24%
24%
41%
65%
70%
75%
76%
76%
60%
1990
2000
2007
2008
2009
2010
60%
40%
20%
44%
0%
1980
10%
19%
22%
25%
25%
23%
20%
25%
23%
23%
40%
60%
14-60 Age
80%
100%
60+ Age
Source UN
Urbanization in Turkey
80%
0-14 Age
2025E
Source Turkstat
64%
66%
64%
60%
60%
63%
65%
62%
63%
63%
Urban population
Population breakdown by age groups (2050E)
Turkey
Russia
Europe
Hungary
Ukraine
Czech Rep.
Slovak Rep.
Romania
Bulgaria
Poland
15%
16%
15%
14%
15%
14%
14%
14%
14%
14%
0%
Rural population
56%
49%
46%
49%
49%
47%
47%
46%
45%
46%
20%
0-14 Age
40%
14-60 Age
29%
35%
39%
37%
36%
39%
39%
41%
41%
40%
60%
80%
100%
60+ Age
Turkey’s favourable demographic outlook is a key driver of future economic
growth
Source Turkstat
Source UN
ISE Top 20 companies
•
Banking sector has the
highest weight in the ISE100 index in terms of market
capitalisation, accounting for
48% of the Top 20’s total
•
Market value breakdown
Company
1
Mcap (USD bn)
Sector breakdown of Top 20 companies by market
cap
Sector
4%
3% 2% 2%
1.
Garanti Bank
18.6
Banking
2.
Akbank
18.1
Banking
3.
Turk Telekom
17.4
Telecom
4.
Isbank
13.3
Banking
5.
Turkcell
12.2
Telecom
6.
Yapi Kredi
10.3
Banking
7.
Koc Holding
9.8
Conglomerate
8.
Halkbank
8.7
Banking
9.
Sabanci Holding
8.3
Conglomerate
10. Enka
7.5
Construction
11. Tupras
6.1
Oil & gas
12. Vakif Bank
5.3
Banking
13. Eregli
5.1
Steel & Iron
14. Emlak Konut REIC
4.1
Real estate
15. Arcelik
3.2
Consumer durables
Banking
Telecommunications
16. TEB
2.8
Banking
Conglomerates
Real estate / construction
17. Sisecam
2.7
Glass
Mining
Energy
18. Turkish Airlines
2.6
Transport
Industrial Production
Consumer durables
19. Koza Gold
2.0
Mining (Gold)
20. Petkim
1.5
Petrochemicals
Total
Note
1
As of 23/06/2011
159.7
4%
7%
48%
11%
19%
Transport
Source FactSet
Turkey’s energy: low in supply&efficiency
and high in demand
• Energy is Turkey’s achilles’
heel and soft-bely for the next
decades to come
• Limited domestic production
and international investment
• Liberalisation agenda, still
incomplete, with heavy
subsidies and taxes
• Energy trade: biggest
contributor to the current
account deficit
Turkish Electricity Sector
Natural Gas is the primary source of electricity
generation in Turkey. Especially, private sector relies
heavily on imported natural gas. This trend should
change in line with private sector’s increasing focus
in hydro and coal-fired power plants.
Sector
Jeo + Wind,
0.3% Other, 0.1%
Liquid Fuels,
3.4%
Coal, 27.9%
State-owned Company, EUAS
Natural Gas,
49.6%
Jeo + Wind,
0.1% Other, 0.0%
Liquid Fuels,
2.4%
Hydro, 18.7%
Natural Gas,
25.2%
Installed Capacity
2007
Thermal
Hydro
Geothermal
Wind
Total
Sector
MW
27,272
13,393
23
146
40,834
Source: EÜAŞ
%
67%
33%
0%
0%
100%
EUAS
MW
12,525
11,349
0
0
23,874
%
52%
48%
0%
0%
100%
Hydro, 33.6%
Coal, 38.8%
Wind Capacity and Utilisation
Turkey
Wind Power Capacity
433
450
400
350
300
250
MW
200
147
150
100
50
19
0
2006
2007
2008
Turkey’s Wind Atlas
18
Solar Energy Potential
Average annual solar radiation:1,311 kWh/m².
Average annual sunshine duration:2640 hours.
Technical potential :405 000 GWh, (DNI> 1800 kwh/m2-year).
Economic potential :131 000 GWh, (DNI> 2000 kwh/m2-year).
Solar energy is used especially as a thermal energy in Turkey.
•
400,000 Toe solar heating produced by 11 million m2 collectors, second in the world.
•
annual production capacity is 1 million m².

Total installed photovoltaics capacity is approximately 1000 kW and
But it is expected to increase PV usage next future.





…and need for massive investments
• Turkey needs to spend $128 billion on energy
investments by the end of 2020, including $92 billion on
new power generation facilities, to keep pace with its
rapid-growth economy, but the government can only set
aside $500 million a year from its tight budgets.
• Electricity demand in Turkey has increased almost 10
percent, the world’s second highest growth rate after
China. And half of it produced by gas-fired power plants.
• The government must spend about $4.5 billion annually
on new power projects and $1 billion annually for power
transmission to avoid an energy crisis.
• Privatization is viewed as the key for Turkey’s future
energy development.
Turkey’s “regional hub” credentials
 Bosporus
Straits are a major
shipping "choke point" between the
Black and Mediterranean
 Turkey's port of Ceyhan is an
important outlet both for current
Caspian and Iraqi oil exports
 Also, a growing gas destination for
Russia, Azerbaijan, Iran and KRG
as well as possibly Eastern
Mediterranean Seas.
 But it is not yet a hub as we
understand it
 For a genuine hub similar to
Austria’s Baumgarten, much more
remains to be done…regulatory
framework, physical infrastucture,
market liberalisation…
At the juncture of energy routes
Turkey's strategic location makes it a natural "energy bridge" between
major producing areas in the Middle East, Russia and Caspian
Sea
22
regions on the one hand, and markets in Europe on the other.
Multitude of energy routes and supply
sources
•Turkey aims to meet growing domestic demand
for energy by developing a multitude of energy
routes, in particular the “Southern Corridor”
•This is to ensure that sufficient supplies reach
Turkey for its own consumption and that the
country becomes an “energy hub” for Europe.
•Turkey is expected to use 48-50 bcm of natural
gas this year and around 70 bcm by 2020, making
it one of the largest natural gas consumers in the
world.
•Russia, Iran, Azerbaijan, Qatar, Nigeria, and
Algeria are the main sources of Turkey’s gas.
Iraq’s KRG will add to Turkey’s gas supply in the
future.
•Turkey would have much to gain if gas from the
eastern Mediterranean were also transported to
Europe through its territory.
Regional outreach in search of supply security
• Why are the Turco-Russian energy links
still of paramount importance?
• Will TANAP and Trans-Caspian pipelines
threaten Russia’s national security?
• Iran: how far can Ankara and Tehran
endure the troublesome energy
relationship?
• Crucial links with Iraq: Baghdad or Erbil?
• Could the East Mediterranean
controversy turn into a hot confrontation?
• Any room for Trans-Atlantic and
European partnership in energy?
Caspian exports reaching international markets
TANAP, Light Nabucco, Trans-Caspian, Bosphorus By-pass,
Iran, new Kazakh shipments
22
KRG oil and gas wealth: how to reach markets
TPAO was expelled from southern Iraq and Turkey set up a new
national oil company for northern Iraq
The Eastern Mediterranean gas discoveries:
collaboration or confrontation
• From the melting and resource-rich Arctic to the eastern
Mediterranean, the South Atlantic to the East China Sea, legal
wrangling, diplomatic posturing and military sabre rattling are all on
the rise.
• Cyprus, split by one of Europe’s most intractable ethnic conflicts, is
now the focus of another contest, over who will control the significant
natural gas wealth found in nearby waters.
• Beneath the seabed of the Levant Basin near Cyprus is an
estimated 122 tcf of gas, about as much as the world consumes a
year.
• The northern part of the basin lies in Cypriot waters, with much of
the rest in Israeli or Lebanese waters.
• So far, the EU has been eager to diversify its gas supply sources
and routes, but it has been rather quiet on the eastern
Mediterranean gas finds and their possible contribution to EU energy
supply security, as a fifth gas corridor or as a new leg to the
Southern Gas Corridor.
• The question is whether the gas discovery will become an incentive
for the two sides to cooperate, or yet another obstacle to
reunification of the island.
EU’s energy security through gas
• ¾’s of the gas traded across the EU arrives and
departs via pipelines. Pipeline dependency leaves
the EU vulnerable to supply shocks.
• Whilst supply can be met by three predictable
suppliers in the long run; Norway, North Africa and
Qatari LNG much still depends on the presence of
a steady supply of gas from Russia.
• Gas is the “simplest solution” to the EU’s energy
security challenge as
– Nuclear option is out of steam; construction of gas power
plant is easier than alternatives;
– it is relatively clean in terms of CO2 emissions;
– it can be used as a back up to wind power and
– it is interchangeable with coal fired plant.
• Sharp decrease is expected in EU gas
consumption between now and 2020, with serious
implications for supplier countries such as Russia.
15
Turkey’s EU accession and energy dimension
• Who wants to be a member, after all?
• Better to divorce from the accession
strait-jacket and develop practical
arrangements?
• Energy dimension of the Turkish-EU
relations
•
•
•
•
•
•
•
Southern Energy Corridor
Turkmenistan vs Azerbaijan and Russia
Energy chapter blocked
European Energy Community
Iran sanctions and alignment on Russia
Energy markets liberalisation and investment
opportunities for EU firms
Climate change
A better EU approach lies in better understanding Turkey’s drives and priorities and
seeking alignment for a durable, “win-win” relationship with Ankara as well
as using
29
Turks’ leverage in the broader Middle East, Eurasia and Southeast Europe.
Conflict with foreign policy goals?
• We cannot treat energy in isolation from geopolitics as
the recent history has shown.
• Energy is just one, but a determinant, element of foreign
and security policies as the lifeblood of the economy.
• There should be no room for threats or blackmail each
time a problem emerges to "cut back the flow of energy,"
"close down the borders" or "punish political actions by
economic sanctions.”
• Today’s Turkey brings a lot more foreign policy capacity
to the table, but it may not be an easy fit with the US and
Europe’s interest in forging common strategies on Iran,
Iraq, Syria and Russia.
• Turkey could face difficulties in expanding its influence
without having a firm footing in the West at the same
time.
• Turkey’s foreign and security policies are increasingly in
competition with its energy interests that require
alignment with Iran, Russia, Iraq/KRG, Israel/Cyprus on
East Med.
Key messages
• Factor in the changing dynamics in
world energy system (and security)
• No threats or black-mailiing to use
energy
• Physical
and
legal/institutional
framework for regional hub
• Investor friendly business environment
• Alignment of foreign policy, energy,
environment,
finance,
trade/investment
and
technology
strategies
• Develop “energy giants” through PPP
and international alliances
• Develop fresh perspectives, human
capital and not get stuck in obsolete
paradigms
• Need for an integrated energy strategy
and management