Energy Hub in Turkey: Successes and Challenges

By Kevin Chen

Abstract

This paper delves into Turkey's aspirations and the significant challenges it faces to establish itself as a central energy hub, focusing on the contrast between its strategic ambitions and the reality of its heavy reliance on imported energy. Turkey's strategic location, bridging Europe and Asia, positions it as a key player in connecting Middle East energy supplies with European demand. Analyzing Turkey's role in current pipeline politics reveals both its potential and the geopolitical complexities it faces, including its reliance on Russian and Middle Eastern oil/natural gas and its goal to diversify its energy sources amidst regional instabilities. 

Introduction

Since the turn of the 21st century, Turkey has been on a quest to find a place for itself in the Middle East region. As a nation with Islamic roots but ethnically distinct from its Arab neighbors and with deep historical ties to Europe, Turkey occupies a unique position between the two major continents of Europe and Asia. The rise of the Justice and Development Party (AKP) under Recep Tayyip Erdogan has marked significant strides in enhancing Turkey’s ties with the Middle East. Regarding the energy market, Turkey’s natural gas- and oil-producing neighbors, such as Iran and Azerbaijan, have struggled to export their resources under Russian dominance and Western economic intervention. Turkey is also strategically located to connect Middle East supplies with European demand. However, a century has passed since the proclamation of the Turkish Republic, only recent efforts have been made to diversify its energy supply and position it as a key transit country and energy hub. This paper seeks to understand the obstacles Turkey has faced in its endeavor to become an energy hub and explores its potential path forward.

Turkey’s high reliance on oil and natural gas imports for consumption contradicts its ambition to become an energy hub. Its natural gas consumption increased by 400 percent from 244 thousand terajoules (TJ gross calorific value) in 2000 to 1,389 thousand TJ in 2021. Similar trends are observed in oil consumption, with oil consumption rising from 1,071 thousand TJ in 2000 to 1,742 thousand TJ in 2021. Addressing this demand, Turkey requires ambitious energy projects to satisfy the growing electricity and fuel needs of its populace (International Energy Agency, n.d.).

Russia-Turkey Pipeline Politics

Current pipelines into and out of Turkey are essential for meeting its energy requirements. Russia is the largest source of natural gas, which accounted for 39 percent of Turkey’s total natural gas supply in 2022. In parallel, the primary sources of crude oil are from Russia, Iran, Azerbaijan, Kazakhstan, and Iraq, contributing to 72 percent of Turkey’s total oil imports in 2022 (U.S. Energy Information Administration, 2023). Critical oil pipelines facilitating these imports include the Baku-Tbilisi-Ceyhan and Kirkuk-Ceyhan pipelines, each with a maximum discharge capacity of 2.6 million barrels of oil per day. Currently, operational natural gas pipelines comprise the Trans Balkan Pipeline and Blue Stream from Russia, Tabriz-Ankara from Iran, and the South Caucasus Pipeline from Azerbaijan.

Despite Turkey’s aspiration to become an energy hub or even a conduit for energy, challenges abound. Geographically and politically, the most viable route for Europe to diversify its natural gas imports from Russia and access Middle Eastern natural gas reserves is through Turkey. With limited natural resources, it must grapple with the challenge of importing from the tumultuous Middle East and the ongoing Russia-Ukraine War. Turkey's emergence as an energy hub also sets it as a viable alternative to Russia’s previous dominance in the natural gas market to Europe before the Ukraine War (Simeonova, 2023). Erdogan’s vision of positioning Turkey as an alternative supplier to European energy markets will depend on how Turkey balances its relationship with Russia and the European Union.

Even though occasional tensions spark between Turkey and Russia, deep-rooted economic ties bind the two nations. Over the past two decades, Turkish-Russian trade grew from $3.89 billion in 2000 to $58.8 billion in 2022, albeit a drastic increase of $29.9 billion from 2021 to 2022 due to the EU ban on Russian natural gas imports. (United Nations COMTRADE Database on International Trade, 2024) As Russia loses access to the European market, Turkey becomes a vital commercial sphere for Russia as Erdogan never joined the West in sanctioning Russia. Although Erdogan and Putin have their sparks of hostility, such as Turkey providing military and diplomatic support to Ukraine, they both recognize the necessity for mutual cooperation, understanding that antagonism could result in mutual losses.

The Middle East Energy Market

In its relationship with Iran, the Tabriz-Ankara pipeline has catered to Turkey’s natural gas needs since 2001. The two nations agreed that Iran would export 14 billion cubic meters annually, also supplying 57 villages en route (Oil & Gas Journal Staff, 2001). Spanning over 1,600 miles, this pipeline channels natural gas from the world's second-largest reserves through Turkey to European markets. However, this pipeline's extensive length also exposes it to vulnerabilities. Since 2007, the Kurdistan Workers’ Party (PKK), a terrorist organization designated by Turkey, the U.S., and the EU,  has attacked the pipeline 11 times (Saboori, 2020). Despite these interruptions, the National Iranian Gas Company has committed to maintaining a reliable gas supply, with Iranian President Ebrahim Raisi’s visit to Ankara in 2024 to strengthen relations to combat terrorism and improve energy reliability (Shokri, 2024).

Nevertheless, interruptions and delays in natural gas exports might not always result from sabotage. During the 2008 Financial Crisis, Iran reduced its daily natural gas export volume to 5 million cubic meters, a substantial decrease of 25 million from the average (Reuters, 2008). This significant drop was attributed to declining demand in Europe, a sudden cold snap in Iran, and Turkmenistan's cut-off of supply to Iran via the Korpheze-Kurt Kui pipeline the previous year, citing maintenance reasons (Daly, 2008). Similarly, during the 2020 COVID pandemic, Turkey experienced a sharp decline in natural gas exports, from 7.3 bcm in 2019 to 5.3 bcm (billion cubic meters of natural gas). This downturn coincided with a markedly reduced natural gas import from Russia, dropping from 11 bcm to 3.9 bcm (Erkul, 2021). Such economic impacts on energy supply have rekindled concerns over Turkey's dependency on natural gas imports from Russia. This is even more the case as it became one of the main importers of Russian gas due to the EU's ban in 2022 due to the Russia-Ukraine War. Turkey's envisioned role as an energy corridor is jeopardized when it cannot control the gas supply in other countries. The newly operational Trans Adriatic pipeline from Azerbaijan to Italy in 2020 will serve as a future indicator of the reliability of a Middle East–Europe pipeline.

In its pursuit of energy security, Turkey still lacks several vital fuel infrastructures, notably natural gas storage facilities. Before the inauguration of the Lake Tuz Natural Gas Storage in 2017, the Kuzey Marmara depleted gas reservoir functioned as Turkey's sole gas storage site. However, Kuzey Marmara can only store about 5 percent of Turkey’s total natural gas imports. In contrast, the EU has storage capacities equivalent to roughly 20 percent of its total annual consumption (International Energy Agency, n.d.). The operational Lake Tuz storage facility alleviates some of this storage deficiency, but Turkey needs the proposed gas storage site in Mersin Province to match the 20 percent capacity. This shortfall results in Turkey’s dependence on daily, uninterrupted natural gas imports, which have encountered numerous disruptions for both political and economic reasons.

Turkey’s Future as an Energy Hub

Turkey's geographical location, combined with its political and economic aspirations, lends credence to its potential as an energy hub. Beneath these advantages, however, lie challenges stemming from Turkey's relations with its neighbors and the conflicts embroiling the region. As Europe reevaluates its natural gas pipelines since the Ukraine War, they conclude that the Tabriz–Ankara pipeline is not sufficient enough in providing Europe’s energy needs while turning to the United States for the majority of its LNG imports (Zachmann et al., 2024). Furthermore, concerns over Erdogan’s perceived democratic backsliding and continued relations with Putin have hindered EU membership aspirations for Turkey, consequently affecting pipeline negotiations. The EU's ability to leverage potential membership further strains EU–Turkey relations.

To the north and northeast, Russia and the Caucasus pose substantial barriers for Europe intending to expand its pipeline network to Turkey as well as for Turkey’s attempts to challenge Russia’s energy monopoly. The prevailing scenario, where Russia provides the majority of natural gas imports to Turkey without foreseeable change, further complicates matters. The unpredictable dynamics between Turkey and Russia since the 2000s jeopardize its energy security since Gazprom could potentially halt gas supplies. Hence, Turkey must earnestly consider diversifying its oil and natural gas imports.

Regrettably, Turkey's options seem restricted. To the south, Turkey's opposition to Assad's Syria and its support for Sunni rebels preclude any potential pipeline from the Persian Gulf to Turkey through Syria. Turkey's forays into Kurdish territories in Northern Iraq have further soured relations with Iraqi Kurdistan. Although Iran has been a reliable energy supplier for Turkey, sporadic PKK attacks on pipelines highlight issues of energy stability.

While the journey to becoming an energy hub has been riddled with challenges, Turkey has made commendable progress in bridging pipelines between Europe and the Middle East, exemplified by the Trans Adriatic Pipeline. The inability to tap into the South Pars Field in the Persian Gulf, the world's largest natural gas reserve, signifies a missed opportunity for both Turkey and the European market. Thus, Turkey should prioritize expanding its pipeline interconnections to diversify its energy sources and serve the European market better. Achieving this would propel Turkey closer to its goal of becoming a pivotal energy hub for both Europe and the Middle East.

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