Turkey to gain gas trade leverage from new discovery: Report

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The Sakarya gas field and any future gas discoveries in the next few years will pave the way for Turkish companies to increase their bargaining power in negotiating contract terms and pricing mechanisms, according to experts from Ankara-based Bilkent Energy Policy Research Center.

“Turkey’s Black Sea Natural Gas Discovery: Brief History and Implications” report published by the center, explains that Turkey intensified its hydrocarbons exploration efforts, particularly after the National Energy and Mining Policy was adopted in 2017.

To serve this purpose, Turkey acquired one seismic ship, the Oruc Reis, and three drillships; Fatih, Yavuz, and Kanuni.

Out of the nine deepwater wells drilled by this fleet in the Mediterranean and the Black Sea, only one at the Tuna-1 field proved successful with sufficient quantities of commercially viable oil and gas.

The country’s persistent efforts to find domestic hydrocarbon resources paid off with the largest discovery in the Black Sea to date.

On Aug. 21, President Recep Tayyip Erdogan announced the discovery of 320 billion cubic meters of natural gas reserves in the Tuna-1 well at the Sakarya Gas Field, located around 170 kilometers offshore in the Black Sea.

The discovery is close to the Neptun Deep block in Romania, where the Domino field was discovered in 2012 at a water depth of 930 meters. The Domino field is estimated to contain between 42 billion cubic meters (bcm) and 84 bcm of gas but no final investment decision (FID) has been taken yet to develop the field.

The Fatih drillship, which began operations in the area on July 20, 2020, discovered the well after only one month of drilling work.

According to the report, almost all previous drilling efforts in Turkey’s waters were largely a disappointment, with only one moderate commercial discovery made at the Akcakoca gas field in the shallow waters of the Black Sea in 2004.

End of pessimism

“One of the most critical significances of the current discovery is that it broke the pessimism haunting the country over the presence of hydrocarbons.

The report said that this pessimism is not specific to Turkey but similar experiences have been witnessed throughout history in European exploration.

Following the first discovery of commercial gas at the giant Groningen onshore gas field in the Netherlands in 1959, there were big hopes of finding many oil and gas fields in the North Sea.

However, these hopes were dashed, as almost all of the more than 200 wells drilled following the Groningen discovery came out dry. The exception was a BP gas discovery in the UK in 1965.

It was only in 1969 that giant fields were discovered with the Ekofisk oil and gas field in Norway and the Forties oil field in the UK in 1970.

 

– Is Turkey’s 2023 aim realistic?

Turkey aims to produce first gas from the Sakarya field by 2023. However, some experts find this goal is not realistic.

Experts in Bilkent’s report cited the discovery and gas extraction from the Zohr field offshore Egypt as an example of what can be achieved in a short timeframe with the right will and movitation to do so.

Drilling in the Zohr field started on July 3, 2015, and only two months later, on Aug. 30, the discovery of the largest gas field in the Mediterranean was made. A total of 850 bcm of original gas was found in place, 610 bcm of which was estimated to be recoverable. The report showed that the field’s fast-track development was successful with immense efforts and excellent cooperation from Italian company ENI and the Egyptian government.

“As a result, the flow of gas from the field started in December 2017, only 28 months after the discovery,” it said in the report.

Experts explained that this quick turnaround came even though gas in the Zohr field was difficult to extract.

Therefore, they concur that the 2023 target date, on the centenary of the founding of the Republic of Turkey, for gas flow from Sakarya is possible.

Potential benefits of discovery to Turkey

The new “giant” discovery will undoubtedly contribute to Turkey’s gas supply, the economy, improve the country’s knowledge base in this sector, but it will also allow Turkey to gain some leverage in negotiating the many gas contracts that will expire by the end of next year.

In total, 18.3 bcm per year of gas contracts will expire before the end of 2021 with 11.6 bcm up for renegotiation, as imports from Azerbaijan have already been replaced with gas via the Trans-Anatolian gas pipeline (TANAP). Nonetheless, further volumes will be up for negotiations up to the end of 2026.

BOTAŞ and Turkish private companies Avrasya Gaz, Bosphorus Gaz, Enerco Enerji and Shell Enerji’s gas supply contracts will end at the end of 2021.

Out of this total level of 11.6 bcm supplies, the majority of 8.25 bcm comes from Russia, with the remaining volume in the form of LNG contracts with Qatar and Nigeria.

“Again, for the moment, we are not in a position to know with any certainty when and at what rate the Sakarya field will produce gas, but there is no doubt that it will help reduce Turkey’s dependency on imports,” it stressed in the report, although it said that gas could potentially reach land before Oct. 29, 2023, the 100th Anniversary of the Turkish Republic.

“Production from the field may lead to lowering gas costs in Turkey. As we expect this gas to be used as leverage for other contracts, Turkey’s gas prices may decrease, and gas demand, especially in the industrial sector, will likely rise as there is a strong possibility that imported coal power plants will be uneconomic to run,” the report read.

It further forecast that gas consumption could be revised upward to reveal a drop in emissions although it said that domestic lignite power plants would not be unduly affected.

New phase of Turkish energy policy

The report said that Turkey would have sufficient flexibility and diversity to be a regional gas powerhouse while greatly increasing its regional gas security, considering the existing LNG and Floating Storage Regasification Unit (FSRU) terminals and storage capacity extensions that have been made in the last few years.

 

The discovery will also trickle down to influencing pricing in the region, with Energy Exchange Istanbul (EXIST) playing a pivotal role in this achievement.

The report relayed that the Turkish natural gas market will also evolve into a gas market with hydrogen in the long term, as the Turkish market Regulatory Authority, EMRA, has given an early R&D grant for clean hydrogen, which the report said should be put at the heart of the development of any gas market rules in the future.

Experts at the Bilkent Energy Policy Research Center said that with Turkey’s energy policy entering a new phase, the challenges would not be less than before although the prize would be bigger.

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