Turkey: (Russian) Gas Hub?

Can we expect Turkey to become a significant energy hub anytime soon?

Turkey has been preparing to become an energy bridge and then an energy hub since the 1990s as part of a deliberate strategy. It has continuously upgraded its infrastructure and increased its capacity. As a result, the country has now significantly improved its energy security and has the potential to become a regional energy hub. Noteworthy is the development of LNG capacity, which now covers more than a quarter of Turkey’s natural gas imports. Turkey’s current potential gas import capacity of about 130 bcm is more than twice its annual consumption. However, Turkey’s gas hub also faces size constraints. It is not yet clear how volumes could be increased significantly above current levels in the future, i.e., where more gas would come from or, on the other hand, who would be the customers for the additional gas. A year after Vladimir Putin’s announcement (that Turkey could become a Russian gas hub), the exact role of Russian gas reserves in the Turkish hub vision is still unclear.

Turkish gas capacities

In 2022, 39.5% of Turkey’s natural gas imports came from Russia (21.5 bcm), 17.2% from Iran (9.4 bcm), 15.9% from Azerbaijan (8.7 bcm), 10.3% from the United States, 9.6% from Algeria, and 4% from Egypt; 65.4% of Turkey’s gas imports in 2022 were under medium- and long-term contracts, and the rest were spot imports. Ankara has medium- or long-term contracts with Russia, Iran, Azerbaijan, Algeria, and, starting in 2023, Oman.

Natural gas pipelines to Turkey

Noteworthy is the development of Turkish LNG capacity, which now covers more than a quarter of Turkey’s natural gas imports. In 2022, 27.75% (15 billion cubic meters) of Turkey’s gas imports was supplied in liquefied form, i.e., as LNG.

LNG facilities in Turkey

Turkey’s current potential gas import capacity of about 130 billion cubic meters is more than twice its annual consumption. Add to this the 10 billion cubic meters of storage capacity and the exploitation of the Sakarya gas field starting in 2023. The Sakarya gas field, discovered in August 2020 in the Black Sea, is Turkey’s first significant natural gas reserve. Since then, a total of 710 billion cubic meters of natural gas has been discovered in Turkey’s EEZ at a depth of around 2,200 meters. The Turkish state-owned company TPAO holds a 100% stake in the gas field. The gas will be transported onshore to the Filyos processing plant via a pipeline approximately 170 kilometers long. Production and transportation will be carried out in two phases. In the first phase, ten wells were drilled, and the first pipeline string was constructed, through which the first delivery of natural gas to Filyos took place on April 20, 2023. (The timing was important for the Turkish elections in May.) In the second phase, 30 more production wells are to be completed by 2028, along with a larger diameter pipeline. Production capacity is expected to be 10 million cubic meters per day initially and 40 million cubic meters per day from 2025-2026.

As for gas pipelines from Turkey to the west and north, (potentially) affecting the Central and Eastern European region, there are currently three pipelines: 1) TAP (10 bcm/year, expansion underway), the continuation of the BTE pipeline (or South Caucasus Pipeline) to Greece; 2) the continuation of TurkStream, also called Balkan Stream, which runs from Turkey to Bulgaria at 15.75 bcm/year, delivering gas to the Hungarian border. 3) There is also the Trans-Balkan pipeline. The Trans-Balkan pipeline has been in operation since 1987 and transported gas from Russia via Ukraine and Moldova to the Balkans and Turkey until the TurkStream pipeline was completed. However, with the commissioning of the TurkStream pipeline in 2020, the Trans-Balkan pipeline (with a technical capacity of 17.8 bcm/year for Bulgaria and 25.3 bcm/year for Romania) was essentially shut down (its capacity decreased to 1-2 bcm/year). However, a reversal of the pipeline’s direction (from north-south to south-north) is on the agenda.

This year, Ankara took another big step toward becoming a gas hub: In January 2023, Bulgaria and Turkey signed an agreement that will give Bulgaria access to up to 1.5 billion cubic meters per year at Turkish LNG terminals for the next 13 years, from where the gas will be transported to the Bulgarian border via Turkish pipelines. The first gas shipment (55 million cubic meters) under the contract arrived in Bulgaria in April.

However, the Turkish gas hub also faces scale limits. It is not yet clear how the volume can be significantly increased beyond the current level, i.e. where more gas will come from (there are plans to include Israel, Turkmenistan, and Qatar, but it is not yet clear what will be realized), or who on the other hand will be the buyers of the additional gas. Gas consumption in Europe is declining and is expected to continue to decline in the future, and the Balkans themselves are not a major player. Further liberalization of the Turkish gas market would also be necessary for a successful hub role.

The Russian aspect

On October 13, 2022, Russian President Vladimir Putin suggested in Kazakhstan that Turkey could serve as a hub for Russian gas. At first, it was not clear what Putin had in mind. The current pipeline capacity between Russia and Turkey does not allow for a significant increase in the volume of Russian gas imports to Turkey. A potential new gas pipeline would require significant investment that would take years to build, and the technology to build and operate a new deep-sea pipeline may not be available without the involvement of Western companies. In the current wartime environment, the physical security of construction is not guaranteed, not to mention the risk of possible Western sanctions against potential investment. There is also the question of whether the investment would pay off at a time when Europe is trying to decouple from Russian gas.

In July 2023, Putin confirmed that the plan for the Turkish gas hub was still on the table, but he also said it would be an electronic trading platform. In September 2023, Turkish Energy Minister Alparslan Bayraktar for the first time publicly questioned the feasibility of the project, pointing out that Turkey already has a well-functioning gas exchange. Instead of the new trading platform proposed by the Russians, Ankara calls for the expansion of the existing Istanbul Energy Exchange (EXIST, or EPİAŞ in Turkish). The EPİAŞ began operations in 2015, and natural gas trading began in 2018.

Putin said in a meeting with Erdoğan on September 4, 2023, that Gazprom had submitted a roadmap for a gas hub to Turkey’s state energy company. At this stage, however, it remains unclear what exact role Russian gas reserves would play in Turkey’s hub vision. In any case, it is likely that Putin was not thinking of a Dutch TTF-type gas hub in Turkey, where there is constant competition and free import and export of gas is guaranteed. While Turkish politicians are aiming for a full-fledged hub, the Russians are probably just looking for an alternative route to Europe.

Overall, Turkey’s role as a regional gas hub is a realistic goal, although it is likely to remain at about its current magnitude in the near future. The Turkish goal, on the other hand, does not necessarily coincide with the Russian vision. A year after Putin’s announcement it remains to be seen what kind of mutually beneficial gas deal can be achieved between Turkey and Russia.