The pandemic, war, geopolitical competition, and political preferences resulted in inefficient use of available resources and thus created the gas crisis. After the Nord Stream 1 and Nord Stream 2 sabotage, the idea that Turkey could play a more effective role in the energy market has been discussed. Due to sanctions restricting the import of Russian gas into the European market, the transport of it to Europe via Turkey is only one aspect of the issue.
In a broader sense, could the energy crisis that broke out with the Russia-Ukraine war have opened a new window of opportunity for Turkey to become a global player in energy? When alternative sources such as Central Asian gas and Iranian gas are added to the equation, it seems to be a serious possibility for Turkey to turn into an energy vein for Europe, at least on paper. The fact that Turkey is the most suitable route for the transport of potential gas in the Eastern Mediterranean to Europe in the medium and long term can be considered as one of the advantages of the “geographical location”, which is frequently mentioned.
Remarks from the leaders
As for the choice of Turkey as the energy hub, Russian President Vladimir Putin said in October “It’s because direct engagement with European partners is very difficult. We can establish a gas center in Turkey very quickly.” and drew great attention. According to Putin, Europe will be willing to buy Russian gas through the transfer center to be established in Turkey.
Speaking at the capacity increase ceremony of Silivri Natural Gas Storage Facility owned by BOTAS in Silivri, President Erdoğan said, “We had important meetings with my dear friend Mr. Putin on this subject. We have taken and are taking our steps and thus Thrace will become a hub in natural gas. We carry out our work on this together with our energy partners in our region,” he said.
These statements do not include technical details. Are the conditions for Turkey to become the main player in the gas market, which is a direct part of geopolitical competition, as convenient as it seems? According to experts; ‘Yes…’ However, the definition of “hub” here needs to be clarified by decisionmakers. Because being a “transit country” where gas comes and goes from Turkey and being one of the international centers such as TTF, NBP or Henry Hub where the price is determined are completely different.
Former BOTAS General Manager Gökhan Yardım, evaluating the issue to Harici, said, “Turkey can be a gas hub. But with current thinking, it’s very challenging. The legal infrastructure is crucial. Both the Westerners and the Easterners will come,” he said, pointing out both the potential and the shortcomings he sees.
What do we know?
Turkey reinforced its transit position with the TurkStream, which came into play in 2018. However, Russia did not provide the parameters necessary for Turkey to be a “hub” based on this project. One of the main factors of being a hub is that the price of gas is determined in the market to be established in Turkey and Turkey being a commercial beneficiary.
“The electronic platform for trading in the natural gas center may be established in the coming months. The price of natural gas for European consumers will be largely determined at the center. It’s crazy what’s happening in Europe’s own centers,” Russian leader Putin said. Would it be wrong to assume that he no longer considers Turkey as a transit country?
“I don’t know the details of the offer,” former BOTAS General Manager Yardım said, “In regard to Putin’s statement, I believe they are thinking of a system like the electronic sales platform they made earlier. As for the possible plan in Moscow’s mind, I believe the Russians are thinking of a system in which they will buy gas, choose the companies themselves, collect the offers themselves and say, ‘You won this much, the average price was this much at the end of the month.’
“It is not an issue to be solved in 3-5 months”
The schedule of the project is another matter. Minister of Energy and Natural Resources Fatih Dönmez has announced that their goal is to start the project to establish gas hub in Thrace within a year. Dönmez noted, “It is not an issue to be dealt with in 3-5 months. Perhaps we can start with a more limited number of markets in the transition period before a permanent market. Then the schedule will be pushed forward a little more” emphasizing the need for time.
Commenting on Dönmez’s prediction of a “one year” period, Yardım believes that the upcoming elections and the balances that the government looks after between the West and Russia are also decisive in this project. “I think this will cool down a bit before the elections,” he said, assessing that Ankara would not want to “get in wrong with the U.S. directly.”
How can it work?
Turkey already has a gas exchange. Its name is Energy Exchange Istanbul (EXIST) or Enerji Piyasaları İşletme A.Ş. (EPİAŞ) by its Turkish name. The website of the institution states that EXIST, which was established on March 18, 2015, works in harmony with Turkey’s goal of “becoming a central country in energy trade” and is on the way to become an energy exchange that is referenced on a global scale.
Former BOTAS General Manager Yardım explains the operation of the system that will be the center as follows:
“In EXIST, the names of the gas suppliers and buyers are not disclosed. Neither the seller nor the buyer is known in the transactions in EXIST. Gases are nationalized to be traded in EXIST. Both seller companies and buyer companies need to establish a company in Turkey and obtain a license in accordance with the legislation of EMRA.”
After this process, buyers and sellers create supply and demand just like in the stock market by trading on EXIST’s Continuous Trade Platform. The price is determined through this mechanism. Buyer and seller bids meet each other without the bidders being known and the price is formed. EXIST guarantees the payments through TAKASBANK.
“Gazprom wants to make the electronic sales platform transactions it has stopped in Europe in Turkey.” Gökhan Yardım clarifies the difference between being a ‘transit’ and a ‘center’ as follows:
“Gazprom will sell gas within its sales platform. Buyers will receive the gas transmitted through Turkey. This does not make Turkey a gas hub as the gas is only transferred through Turkey. Gas should be sold in Turkey. All trading transactions of liquidity should be made in Turkey and the money should remain in Turkey. Turkey has all kinds of infrastructures. All procedures and rules of EXIST are suitable for these steps. If Gazprom desires, it can buy a certain share from EXIST. Other European companies can also do the same. The important thing is to perform these transactions through EXIST.”
Why would Europe buy Russian gas from the Turkish stock market?
Gökhan Yardım explains:
“Europe may take a negative stance at first, but if more gas comes to Turkey, the gas transmitted through TANAP can also be traded here. LNG that is coming from America can be traded here. The bigger the market, the more eager Europe becomes. But if there’s only one player, Russia, then they won’t be willing. If too many players and too much gas come to Turkey, then a different picture will emerge.”
‘Atlantic Council’ analyses
According to Atlantic Council analysis, by Yevgeniya Gaber in December, “Turkey’s desire to play a major role in regional energy infrastructure is not only geopolitically driven but also economically and technically feasible.”
The analysis also highlights Turkey’s gas storage capacity and the advantages of having pipelines at the intersection. However, in the analysis it is advocated that, for Turkey to be an energy hub, “Russian gas can’t be a key part of the plan.”
According to Yevgeniya Gaber, the Ukrainian Foreign Policy Expert; “diversification of existing routes and suppliers, independence in decision-making through an independent institution, market demand and supply that determine prices, and political will of potential partners to get involved in the projects…” are the basic conditions for establishing an energy hub.
Putin’s project to make Turkey a gas hub could increase Ankara’s dependence on Russian fossil fuels and Moscow in strategic issues, and further endanger Ankara’s complex relations with the West, the author says.
Similar views are echoed in another analysis of Atlantic Council on December 20. It is emphasized that Turkey’s dream of becoming a gas hub will not be realized without adopting liberal market principles. In his article, Eser Özdil claims that BOTAS’s dominant role in the Turkish energy market is the most important obstacle to Turkey becoming a gas hub. According to the author, BOTAS’s dominant role should be restricted, its dominance on the market with mass subsidization should end, in short, Turkey’s gas market should be completely liberalized…
Of course, in such a scenario, it is not possible to predict the future of gas price to be consumed by the household in times of crisis.
Available capacities
The Blue Stream has a capacity of 15.75 billion cubic meters. TurkStream’s total capacity is 31.25 billion cubic meters (bcm). Currently, TANAP has a capacity of 16 billion bcm. These pipelines, which meet Turkey’s gas needs, also transfer some gas to Europe. Nord Stream 1 and 2 have a total annual gas transport capacity of 110 billion cubic meters (bcm). From this point of view, it seems inevitable to increase capacity and build a new pipeline.
The European Union (EU) needs around 400 bcm of gas per year. It is impossible for the lines passing through Turkey to respond to this need in its current form. Therefore, the construction of a new gas pipeline or capacity-building opportunities need to be evaluated. Building new pipelines from Russia amidst war environment in the Black Sea is another question. On the other hand, the need for the project in case peace is restored is another point.
Currently, although the seller is different, Europe may not be eager to buy Russian gas from the Turkish stock market. The EU, which imported 43.5 percent of its gas from Russia in 2021, uses 7.5 percent of Russian gas this year. The pressure put by the U.S. on Nord Stream 2 should be considered as well.
In summary, “being a hub” covers Turkey’s right to be a commercial beneficiary of the natural gas that passes through it. Gases from various sources will be traded on EXIST’s stock exchange and will bring buyers and sellers together. The greater the market depth, the greater the hub quality. First, a regional consensus at the initial stage, especially between the EU and Russia, seems essential to becoming a hub.
Since we will be revisiting this discussion, let’s end it here for now with the following questions:
Is the ‘active neutrality’ policy or being in the ‘right place’ geopolitically, being a member of NATO and simultaneously following the ‘Asia Anew Initiative’ policy sufficient to become an ‘energy hub’?
Can Turkey create a different alternative center between Russia’s proposal and the current market regulations?
Or are all these foreign policy orientations opposites that cancel each other out?
