With a population of 80 million people and a rapidly growing emerging economy, Turkey has been one of the fastest growing energy consumers in the world. Fossil fuels are the main energy resources for Turkey and natural gas has become the most important element in Turkey’s energy mix since the 1990s. Nevertheless, the country does not have enough reserves of domestic fossil fuel resources to meet its demand, and hence imports some 75% of its total energy needs, including almost all of its oil and gas. Turkey’s energy policies and strategies are shaped by two concerns.
First, Turkey wants to ensure security of supply through maintaining an availability of adequate resources for consumption, as well as ensuring the diversification of its energy mix and portfolio of suppliers and the supply routes, particularly in natural gas imports. Second, Turkey also wants to generate geopolitical and geo-economic leverage in its international relations through hosting as many energy infrastructure projects on its territory as possible, including pipelines. All in all, Turkey does not want to remain vulnerable with regards to gas supply security for its domestic market. Despite very limited local production meeting only 0.8% of total demand, the fact that the country is surrounded by 63 percent of the world’s gas reserves compels Turkey to play an increasingly “proactive role” in energy and natural gas markets, both in geopolitical and geo-economical terms.
Beyond providing a geo-political backdrop to Turkey’s foreign energy relations, this report includes an economic assessment of the most recent pipeline project, entitled TurkStream. TurkStream will run circa 900 km across the Black Sea from the Russian port of Anapa to Kıyıköy, in Turkish Thrace. Developed by the South Stream Transport BV, a subsidiary of Gazprom registered in the Netherlands, the pipeline will be composed of two parallel strings and will carry a total of 31.5 bcm per year. Of this capacity, one string will serve the Turkish market.
The economic assessment explores two questions that have not been fully addressed in the public debate. The first one is regarding the role to be played by TurkStream in Turkey’s gas supply security in the light of the supplies to be received from all possible sources. The adopted methodology provides a detailed examination of Turkey’s portfolio of natural gas purchasing commitments with a view to estimate the approximate guaranteed supply quantities over a time horizon extending to 2035. It is complemented by an estimate of the domestic demand for natural gas over the same time horizon. A bottom-up energy Modelling Platform developed by Bogazici University has been calibrated for this purpose. The outcome of the supply and demand analysis has then been used to assess the potential contributions of TurkStream to Turkey’s energy supply security.
The combination of the supply and demand curves demonstrates that with the exception of the “Gas Oversupply” scenario, which is based on a set of optimistic political and economic assumptions, Turkey will be in need of additional sources of natural gas supply after 2020 that exceeds the supply capacity of TurkStream. By 2025, the shortfall – if potential supplies from TurkStream are to be excluded – will be around 16 bcm under the business as usual scenario and 37 bcm under the gas scarcity scenario. For 2035, the shortfall will have reached 24 bcm under the business as usual scenario and more than 40 bcm for the gas scarcity scenario. It is clear that under these circumstances, Turkey will greatly benefit from the 15.75 bcm to be supplied from TurkStream. Turkey may even want to augment its purchasing commitments from TurkStream in the years following 2025.
Finally, in addition to the contributions that TurkStream is set to provide for Turkey’s energy supply security, it should be underlined that the project will also generate other economic benefits, during its construction and operation phase, for the Turkish economy. This study analyzed the economic impact of the on shore construction part of the project. The methodology differentiated between direct, indirect and induced impacts. The Direct Economic Impact covers the employment, income and GDP associated with the construction of the pipeline. The Indirect Economic Impact includes the employment, income and GDP generated by downstream industries that supply and support the construction activities. Finally the Induced Economic Impact captures the economic activity generated by the employees of firms directly or indirectly connected to the construction work spending their income in the national economy.
The calculations showed that this project would lead to the creation of an additional employment of 4000 linked to jobs associated with the construction activity. Household incomes would be raised by $ 21 million and national income by $ 155 million. Calculations for the indirect impact of this project showed an employement increase of 8000, and an increase in household and national incomes respectively in the order of $ 67 million and $ 312 million. For the induced impact, the number of additional jobs stood at 1494, additional household income at $ 12,5 million and additional value added at $ 79 million.
It was demonstrated that this task will generate in total close to 13500 direct, indirect and induced jobs, around $ 100 million of additional household income and a contribution to Turkey’s GDP of around $ 546 million.