This paper examines Turkey’s increasing dependency on Russian energy exports.
Turkey aspires to become an energy hub for supply to Europe. This would, on the one hand, increase its energy security and on the other, will ensure that it has sufficient energy for its own needs which will be partly guaranteed by the fact that the pipelines would go through its own territory. At the same time, it will provide it with the financial benefit from the lucrative market of transit fees and will increase its geostrategic importance for Europe and the world.
Turkey is the only significant European market where there is an increase of demand of natural gas. BOTAŞ, which is the state-owned crude oil and natural gas pipelines and trading company of Turkey forecasts the increase of demand from 45Bcm/year to about 81 Bcm/year by 2030. Even though certain analysts consider this to be an overestimation, it is indicative of the very significant increase in demand that is expected.
Currently most of Turkey’s energy is imported (72%) and this is costing the country about 54B$ /year which amounts to about 22% of its total import bill. The dependence on imports for its natural gas needs is even greater, approximately 98%, which makes it highly vulnerable to potential disruptions either from supply problems or from exogenous natural gas price fluctuations. It is for this reason that the Turkish government target is to reduce dependence on natural gas in the energy mix.
Most of the Turkish natural gas needs are covered by imports from Russia. Turkey is Gazprom’s second largest gas consumer, and Gazprom’s strategy, for sometime, has been to strengthen its position in Turkey. In fact before the crisis 58% of the natural gas used was imported from Russia to the total cost of 31.5 B$/year. If this figure is compared to the 6.5 B$ Turkey exports to Russia we see that export balance is heavily on Russian’s side. Overall, with high volumes, high prices and a stable export route, Turkey’s value as a partner to Russia is considerable.
Turkey’s dependence on Russia for its energy needs is however going to rise even more. Turkey has had plans to establish nuclear power generation since the 1970’s. Very recently there has been major progress on this front because there has been an agreement with Russia offering it to finance and build a 4800MWE nuclear power generator at Akkuyu (on the Mediterranean coast). Its construction and operating plans of the Akkuyu nuclear power reactor are expected to be finalized by summer 2014 and the construction is expected start in January 2016 and the first phase to be operational by 2021.  What is particularly interesting to note is that the deal for the Akkuyu nuclear power plant was not signed with BOTAŞ – the state owned energy company – but with a series of private companies and that the deal ties Turkey with 30 year contracts. The agreement with Gazprom to potentially construct two nuclear power stations will have 100% Russian monopoly and purchase guarantees for 15 years (prices 12-15$/KWH). A second nuclear plant agreement has recently been signed by PM Erdogan and will be constructed in Sinop with Japanese interests. It is important to also note that the Turko-Russian relationship is further complicated by Russia’s dependency on Turkey for the safe passage of its oil exports through the Bosporous.
Another of Turkey’s energy Achilles’ heel, is the lack of the necessary infrastructure. To meet Turkey’s energy needs investments of the order of 6-8B$ per year are needed infrastructure development. If this was not enough of a challenge, it is expected that Turkey will be facing energy shortages in 2015-2016 and 2021-22 and at the same time Turkey is continuing to pay billions in “Take-or-pay contracts” for energy it does not receive, primarily due to the shortage of adequate energy storage infrastructure.
Due to Turkey’s recent political problems the Turkish lira has substantially lost ground with respect to the other currencies; loosing about 15% of it value to the dollar in the last year alone making the necessary infrastructure investments more costly and more difficult to implement. Despite however the two elections planned for the next 12 months, the World Bank is forecasting a 3.5% GDP growth for 2014 (4.5% in 2013). So although financing the large infrastructure investments may be difficult, Turkey’s economy is forecasted to be healthy for the next few years.
In the current context of the application of sanctions against Russia by the US and the EU over the Ukraine crisis and the general push by European countries to minimise dependency on Russian energy exports, Turkey’s dependency on Russian energy exports is increasing and their relationship is becoming more complex and deeper. This could potentially be a reason that may keep Turkey on a diverging path with European and US policy vis-à-vis Russia.
 Companies involved are : Akfel, Bosphorous, Kibar and Bati Hatti (23 years contract)