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Royal Dutch Shell Plc .com: The energy debate hots up

From The Guardian – United Kingdom; Jun 26, 2006

The energy debate hots up: Turkey bridges the petroleum-rich countries of the Caspian and the Gulf, and the energy-consuming markets of continental Europe, making it a strategic centre for the oil trade. But what of its own internal energy security?

A country that has little in the way of its own natural resources and has to import three-quarters of its energy needs is an unusual one to be at the centre of a global energy debate. Yet Turkey is a key nation in the increasingly politicised sector because it stands close to the biggest oil and gas deposits in the world with Russia, the Caspian and the Gulf region all on its doorstep.

And to the west lie the huge energy consumer markets of continental Europe, which explains why Turkey is now a tangle of pipelines, many of which converge on Ceyhan, the Black Sea port. BP has just started taking the first deliveries from its 1,000-mile Baku-Tblisi-Ceyhan (BTC) oil link from Azerbaijan through Georgia to Turkey, which was encouraged by Washington because it bypasses Russia.

Lawrence Eagles, head of oil analysis at the International Energy Agency in Paris says: “Turkey is increasingly becoming a strategic centre for oil trades and an important conduit for crude and products from the Middle East and former Soviet Union.”

Turkey is already the home to a variety of Russian pipelines, including the 866-mile Blue Stream pipeline which runs under the Black Sea from Izzobilnoye in southern Russia to Ankara.

Relations with Moscow have often been turbulent and were not helped by Turkey finding itself a victim of the cuts in gas when Russia cut supplies to Ukraine earlier this year. This has heated up the debate in Turkey – as it did in Britain, the US and many other consuming countries – about the importance and need for greater internal energy security. And many of the debates that are currently going on in the UK over whether to invest in nuclear, what role could there be for more renewables, also rage in Turkey.

The issue has become increasingly pronounced over the last couple of years because energy consumption and net imports have rapidly grown since the country recovered from economic meltdown in 2001.

Soaring global oil and gas prices have meant that Turkey’s fossil-fuel imports now mop up over 6% of the country’s economic output, or gross domestic product. Over 72% of its energy demand is met from abroad and this figure is expected to rise to 82% by 2020 if nothing is done.

The International Energy Agency has warned Turkey that it needs to “restructure the state-owned enterprises. . . create independent electricity and gas operators and to remove cross-subsidies from electricity and gas prices”.

As part of its attempts to win entry into the EU, Turkey has also introduced many European energy laws as well as ratifying the Kyoto protocol aimed at cutting carbon emissions and therefore reducing climate change. The country has been pressing ahead with wind farms, it has been trying to increase the number of hydro-electric plants, and the World Bank gave it loans of over $200m in 2004 to kickstart more “green” power projects.

But after much debate, the Ankara government has also decided that it must proceed with a nuclear power programme and is talking about the possibility of constructing four atomic reactors. These would have a capacity of 5,000 megawatts, enough to generate 5% of the projected energy demand by 2015.

But it is not the first time the country has taken the political decision to proceed with nuclear only to back off in the face of public opposition to the environmental, terrorism, and basic safety implications.

Like in Britain, the Turkish people are split down the middle between those in favour and those against. Eight formal applications have already been received from the private sector but nearly all want the state to be involved as partners. Turkish companies have led the way but they accept that foreign expertise will be vital to the success of any such project which is likely to be centred on a location such as Mersin Akkuyu.

As in western Europe, the debate about energy-supply security has got louder since the turn of the year when the stand-off between Russia and Ukraine led to a reduction in gas to Turkey.

Over 80% of the natural gas used in local power stations and for domestic heating comes from Russia and Iran. It is distributed in Istanbul, home to 12 million people and the country’s biggest city, by local firm Istanbul Gas Distribution company (Igdas). As part of the government’s privatisation drive, Igdas is expected to move forward with an initial public offering on the stock market before the end of this year.

Igdas director general Levent Tufekci is confident he can double his customer base to 6m within 10 years and is working hard to upgrade its own pipeline network. As to the wider political importance of all these transport links he says: “The pipeline projects linking the Caucasus and central Asia to Europe will be essential for the region’s integration to the west.

“Secure and commercially profitable pipelines will help bring stability and prosperity to the region.”

Privatisation has already started in the petroleum sector with the Turkish Petroleum Refineries Corporation (Tupras) recently being bought by a consortium of locally owned Koc Holding and Royal Dutch Shell. They beat off competition from Turkish fuel retailer, Petrol Ofisi, which itself was privatised back at the turn of the century but has just moved into a new era with the sale of a 34% stake for $1bn to OMV of Austria.

Turkey is itself an oil producer thanks to the Turkish State Petroleum Company and has been helped by foreign firms Shell and ExxonMobil. But the oil fields – mainly centred in the Hakkari Basin – are old and expensive to exploit. The output was down to 43,000 barrels a day, a small part of the 700,000 barrel daily needs and barely a few minutes production compared to nearby countries such as Saudi Arabia.

Jolanka Fisher, Turkey specialist at the IEA, says the member country is going through rapid change with new pipelines such as BTC coming on stream and the local markets being liberalised. She adds: “This is all important for security of supply in Turkey but given its position as an energy corridor it is also vital for wider Europe.”

Terry Macalister

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