Turkish Forum

Tag: Southern Corridor

  • Turkey Reiterates Commitment to Southern Corridor with Trans-Anatolia Pipeline

    Turkey Reiterates Commitment to Southern Corridor with Trans-Anatolia Pipeline

    Turkey Reiterates Commitment to Southern Corridor with Trans-Anatolia Pipeline

    Publication: Eurasia Daily Monitor Volume: 9 Issue: 1
    January 3, 2012
    By: Saban Kardas
    Turkey and Azerbaijan signed a memorandum of understanding that will facilitate the transit of Azerbaijani natural gas to Europe, changing the calculations over the EU-backed Southern Corridor concept. In October 2011, the two countries signed numerous agreements regulating the volume and price for Turkey’s gas imports from Azerbaijan as well as the transit terms for Azerbaijani gas exports to Europe through Turkish territory (EDM, November 1, 2011). Among these documents they agreed to work on a dedicated pipeline that will transport gas from the second phase of the Shah Deniz gas field through a pipeline from Turkey’s eastern frontier to its western border, in addition to using the existing Turkish grid for transiting Azerbaijani gas.

    On December 26, 2011, Turkey’s Energy Minister Taner Yildiz and his Azerbaijani counterpart, Natig Aliyev, signed a memorandum of understanding on the construction of the Trans-Anadolu natural gas pipeline. The Trans-Anadolu consortium will be formed by the State Oil and Gas Company (SOCAR) and Turkey’s BOTAS and TPAO. While the Azerbaijani side will hold 80 percent of the shares, the Turkish participants will control the remaining 20 percent, but the stakes might change over time, as the consortium will be open to participation by other international energy companies. The construction work is scheduled to start in 2012 and be completed in 2017, when the Shah Deniz-II is also expected to become operational. The pipeline will have an initial annual capacity of 16 billion cubic meters (bcm), which could be increased to 24 bcm. The 6 bcm capacity will be used for consumption in Turkey’s western regions, while the rest of the throughput will constitute Azerbaijan’s exports to Europe. Since Turkey will retain the re-export rights for its imports from Azerbaijan, the total volume of gas available for European markets could increase depending on the market conditions. Though the construction costs will be determined after feasibility studies, Yildiz estimated these costs at around $5 billion (Anadolu Ajansi, December 26, 2011).

    This development raises many interrelated issues about the future of bilateral relations, as well as the EU’s Southern Corridor project seeking to diversify European natural gas supplies tapping into Caspian basin reserves.

    With this decision, Turkey and Azerbaijan took another step to cement their evolving strategic partnership, while Ankara also reconfirmed its Baku-centered South Caucasus policy. Energy occupies a major place in both countries’ ambitious foreign policy agendas. While Azerbaijan is eager to capitalize on its developing hydrocarbon reserves to emerge as a major regional actor in the South Caucasus, Turkey has sought to use its geographic location as an asset to establish itself as a major transportation corridor for oil and gas from the Caspian basin and Central Asia as well as the Middle East.

    Given Azerbaijan’s need for a reliable export route and Turkey’s interest in sustainable throughput to feed its ambitions to become an energy hub, there are economic and strategic imperatives forcing the two countries to forge a closer partnership in the energy sector, which is further strengthened by overlapping perspectives on regional issues. Such a shared vision led to the construction of the Baku-Tbilisi-Ceyhan pipeline marketing Azerbaijani oil globally and the Baku-Tbilisi-Erzurum pipeline exporting Azerbaijani gas to Turkey, part of which is re-exported to Greece by using the Turkish grid. With the successive energy deals signed in recent years, including a rising volume of Azerbaijani investments in Turkey’s energy sector, and deepening political dialogue such as the establishment of a high level strategic cooperation council, the two countries are healing the frictions caused by Turkey’s thwarted normalization efforts with Armenia.

    Currently, there seems to be a strong determination to develop joint energy projects and turn this partnership into a solid axis in the South Caucasus and beyond. Natig Aliyev’s remarks that with the trans-Anatolia project the two countries will work in European energy markets together reflected this shared vision (www.ntvmsnbc.com, December 26, 2011).

    Moreover, the implications of this development for the EU-backed Southern corridor remain a matter of controversy. The competing projects including Nabucco, Interconnector Turkey-Greece-Italy (ITGI) and Trans-Adriatic Pipeline (TAP) submitted their bids to the BP-led consortium operating the Shah Deniz field in October 2011. While Azerbaijan and the consortium were expected to make their decision, the trans-Anatolian project has altered the equation in the ongoing competition to secure access to Azerbaijan’s export volumes.

    To complicate these calculations even further, Turkey also moved to sign an accord with Russia by the end of 2011. An agreement finalizing Turkey’s approval for the construction of South Stream in its territorial waters in the Black Sea was signed in Moscow by the heads of BOTAS and Gazprom, overseen by Yildiz and Prime Minister Vladimir Putin. With this decision, which Russia had been expecting for over one year, Turkey removed its objections to the South Stream project, which Russian sources expect to be completed by 2015. In return, Yildiz claimed that he secured guarantees from the Russian side to resolve the dispute over the western pipeline in terms favorable to Turkey, especially including a reduction in the price for gas imports from Russia (Anadolu Ajansi, December 29, 2011).

    The Turkish government has faced the criticism that by taking these controversial steps it is effectively killing the Nabucco project, which it claimed to have deemed as a strategic priority (Hurriyet, December 31, 2011). For its part, the Turkish government has been arguing that the trans-Anatolian project was in fact complementary to Nabucco and Southern corridor projects, as it will reduce the costs of the other projects (Anadolu Ajansi, December 26, 2011; Yeni Safak, November 19, 2011).

    Ankara considers that it has fulfilled its responsibilities towards the Nabucco project by granting the necessary permissions earlier for its construction on its territory. The recent deal on the trans-Anatolian project in that context reiterates that Turkey would not be the deal-breaker in Southern corridor projects, as it effectively resolves issues pertaining to the transit of Azerbaijani gas. More importantly, the willingness of the BP-led Shah Deniz consortium, for Azerbaijan and Turkey to undertake a major portion of the transportation corridor might allow Nabucco and other projects to redesign themselves on scalable terms. Now it will be up to other Nabucco partners to do their part, readjust to the new conditions, and find a supply source, which remains the main obstacle before the project.

    https://jamestown.org/program/turkey-reiterates-commitment-to-southern-corridor-with-trans-anatolia-pipeline/
  • Turkish-Azeri Deal May Herald New Competition in Southern Corridor

    Turkish-Azeri Deal May Herald New Competition in Southern Corridor

    Turkish-Azeri Deal May Herald New Competition in Southern Corridor

    Publication: Eurasia Daily Monitor Volume: 7 Issue: 115

    June 15, 2010

    By: Saban Kardas

    On the sidelines of the Conference on Interaction and Confidence Building Measures in Asia (CICA) summit held in Istanbul, Turkey and Azerbaijan concluded agreements on natural gas cooperation. On June 7, during a ceremony attended by Turkish Prime Minister, Tayyip Recep Erdogan, Azeri President, Ilham Aliyev, the Turkish Energy Minister, Taner Yildiz, and his Azeri counterpart, Natiq Aliyev, signed an agreement which will end a two year long price dispute on Turkey’s gas imports from the first phase of Azerbaijan’s offshore Shah Deniz-I, as well as setting the volume and price for Turkey’s imports from the second phase of the field, expected to come online in 2016-17. A related agreement will regulate the terms and mechanisms for the sale and transit of Azeri gas to Europe through Turkey.

    Turkey currently imports 6 billion cubic meters (bcm) of gas from Shah Deniz-I, paying $120/thousand cubic meter (tcm), well below the current market prices. However, the original agreement allowed for price renegotiation, which is exactly what Azerbaijan asked for when the pricing terms expired in April 2008. As the negotiations were underway, Turkey continued to import gas, though stressing that it would compensate for the price differences retroactively. Despite several rounds of negotiations, which were eclipsed by the discussions on gas transit, the parties failed to bridge their differences, which also raised concerns in the West that the delays might undermine Nabucco and other projects seeking to ensure supply diversification from the Caspian basin to Europe (EDM, February 26). Moreover, the gas disagreements also aggravated the diplomatic row between Baku and Ankara, caused by Turkey’s efforts to normalize relations with Armenia, raising questions about future relations between the two fraternal countries (EDM, October 21, 2009).

    Earlier, both parties announced that they had reached a breakthrough, and during Erdogan’s Baku visit in May, they expressed their determination to sign the deal in Istanbul (EDM, June 1). The recent deal, which apparently came about only after intense negotiations, signifies not only their willingness to reactivate the energy partnership, but also in repairing Turkish-Azeri strategic ties. As statements issued during Aliyev’s trip attest, Turkey will continue to place Baku at the center of its South Caucasus policy.

    Still, energy is likely to remain the most important component of Turkish-Azeri ties. For instance, the Azeri State energy company SOCAR is already a major player in Turkey’s energy market, through its control of the country’s largest petrochemicals group PETKIM. Recently, it was announced that PETKIM would expand its operations through new multi-billion dollar investments in the coming years (www.azernews.az, June 3).

    The exact details of the agreements have not been disclosed and some sources maintain that both parties still have to work towards elaborating many details. Yildiz declined to specify the revised price, indicating that it will be flexible in order to allow for adjustment to market conditions. Yildiz also added that it will be more favorable compared to what Turkey is currently paying to Russia (Anadolu Ajansi, June 8). However, Turkish media speculated that the price will be raised from $120 to $300/tcm. Turkey will have to pay around $1.5 to $2 billion to compensate for price differences. The price for Turkey’s imports from Shah Deniz-II, which will be around 6-7 bcm annually, is likely to be higher than $300 per tcm, and will be assessed by taking into account investment costs (www.haberturk.com, June 8).

    The other major item, terms for the transit of further Azeri gas to Europe, was also settled. Ankara had been insisting on purchasing Azeri gas and then re-exporting it to Europe on its own terms, as was the case for Shah Deniz-I. Neither side clarified whether Turkey retained that right (Hurriyet Daily News, June 8), but Yildiz indicated that Turkey would be able to re-export the gas it imports from Azerbaijan in collaboration with PETKIM (Cihan, June 7). Some sources maintain that Azerbaijan will pay Turkey $45 per tcm in transit fees for its direct export to Europe, passing through Turkish territory (Sabah, June 8). There remains some uncertainty over who exactly will export Azeri gas to Europe, as Azeri sources failed to confirm that Turkey retains the re-exporting rights (www.enerjivadisi, June 9).

    Previously, delays in negotiations with Turkey had invited the ire of Azerbaijan, because the development of the Shah Deniz-II had to be postponed. The resolution of the transit issue and the interest from different pipeline projects is definitely welcome news for Azeri officials, as they can now discuss with their European partners the commissioning of Shah Deniz-II. Both parties also publicized the agreement as a positive step that would facilitate other projects to transport gas to Europe, most notably Nabucco. Natiq Aliyev emphasized that they were willing to support Nabucco, but they still had not received any purchase commitment from Nabucco. Currently, Turkey is able to export Azeri gas to Greece through the Turkey-Greece Interconnector (TGI) which integrates Turkish and Greek grids. The planned Trans Adriatic Pipeline (TAP), which will run from Greece to Italy, also seeks to tap into Azeri gas.

    Impending competition between Nabucco and other pipelines forming the EU’s Southern Corridor seems certain. While many believe Nabucco will be a non-starter without locking in Azeri gas, TAP has been awaiting the conclusion of the Turkish-Azeri negotiations.

    Representatives from both TAP and Nabucco welcomed the Turkish-Azeri deal (www.today.az, June 8). Azeri officials, anticipating the country’s gas output to increase substantially in future, welcome such outside demand which will boost their export potential. However, as the initial phase of Shah Deniz-II might only have limited extra output after it was allocated for Azerbaijan, Georgia and Turkey, it remains to be seen if Azerbaijan can supply all the Southern-corridor pipelines simultaneously at their desired levels. Turkish media maintain that Italy might soon sign a transit agreement with Ankara and a supply commitment agreement with Baku, which will commit the entire remaining volume from Shah Deniz-II to TAP, leaving no extra capacity for Nabucco (Referans, June 9). Yildiz stated that Turkey supports both projects and the final decision will be taken by the Shah Deniz consortium (ANKA, June 9). In any case, the Turkish-Azeri agreement might herald new competition in the Southern Corridor.

    https://jamestown.org/program/turkish-azeri-deal-may-herald-new-competition-in-southern-corridor/