Executive Summary
Turkey is a net importer of oil & gas with potential prospects in the Thrace basin, offshore Mediterranean and Black Sea. Turkey spends over $40 billion every year for the imports of energy resources such as oil, natural gas and coal. Local oil production meets only 7% of the demand, so Turkey imports approximately 260 million barrels of oil. Shale gas has not been widely explored. Although Turkey, with a population of over 80 million and approximately $800 billion GDP, is a major consumer of oil and gas, it is also an important transit country for natural gas produced in Azerbaijan and Russia with prospects from other countries in the region.
Other resources found in the Eastern Mediterranean and Iraq can be transported through pipelines from Turkey to Europe. Turkey intends to import compatible LNG rather than long term pipeline gas. Turkey imports approximately 45 bcma of natural gas every year. While in previous years pipeline gas was 80% of the gas imports and LNG was 20%, this changed to 73% and 27%, respectively, in 2019 due to the attractiveness of compatible LNG prices. The main importer of LNG is state-owned company BOTAS and other private firms also possess import licenses. However, unless the market is fully liberalized, these private sector importers will not be market players. Turkey has two LNG terminals and two FSRU facilities.
LNG is supplied from Algeria, Nigeria, the United States and Qatar as spot LNG. National oil and gas exploration and production company Turkish Petroleum (TP) conducts oil & gas explorations in Turkey and abroad either on its own or in joint ventures with other national and international companies. TP is a major buyer of upstream equipment for both onshore and offshore explorations. Other private sector producers operating in Turkey procure their own equipment usually from the U.S., China or European companies. Engagement with Botas for LNG and piped gas will be important in the first quarter of 2021 as several long-term piped gas agreements will expire.
Current Market Needs
The Turkish Government is focusing on offshore Mediterranean and Black Sea exploration and drilling. Therefore, upstream equipment and services can find a good market in Turkey. Three national offshore ships are currently conducting exploration and drilling in the Eastern-Med. Some local production of natural gas exists in the European Land of Turkey (Thrace) and oil production in southeastern Turkey. However, these amounts are minimal when compared with total demand for oil and gas. Much more oil and gas exploration is required since Turkey sits next to the oil and gas-rich Middle East. In the global context, Turkey’s total exploration is still at very low levels.
Recent Market Trends
Russia’s long-term agreement to supply Turkey with 16 bcma will expire in 2021, which will allow Turkish national pipeline company Botas to seek other competitive suppliers. Later, the long-term agreement with Iran to supply 9.6 bcma will expire in 2025. Therefore, competitive pipeline and LNG supplies will find a good market in Turkey. Botas has been gradually decreasing subsidization of natural gas prices, resulting in higher gas prices on the local market, in particular for gas sold to power plants. Consequently, the majority of privately-owned gas-fired power plants have ceased operations temporarily. Low electricity prices made possible by cheap hydro power generation and over-capacity have also contributed to this trend. With a liberalized gas market and economic growth in a few years, demand from power generation may increase. In southeastern Turkey, some prospects exist, and some production and new discoveries are occurring. In the Thrace Basin, there are additional exploration opportunities. Methanol produced from natural gas can find a good market in Turkey as Turkey is a major methanol importer.
Competitive Landscape
Turkey, with pipeline connections with Russia, Iran, and Azerbaijan, additionally with two LNG import terminals and two FSRU facilities, has a very competitive environment. Therefore, entering into the market requires competitive prices in comparison to pipeline gas prices, which is currently indexed to oil prices. Energy Market Regulatory Authority (EMRA) passed a regulation this year that spot gas delivery through pipelines will also be possible. Turkish Government prefers spot NG or LNG to avoid the risk of take or pay long term contracts as the consumption is unpredictable nowadays. Another reason for this trend is to establish a competitive gas exchange market through the Spot Natural Gas Market established at the Turkish Energy Exchange of Istanbul (EXIST) (https://www.epias.com.tr/en/spot-natural-gas-market).
Best Prospects for U.S. Exporters
Turkey is a major importer of LNG, LPG, NG, crude oil and petrochemicals. Therefore, Turkey is becoming a major LNG export market for U.S. firms. CS Turkey receives U.S. LPG supplier inquiries from Turkish importers from time to time. Interested U.S. suppliers should contact U.S. Commercial Service at the U.S. Embassy in Ankara, Turkey. Turkish investors are also seeking technology suppliers of machinery and equipment to establish a new methanol production plant. Turkey imports approximately $21 billion of methanol annually for use in the chemical and petrochemical industries. A Turkish investor is searching for U.S. partners to establish an ethylene-to-polyethylene plant in Turkey. They plan using the United States’ ethylene supply surplus coming from the newly established petrochemical plant production facilities which use the unconventional gas produced in the U.S. This company already has a harbor facility in the province of Mersin at the Turkish Mediterranean coast. In the near term, an immediate opportunity would be direct methanol exports to Turkey. Other best prospects are oil & gas upstream, midstream and downstream equipment and services, small LNG production facilities to supply NG to rural areas.
Market Entry
The Turkish Petroleum Law (https://www.petform.org.tr/en/mevzuat/arama-uretim-sektoru/) provides special incentives for oil & gas exploration and production investors. If interested, the “Petroleum Market Law” and the “Law in Natural Gas Market” can be found at the Energy Market Regulatory Authority’s (EMRA) website: https://www.epdk.org.tr/Home/En. Other regulations and by-laws can be found at this link as well.
Regulations/Registration Process
Different from the United States, Turkish laws and regulations state that all natural resources are owned by the Republic of Turkey. However, discovery and production of such natural resources can be conducted by the private sector by obtaining a license from MAPEG (Mining and Petroleum Affairs General Directorate) under the Ministry of Energy and Natural Resources. Development and production of such natural resources are regulated by the petroleum or mining laws. These laws provide for a rather liberal process including the possibility to transfer dividends to the headquarters of the foreign investors.
Technical Barriers & Tariffs
Two existing LNG terminals and two FSRUs facilities are being used for the imports of LNG to Turkey. However, national gas pipeline company Botas’ dominance in the market does not currently allow for a liberalized gas market. One reason is the long-term take or pay type contracts with Russia and Iran. In broader terms, a major barrier for U.S. LNG suppliers interested in exporting LNG to countries with access to the Black Sea, such as Ukraine, Romania and Bulgaria, is the passage of LNG tankers through the Turkish Bosporus strait. For reasons of safety, the Turkish Government does not allow LNG tankers to pass as it is a very populated area with reverse sea currents. Possible solutions are to use Botas’s LNG terminal in the Marmara Sea or establish a private FSRU facility in Saros Bay in the northern part of the Aegean Sea. In that way, the LNG can be converted to NG and be pumped reversely through the existing pipelines between Turkey-Bulgaria-Romania-Ukraine.
Procurement & Tenders
Botas and TP conduct tenders in accordance with public procurement regulations. The private
sector usually decides on the market conditions and tries to obtain the best quality at the best price. Financing and negotiations can play an important role.
Getting Paid/Trade Finance
Financing is rather important in the establishment of large facilities. Investors always look for
long-term financing at low interest rates.
Upcoming Trade Events
INGAS: Usually held in October. But, due to COVID-19, it may not be held in 2020. This link is from the 2019 event: http://www.ingas.istanbul/en/index.html.
U.S. Commercial Service Information
Serdar Cetinkaya, Senior Energy Leader
U.S. Commercial Service
Ankara, Turkey
Serdar.Cetinkaya@trade.gov
