Page 5 - FSUOGM Week 36 2022

FSUOGM COMMENTARY FSUOGM

the potential to provide Europe with the gas that Turkey’s role
it wants. However, at all of these projects, foreign It is important not to understate the role that
investment, technology and know-how will be Turkey will play in deciding how much extra
needed to drive development. This is particularly gas goes to Europe. According to the inter-
true at Umid and Babek, which are both geologi- governmental agreement signed between
cally complex fields that currently lack any West- Azerbaijan and Turkey on the development
ern participation. of the Trans-Anatolian Pipeline (TANAP)
Investment may also be harder to secure, as section of SGC, “the states expressly agree
many Western majors have announced plans to that all volumes of gas belonging to the
scale back capital expenditure in oil and gas over Republic of Azerbaijan and planned to be
the coming years in favour of renewables and shipped via the TANAP system in excess
other low-carbon technologies. This includes of an initial volume of 16 bcm per year will
BP, the biggest investor in Azerbaijan’s oil sector, first be offered to buyers in the Republic of
whose present strategy calls for a 40% cut in oil Turkey.”
and gas production over the next decade. Essentially what this means is that Turkey
Western financiers, likewise, have made will have first dibs on the extra Azeri supply,
commitments to phase out some or all of their and it will only become available to Europe once
fossil fuel investments, including the European Turkish buyers have turned it down. Whether
Investment Bank (EIB), which played an integral or not they do so will depend on a number of
role in getting the Southern Gas Corridor (SGC) factors.
pipeline project that connects Azerbaijan with First, a lot will hinge on the outlook for Tur-
the European gas market started. key’s economy, which in recent years has grap-
On the other hand, SGC succeeded at a time pled with a significant crisis. Second, it will
when spot gas prices in Europe were generally depend on how much gas can be obtained from
low. Thanks to political support from the EU Turkey’s Sakarya discovery in the Black Sea.
and nation states receiving Azeri gas, long-term Development is already underway, and Ankara
contracts were agreed even though prices under says production could reach 15 bcm per year in
them did not always compete with Russian sup- 2026.
ply, or LNG spot cargoes. Third, there is the outlook for Russian gas.
Now the situation is very different. Spot With Russian supplies sharply in decline, there
prices are now exceptionally high, and Russian will be more than enough supply for the Turkish
supply is unreliable now, and is set to be elim- market. Despite being a Nato member and sell-
inated under EU plans anyway in the coming ing arms to Ukraine, Turkey has so far sought to
years. This gives extra Azeri gas, priced under play the role of arbitrator in the conflict. But this
long-term contracts, a competitive edge. Even could change, and a drastic shift in Turkish-Rus-
if there is less political support from Brussels sian relations is certainly possible, as happened
for new fossil fuel projects, it may be that mar- in 2015 when the Turkish air force downed a
ket conditions drive the case for increased Russian jet undertaking operations in neigh-
supply. bouring Syria. ™

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