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Op-ed: Turkish Energy Leadership and the Ukrainian Crisis

The Ukrainian Crisis and Turkish Energy Leadership: Time to Act for Reducing Long-Term Risks

This text has originally been published in Hurriyet Daily News. Read the original here.

Recently, Turkish Energy Minister Taner Yıldız has expressed confidence that the current Ukrainian crisis will not result in a disruption of Russian gas supplies to Turkey. However, the crisis will have long-term and not necessarily positive effects on Turkey’s vision of becoming a regional energy leader. How the crisis plays out for Turkey hinges on decisions that are made today.

At first sight, the crisis appears to foster Turkish energy leadership, because it (once again) renders Russia an unreliable partner. Whatever the ending to the Ukrainian crisis might be, Europe is almost certainly going to reevaluate its relationship with Russia. Given Turkey’s geostrategic location between European consumers and the resources of Central Asia and the Middle East, it appears as the natural partner for Europe in diversifying energy supplies.

Another aspect of the Ukrainian crisis, however, might be much less favorable for Turkish energy leadership: The crisis might become a game changer in the politics of shale gas. In the U.S., gas production has increased substantially over recent years due to the application of fracking techniques that are used to extract gas (and oil) from shale formations.

So far, the U.S. shale gas boom has been mostly a domestic phenomenon, and it was unclear whether or not the U.S. would export shale gas as well. In the context of the Ukrainian crisis, however, particularly U.S. Republicans are pushing for shale gas exports to Europe as a means to counteract Russian power over European energy supply.

U.S. gas exports are not a short-term fix. There is currently no infrastructure in place that would allow for shipping U.S. gas to Europe. This would require gas liquefaction facilities and export shipping terminals.

In the long run, however, the build-up of U.S. export infrastructure might significantly change European gas trade. A first respective project is scheduled to be operational by late 2015. By 2017 further facilities could be finalized.

Moreover, the crisis will impact Europe’s post-2020 energy and climate policy that is currently being negotiated. Individual European states such as Poland, finally, are likely to counter dependency on Russia by speeding up shale gas exploration.

In the future, in other words, new gas supplies are likely to open up for Europe. These will not fully substitute current ones. Moreover, for the time being, particularly U.S. gas traders might want to sell their gas not to Europe, but to Asia, where gas prices are substantially higher.

Particularly in times of future crisis, however, liquefied natural gas (LNG) cargoes could be re-directed to Europe. While these alternative supplies would come at a price (Europeans would be competing with Asian buyers), they imply a crucial transformation: Crises would at least partially lose their energy security character, in which absolute scarcity is at stake. Instead, they would appear as economic challenges, in which higher prices have to be paid while continuous supply is ensured.

For Turkey, this would result in a loss of geostrategic importance in the European energy equation. This importance has largely been built on concerns over security not price.

Another challenge for Turkey is likely to emerge from market transformations that are provoked by increasing shale gas production. Traditionally, European gas has been traded by long-term contracts and priced in relation to the oil price. With increasing volumes of shale gas and more flexible LNG transport, European gas trade might become increasingly short-term, flexible, and independent of oil prices.

For Turkey, these new features of European gas trade imply greater economic risks. This is particularly the case with regard to Turkey’s ambitions to re-export gas, since the transformations might result in more volatile selling prices and less certain sales volumes.

In sum, the Ukrainian crisis could reinforce Turkey’s long-term importance for European gas trade. However, it might also lead to competing supplies and foster the transformation of market structures. To reduce the long-term risks that the crisis poses to Turkish ambitions for energy leadership, the time to act is now: First, Turkey should seriously tackle the issue of natural gas storage to handle increasing price and volume risks. Second, it should work hard to remain a reliable partner for Europe. Only then are Turkish ambitions to become an energy leader in the region realistic.

 

Author: Jörn Richert

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One comment on “Op-ed: Turkish Energy Leadership and the Ukrainian Crisis

  1. Pingback: New Article on Russia-Europe tensions and its Impacts on Turkish Energy Strategy | future and politics

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This entry was posted on April 8, 2014 by in Issues, Turkish Energy Leadership Foresight (2014) and tagged , , , .

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