Pulling Back the Curtain on Turkey’s Natural Gas Strategy
After decades of alliance, Turkey still befuddles the West. Over the last decade, the country’s more assertive foreign policy in Syria, Libya, and the eastern Mediterranean has some analysts seeking solace in neo-Ottomanism without doing the hard work of identifying Turkey’s geo-economic interests. Gas is one of those vital interests and helps explain some of the country’s actions in recent years. Looking at how Turkey reacts to the gas policies of Russia and the United States, however, might just help analysts better understand its gas strategy and wider foreign policy.
On July 15, 2020, the U.S. Department of State announced new guidelines that subject companies involved in two uncompleted Russian pipelines that would import gas to Europe, Nord Stream 2 and TurkStream 2, to the 2017 Countering America’s Adversaries Through Sanctions Act. The announcement gives the sanctions sharper teeth, according to Secretary of State Mike Pompeo:
This action puts investments or other activities that are related to these Russian energy export pipelines at risk of U.S. sanctions. It’s a clear warning to companies. Aiding and abetting Russia’s malign influence projects will not be tolerated. Get out now, or risk the consequences.
Nord Stream 2 sanctions have dominated Western policy and media attention, but TurkStream 2 sanctions have elicited silence in the West and, more interestingly, in Turkey. On a practical level, this silence is understandable. The sanctions on TurkStream cover the second, uncompleted TurkStream 2, which seeks to send Russian gas to southeastern Europe. (TurkStream 1, which sends Russian gas to Turkey and minor flows to Bulgaria, Greece, and North Macedonia, began operating in January 2020.) Russian Gazprom and Turkish state-run BOTAŞ are jointly completing the final phase of construction of TurkStream 2. Without a clear start date for TurkStream 2’s operation, silence is a practical diplomatic posture for Turkey. Yet it is easy to see how the sanctions could evolve into a flashpoint for U.S.-Russian-Turkish relations. Russia, for its part, has registered its opposition to U.S. sanctions.
Ankara’s interests in TurkStream 2 are marginal. More Russian gas passing through Turkey via TurkStream 2 would only yield pipeline transit fees. Moreover, it competes with Turkey’s natural gas aims, which are threefold: first and foremost, develop the 320 billion-cubic-meter Sakarya gas field in the Black Sea that was announced on Aug. 21; second, block competing flows from the eastern Mediterranean and Russia; and third, facilitate more gas carried by seaborne tankers. Turkey champions the Trans-Anatolian Pipeline, which brings Azeri gas through Turkey to the Trans-Adriatic Pipeline in Greece and could be expanded to include supplies from other countries, including Iraqi Kurdistan, Israel, and Turkmenistan. Turkey will also encourage more tankers carrying liquefied natural gas to land either on Turkish shores or pass through Canal Istanbul to the shores of Bulgaria, Romania, and Ukraine in the Black Sea. The canal, a 28-mile artery between the Sea of Marmara and the Black Sea, just 18 miles east of the Bosporus, is slated for completion in 2025. Turkey has not publicized its desire to use Canal Istanbul for gas transit, but canal transit fees from liquefied natural gas cargoes, including those originating from the United States and Qatar, will be more lucrative than pipeline transit fees and could bestow geopolitical influence on Turkey. Ankara can, moreover, use the canal to transit its own gas from the Black Sea by tanker south to the Mediterranean and Europe. Turkey may be silent about TurkStream 2 sanctions because it wants them.
Sanctions Buy Time
It is unclear yet what subjecting the pipelines to the Countering America’s Adversaries Through Sanctions Act will concretely achieve. Sweeping congressional majorities passed the legislation in August 2017 to prevent U.S. President Donald Trump from unilaterally lifting the 2014 sanctions against Russia authorized by then-President Barack Obama. Section 232 of the act originally exempted companies from secondary sanctions penalties, if they were working on projects launched before August 2017. By lifting these exemptions, the State Department subjects both Nord Stream 2 and TurkStream 2 to potential penalties. Whether Trump enforces these sanctions on companies such as BOTAŞ is another question. The president has not enforced them against Turkey in high-profile cases related to Turkey’s state-run Halkbank’s evasion of Iranian sanctions and the purchase of S-400 missiles from Russia. Companies and individuals involved with the pipelines, nevertheless, are certainly on higher alert. The updated guidelines are unlikely to halt completion of the pipelines, but will delay the start of both pipelines likely into 2021 or even later.
As the United States grew into a major exporter of liquefied natural gas — gas condensed to 1/600th of its original volume and shipped on tankers to destination ports around the world — U.S. senators began advancing legislation against Russian pipelines to Europe. They aimed first against Nord Stream 2 in July 2018, but not against TurkStream until June 2019. Trump signed this legislation in December 2019, prompting Swiss-Dutch Allseas to halt work on Nord Stream 2. Nord Stream 2 faced further permitting delays, which were lifted on June 2, 2020. Two days later, U.S. senators updated the June 2019 legislation. The United States argues that both pipelines pose a security threat to Europe. German Chancellor Angela Merkel has condemned the sanctions as “extraterritorial.”
The gas industry is currently facing significant headwinds. The global market was oversupplied and at historically low price levels even before the novel coronavirus further depressed demand. European gas demand fell 8 percent year-on-year from January to May 2020, and demand growth may not return until 2021 or 2022. Gas still has a fairly bright future, not least because the West and its Asian allies are championing hydrogen as part of the clean energy transition — methane from gas can produce hydrogen, which gas pipelines can transport. But the long-term uncertainties of the energy transition present commercial risks for investing in producing new gas supplies, especially in geopolitically volatile areas. These dynamics are putting eastern Mediterranean gas on hold, as Italy’s ENI, France’s Total, and ExxonMobil have suspended drilling activities until at least mid-2021.
The growth in global gas supplies in recent years, the flexibility of liquefied natural gas, and the emergence of spot markets are rewiring the global gas market to consumers’ advantage. Pipelines still offer the best economies of scale in most cases, but geopolitics can undermine gas-supply security, as the disruptions of Russian pipeline gas through Ukraine revealed. Oil underwent a similar transformation after the closures of the Suez Canal from 1956 to 1957 and 1967 to 1975. The industry turned to supertankers to mitigate the disruption risk of transit chokepoints. By the 1980s, tankers were the dominant transit mode for ferrying oil from the Middle East and North Africa to Europe, East Asia, and North America. The dwindling significance of gas pipelines means that fewer countries and companies will fight over fixed transit routes. The path toward gas-supply security will come by sea.
Turkey’s Shifting Gas Strategy
Since 2018, Turkey has been reducing its decades-long dependence on Russian gas. According to the Turkish Natural Gas Market Report 2019, Russian pipeline gas imports fell from 51.9 percent of total Turkish imports in 2017 to 47 percent in 2018 and 34 percent in 2019. This trend will continue in 2020 and beyond, as Turkish demand continues to fall. This is partly due to a sagging economy and investments in clean energy, but also because Ankara can turn to liquefied natural gas imports from the United States, Qatar, Algeria, Nigeria, and others, which are now cheaper than contracted pipeline gas from Gazprom. Turkey is now Europe’s third largest importer of U.S. liquefied natural gas behind Spain and France. Russia’s Blue Stream gas pipeline, commissioned in 2005 to send gas to Turkey underneath the Black Sea, is a case in point: Ever since a two-week closure for maintenance in May, the pipeline has remained idle with no scheduled restart date. BOTAŞ’ contract with Gazprom to receive gas through TurkStream 1 ends at the end of 2021.
No longer dependent on gas pipelines, Turkey has greater flexibility to wield diplomatic and economic tools to funnel gas through specific routes and block routes that compete. Nowhere is this more evident than in the eastern Mediterranean, where Turkey has utilized maritime brinkmanship to harass the international companies exploring for Cypriot gas and clever diplomacy to freeze development more broadly. Its agreement with Libya in November 2019 to demarcate the countries’ maritime border blocked the Eastern Mediterranean gas pipeline scheme, which aimed to export Israeli, Egyptian, and Cypriot gas to Europe. Turkey plans to start exploring for gas in seven licensed areas in Libyan waters this fall, but even if it finds gas, its export options will be limited. Turkey’s Libyan policy helps block flows of competing gas, as the multiple conflicts in the eastern Mediterranean, including Syria, become increasingly interconnected. Turkey’s renewed focus on projecting maritime power through its Blue Homeland strategy dovetails with its goals of blocking competing gas flows, securing liquefied natural gas imports, and exporting its own gas from the Black Sea later in the decade.
The Battle for Southeastern European Market Share
Russia’s near-term goal with TurkStream 2 is to deliver supplies to Bulgaria, Greece, Serbia, and Hungary. Gazprom began building South Stream across the Black Sea to Bulgaria in 2012, but the European Union’s third energy package disrupted the Kremlin’s strategy to be the sole supplier of gas through the pipeline. Though the project was 75 percent completed, Russian President Vladimir Putin decided to repurpose South Stream into TurkStream in 2015, redirecting it to land in northeastern Turkey. Russia hopes that the TurkStream system, which has 31.5 billion cubic meters per annum (bcma) of capacity, can help it retain market share in southeastern Europe.
The most imminent threat to TurkStream 2 and Russia’s position in southeastern Europe more broadly is the construction of a bidirectional north-south corridor buttressed by Greece, Turkey, and Ukraine that can be fed by liquefied natural gas from the Mediterranean and reverse flows from Ukraine. (Ukraine’s current contract to transit Russian gas to Europe ends in December 2024.) Legal problems in building out infrastructure in Bulgaria, Hungary, and Serbia are, however, endangering the corridor’s ability to receive reverse flows, according to Dr. Aura Sabadus. Sabadus, a senior energy journalist for Independent Commodity Intelligence Services, adds:
The region may have until 2021, the likely date by which Bulgaria is expected to sort out legal issues and build its leg of the TurkStream 2 corridor, to ensure it establishes access to non-Russian supplies and infrastructure to create real change. If that window is missed, the TurkStream 2 corridor will be commissioned and critical infrastructure would once again be blocked to serve Gazprom’s interests.
Turkey can benefit from flows to southeastern Europe in two ways. The first is the Trans-Anatolian Pipeline, which transports 16 bcma: 6 bcma to Turkey and 10 bcma to Greece, Albania, and Italy. The system was designed, however, to handle up to 31 bcma and can accommodate supplies from other countries, theoretically from Iraqi Kurdistan, Turkmenistan, or even Israel. All of these options are highly questionable commercial projects and would face opposition from Russia, which has a stranglehold on the development and export of gas from Iraqi Kurdistan and historically blocks pipelines that might pass from Turkmenistan to Azerbaijan under the Caspian Sea. Finally, due to its commanding position in Syria, Russia could easily block a pipeline from Israel’s gas fields to Turkey’s southern shores.
The second way that Turkey can build its gas power — and here is where Ankara could be playing a long game — is by welcoming liquefied natural gas cargoes through Canal Istanbul. Despite vocal opposition from environmentalists, economists, and dissenting politicians, Turkish President Recep Tayyip Erdoğan revisited the project, seemingly out of nowhere, in January 2020 and then issued the project’s first tender in March. Erdoğan has not shared his justifications for the project. Analysts have advanced plausible theories, the most provocative of which is that the project aims to circumvent the Montreux Convention, which limits non-Black Sea warships from operating in the Black Sea for longer than 21 days. Yet a cardinal driver for the Canal Istanbul project may also be gas. The canal would facilitate U.S., Qatari, and other liquefied natural gas tankers to transit from the Mediterranean to Bulgaria, Romania, and Ukraine in the Black Sea. It would also permit Turkey to send its own gas from the Sakarya field in the Black Sea south to the Mediterranean and European markets on seaborne tankers.
The Black Sea Nexus
Turkey’s geography bestows a sublime advantage in the contest to shape gas flows to Europe. Many European countries have condemned Turkey’s statecraft in the eastern Mediterranean as illegal, but both the United States and Russia tacitly support freezing eastern Mediterranean gas, lest it compete with their own exports to southeastern Europe. U.S. sanctions on TurkStream 2 and now Turkey’s Black Sea discovery will add additional layers of complexity to relations between Washington, Moscow, and Ankara that Turkey will have to carefully manage. Turkey leans different ways on different issues with respect to the eight different countries it borders, but flexibility and diversification are the hallmarks of gas-supply security for any nation. Turkey is embracing this approach, and leaning towards the United States.
Turkey’s Sakarya gas field in the Black Sea will bestow greater independence from foreign suppliers and significantly reduce the country’s onerous energy-import bill, which stood at $41 billion in 2019. Erdoğan pledged that this would occur by 2023, which would be opportune for negotiating future import contracts. Turkey’s import contract for Algerian liquefied natural gas expires in 2024, for Russian pipeline gas through Blue Stream in 2025, and for Iranian pipeline gas in 2026.
Turkish Minister of Energy and Natural Resources Fatih Donmez also announced on Aug. 25 that the Turkish Petroleum Corporation will “have no partners” in operating or owning Sakarya. This is surprising, since countries have always partnered in some shape or form in developing their first offshore field, a massive technological and financial undertaking. Building a multinational consortium that included Western and Russian firms might have mitigated geopolitical risk, secured future export routes to Europe, and enhanced Turkey’s flexibility to shape gas flows to its advantage. But, if Turkey can pull off this ambitious feat alone, it will further bolster its leverage in gas. Regardless, the competition to supply Europe with gas is expanding in the Black Sea, and Turkey’s discovery and the construction of Canal Istanbul will make its support for U.S. sanctions against TurkStream 2 undeniable.
John V. Bowlus is a researcher at the Center for Energy and Sustainable Development (CESD) at Kadir Has University in Istanbul. He received his Ph.D. in history from Georgetown University, and his academic research interests include the history of oil, energy geopolitics, U.S. foreign policy, the Middle East, and energy transitions. He is also editor-in-chief of Energy Reporters, where he writes about contemporary developments in energy geopolitics.
Image: Turkish Ministry of Defense