Central Asia in European Energy Security

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The developments in the world energy balances after the Russia-Ukraine War brought forward the evaluation of European energy security in the axis of Central Asia and Türkiye.  At this point, it should be remembered that Europe, acting together with the United States of America (USA), to impose an oil embargo on Russia and at the same time take decisions regarding new options against Russian imports, which is around 40%.

The most important of Europe’s decisions is that the decision to impose an embargo against oil was taken first.  Europe was planning that Russia, one of Europe’s largest suppliers of oil, natural gas and coal, would experience a great loss of income with the bans it imposed on Russian oil.  The conflicts during the Ukraine War left even European Union (EU) countries such as Germany, France and Italy, the biggest supporters of the Russians in Europe, in a difficult situation.  Russia, as the first reaction to the embargo on its oil, shifted its sales to Asian markets, making China and India its biggest customers.  Russian oil was sold to these countries at a discount of 25-30 dollars from the market price, even under 35 dollars in some places.  In addition, Russian oil was sold at lower prices and medium-term contracts, especially for the needs of refineries in China and India.  Both countries are quite satisfied with this situation.  Because, with the effect of the increase in the price of Brent oil in their economy up to 120 dollars, the current account deficit caused by imports decreased, the people began to buy cheaper gasoline and the refineries began to buy oil at lower prices.  Oil prices, which turned into a disaster for the European economies, were at much more reasonable prices in the two big markets in Asia.

According to the newly formed bloc, the two largest buyers of Russia were India and China.  In particular, India has become a country that buys 40% of Russian oil.  20% of Russian oil sold by sea transport goes to India.  Although this situation does not please the USA, the result is clear.

As a result of the war and sanctions, a much more complicated situation has emerged in the EU energy markets. Because EU member states such as Hungary, Slovakia and Czechia, which are close to Russia and receive oil through the Druzhba Pipeline, have suggested that they cannot immediately implement the Russian oil embargo due to their high dependence on Russia, they need a period of at least 6 months, and they should be granted an exemption at the point of sanctions. As a result of this, the EU has granted an exemption to Hungary, Slovakia and the Czech Republic so that they can continue to receive oil through the pipeline, which is open-endedly coming from Russia. This exemption decision is important because it reveals the division of the EU on the point of joint decision making.  Countries provide energy security one by one, and as long as the EU cannot negotiate on the point of all member states, Russia has gained an advantage by using the aforementioned countries close to itself in the EU.  It is possible to add Serbia to these countries, although it is not yet an EU member.  In short, the EU, which aims to zero the imports of oil and refined petroleum products by the end of 2022, has taken an important decision, although it has not succeeded in making a joint decision on energy security.

Due to the environment created by the oil embargoes, the Organization of Petroleum Exporting Countries (OPEC) turned this situation into an opportunity and kept the amount of additional production low as if there was a cut in Russian oil supply.  Under the market conditions in question, OPEC was expected to increase oil production by 2.5 million barrels, while an increase of only 658 thousand barrels was realized in OPEC.  This situation caused the oil prices in the world markets to see the 120-125 dollar band.  The USA is extremely uncomfortable with the fact that both its own producers and OPEC do not increase oil production, and indirectly allowed Venezuela at the point of oil sales.  Venezuela traded oil to Italy after a long time.  In this context, Iran has started to supply oil to the market gradually and has supplied approximately 60 million barrels of oil to the market. During the entire Russia-Ukraine War, two unexpected countries, Iran and Venezuela, have started selling oil.

Oil prices, which are not expected to be so high, are closely related to energy security around the world, including in Europe and Türkiye.  Since oil prices in Türkiye are also dependent on international pricing, they have increased to approximately 30-33 Turkish liras per liter.  Therefore, in order to extinguish the fire in the energy markets, the US producers, the Arab producers of Venezuela and the Gulf Region, Saudi Arabia and the United Arab Emirates (UAE) need to increase production. In addition, US President Joe Biden visits these places, putting pressure on them to produce oil.

The Baku-Ceyhan Pipeline can be used actively and this is important in terms of transporting more Turkmen and Kazakh oil.  Because, BTC cannot operate at full capacity due to the production declines in the Azer-Chirag-Guneshli Oil Field, which is the main source of the Baku-Tbilisi-Ceyhan Oil Pipeline (BTC) Line.  Therefore, with Kazakh and Turkmen oil feeding this pipeline, it will be able to carry 1 million 2502 thousand barrels per day, and this situation may relieve world markets in terms of balancing oil prices.  However, the focus is on increasing OPEC members.  Venezuela, on the other hand, has serious reserves and is trying to get back into the energy game, comes to the fore. However, the plan designed by the USA is not based on the trust of Venezuela and Iran alone.  Therefore, movements started in Iraq as well, and two separate regional government-affiliated companies were established for oil production and trade from the Kurdish region, even though Baghdad did not like it.  These companies aim to sell oil to world markets through their own exploration and commercial ventures.  Besides having the largest oil reserves, Iraq also has the least production costs.  For this reason, it can be the leading actor in balancing oil prices.  In this context, the Iraq-Türkiye Oil Pipeline with a capacity of 1.7 million barrels/day is the most critical infrastructure.  Therefore, although these production levels have not been reached in Iraq yet for BTC to reach full capacity, at least it is possible to transport oil in the Kurdish region through this pipeline.  Moreover, the said supply can be realized in a short time and it can be in a position to sell Iraqi oil by the end of 2022.  In this context, this solution, which will be provided as soon as possible in terms of EU energy supply security, will be realized through Türkiye.

On the other hand, another aspect of the EU’s energy security is natural gas.  European countries are aware that they cannot get rid of dependence on Russian natural gas overnight.  In this context, the EU started to buy liquefied natural gas (LNG) from the USA and Qatar as the first step to get rid of Russian natural gas.  With the additional capacities on hand and their redirection, it was in a position to meet about 15-20% of the EU’s Russian gas demand.  The EU had to make medium and long-term plans and move on to a new period after these plans.

From the 175 billion cubic meters of pipelines that carry Russian gas to Europe, gas cuts were experienced first in Poland, then in Germany, Italy and France.  On the other hand, there has been a decrease in natural gas supply, such as the problems experienced in other alternative sources and Algeria’s problems with Spain.  The price of sufficient LNG cargo had to exceed the European price of TTF and the Asian pricing of JKM.  Therefore, it has been seen that Qatar and Arab countries withdraw LNGs from Asian markets and send them to Europe.  At this point, the decrease in the demands of Asian markets due to the high temperature is also important.  However, although the USA wants to send the 50 billion cubic meters of LNG that it has put into itself to Europe, there are facilities only in Spain and on a limited basis in the Adriatic.  American LNG is not expected to arrive in Europe, both in terms of facilities that will accept this natural gas and due to the inability to make a capacity expansion decision regarding US LNG production.  For this reason, the USA is working with Qatar and trying to manage with Qatar until LNG comes from US companies by putting Qatar into action.

Türkiye stands out in terms of LNG, including the new Floating LNG Storage and Gasification Unit (FSRU) to be built in Saros Bay, and the LNG terminal in Marmara Ereğlisi and other facilities. The LNG to be brought to these facilities of Türkiye can be delivered directly to Greece via the Turkish pipeline and the Trans-Anatolian Natural Gas Pipeline-Trans Adriatic Pipeline (TANAP-TAP) and from there to Europe or Bulgaria via the currently empty 14 billion cubic meters capacity from Western Line project to Ukraine and Poland. Türkiye has very important roles to play and assume here.  Türkiye not only offers Azeri natural gas over the TANAP-TAP system as part of the Southern Gas Corridor, but also claims that Turkmen natural gas can be added to this system.  In this context, dialogues began to take place between Azerbaijan and Turkmenistan.  If the EU signs an agreement with Turkmenistan, Azerbaijan can pave the way for Turkmen natural gas. At least 8-10 billion cubic meters of Turkmen natural gas can reach Türkiye with the rapid increase of TANAP’s capacity to 31 billion cubic meters, and it can be transported to European countries such as Greece, Bulgaria, Albania and Italy via TAP via Türkiye. Secondly, BOTAŞ has a serious idle capacity within the pipeline system in its own country.  In order for this idle capacity to be used in transit transportation, technic studies are required such as some construction works, investments and relocation of compressors. But all this can be accomplished in a very short time.  Türkiye, with its infrastructure investments and small construction projects, is the only country that can produce a solution by using Turkmenistan and Azerbaijan gas in a period of 6-8 months for the EU.

The EU was planning to buy Algerian gas in order to replace Russian gas.  However, due to the disagreement between Algeria and Spain, Algeria tries to sell natural gas directly to Italy by passing through Tunisia.  In this context, North African countries also come to the fore.  Algeria has natural gas reserves, Tunisia is becoming a transit country and also before the oil shocks in Libya, it is an advantageous country with its proximity to Italy for the EU.  Therefore, Libya needs to get back into the energy game.  On the other hand, there is also Egypt, which produces natural gas and has full facilities.  It is unclear which pipeline Egypt’s resources will be transported. There are two sea pipelines going from the Mediterranean to Europe, and by increasing the capacity of these, Egyptian natural gas can be transported to Europe. In addition, Algeria can simultaneously supply Europe with its own natural gas by purchasing Egyptian natural gas. However, in this case, it creates the need for a larger capacity pipeline.  By adding to the existing pipelines, a maximum of 20 billion cubic meters can be transported.  Europe’s need, on the other hand, is 170 billion cubic meters.  Although 20-30 of this need comes from America and 20 from Libya-Algeria, there is still a deficit.  For this reason, they still need natural gas supply to be transported through Türkiye.

The EU made a strategic mistake and signed a memorandum of understanding on the purchase of natural gas from Israel and Egypt on 12 June 2022.  It is an agreement made with two countries that it is not clear whether these resources will even be able to provide 20-25 billion cubic meters of resources even after 5 years. In order for this agreement to be valid and rapid intervention to be achieved, 300 km of Israeli gas must be delivered to Egypt by pipelines, and from Egypt it must also be produced and sold to Europe in the form of pipelines or, allegedly, LNG. However, the LNG tanks are already filled by Egypt and there is no capacity to be allocated to Israel.  At this point, the Greek Cypriot Administration (GCA) remained empty-handed due to the said agreement.  Because no one has talked about the GCA and the pipeline they have built that crosses the sea. The reason why the Greeks have come to the fore and attacked Türkiye is that they are trying to cover up the fact that Türkiye is the most reliable country that can bring the most important alternative resources with its ready infrastructure in this critical day of the EU.  In this context, Athens reflects the situation as “There are large reserves in the Eastern Mediterranean and we have the potential to produce gas for Europe within 1 year with these reserves”.

Egyptian and Israeli natural gas has the capacity to fill Europe’s natural gas deficit in 3-5 years.  On the other hand, Türkiye has 31 billion cubic meters of TANAP, 15 billion cubic meters of BOTAŞ system and an empty Western line that can be used as a transit.  In addition, due to LNG facilities, facilities can be used by making a SWAP Agreement with Türkiye.  With all these infrastructures, Türkiye can urgently and quickly transport natural gas to the European borders.

In addition, Türkiye has discovered natural gas in the Black Sea region.  Working together with Romania in the Black Sea means that Türkiye makes a significant contribution to European energy supply security.  At this point, it is a more reasonable option for Europe to evaluate the Black Sea gas before the Eastern Mediterranean gas.  By developing cooperation with both the Black Sea gas and the Romanians and Bulgarians in this context, Türkiye can both ensure the European supply security by connecting the Black Sea gas to the Western line and make a serious contribution to the European energy with the ready TANAP-TAP system.

It is not an understandable situation to ignore Turkmenistan’s natural gas, which has 20 trillion cubic meters of reserves.  Currently, Turkmenistan has 40 billion cubic meters of natural gas reserves that can be produced and transported immediately.  In this context, the EU should sign an agreement with Turkmenistan and Azerbaijanis should commit to the Turkmen to transport this natural gas.  Currently, there is a SWAP Agreement between Azerbaijan and Turkmenistan.  Within the scope of this agreement, there is a trade provided by a SWAP Agreement of 2 billion cubic meters within the scope of Turkmenistan-Iran-Azerbaijan on the Iran-Azerbaijan border.  However, it should be evaluated that Turkmen natural gas is connected to the TANAP system and sent to Europe by making additions to the pipelines crossing the Caspian Sea.

As a result, Egypt and Israel, which Europe is trying to get something by hoping for help, are not a short-term or even a medium-term option.  It will take a minimum of 3-5 years to complete this project and supply natural gas to the EU.  As LNG, the USA can quickly access investment decisions, and Qatar can support it.  However, with Türkiye’s in-house pipeline systems, LNG facilities and the use of the empty Western line, Türkiye is the real short-term medicine for EU energy supply security.  If the EU is still persistently trying to reach an agreement with Egypt and Israel, this situation should be seen as a game of the Greeks and the Greek Cypriot Administration, who seem to have lost the war in the Eastern Mediterranean.  Otherwise, Türkiye will become a critically important actor for the EU.  Because Türkiye is in a position to contribute to European energy immediately via LNG facilities and in 6 months via pipelines.  This contribution can be doubled in 1 year. No country and no resource will be of such critical importance for the EU. Because Türkiye’s are realistic projects that can implement existing systems with less cost.  It consists of adding Turkmenistan-Azerbaijan natural gas to existing infrastructure systems.  Therefore, it is as if there is a section that does not want Türkiye’s importance for the EU to increase, and Türkiye is prevented from carrying alternative supply sources (such as Turkmen, Iraq, Black Sea) to Europe in these difficult times of the EU.  In this direction, it can be predicted that the EU has turned to Egypt and Israel due to the thought that “EU may suppress the demand for membership” as Türkiye has come to a critical position for European energy.  Is the real purpose of the EU to ensure energy supply security by closing the natural gas deficit?  Not known. On the other hand, the logic of bypassing nearby actors such as Türkiye, Central Asia and the Middle East is not understood, while it should keep the security of natural gas supply ahead and reduce prices by finding new gas sources and substituting Russian natural gas, especially in the short term. This means that the EU seems to have accepted to live with high prices.  If the EU does not cooperate with Türkiye, energy prices will rise and their economy will explode.  It can be said that we will live with very high natural gas and oil prices until 2025.

In this context, it is possible to reach the following conclusion: The real aim of the EU may also be to try to use this as a trump card against Türkiye, as well as to get rid of dependence on Russia for natural gas while relieving their own economy.  Because otherwise, it is not an understandable situation for them to ignore Türkiye.  When the Nabuko Project was proposed in 2022, all these were foreseen and the importance of Türkiye, Iran and Central Asian countries was explained.  However, since the EU had good relations with Russia at that time, it did not take these stories seriously.  The same mistake is repeated today.  The fact that Türkiye is a country that deserves to be a member of the EU has been demonstrated once again with this Russian crisis.

Dr. Cenk PALA
Dr. Cenk PALA
Dr. Cenk Pala, with his vast industry experience in the Eurasian gas pipeline business, is a leading figure in all aspects of both Turkey's energy security and the Southern Energy Corridor debate. Mr. Pala started his career as an academic in the fields of History of Economics and petroleum & energy economics at Gazi University between 1990-1997. He joined BOTAŞ Petrol A.Ş. in 1997 and was appointed as the Head of Strategy and Business Development in 2001. He has carried out pre-feasibility, feasibility, marketing, finance, legal studies and lobbying activities for various pipeline projects including BTC Crude Oil P/L Project, Turkey-Greece (ITG) Natural Gas Pipeline Project, Turkey-Greece. Dr. Cenk Pala also represented BOTAŞ in the "Industry Advisory Panel" of the Energy Charter in Brussels. From March 2008 to June 2013, Dr. Pala served as General Manager of the German gas company E.ON Ruhrgas AG and as a Board Member of the company's Turkish subsidiary based in Ankara. In 2011, he was appointed by the shareholders as Turkey Representative of the Trans-Adriatic Pipeline (TAP) and served until June 2016. Dr. Pala joined Gazprom subsidiary South Stream Transport BV in January 2017 as State Affairs Coordinator for TurkStream Project and remained with Gazprom until September 2018. As of October 1, 2018, Dr. Pala joined EQUINOR Turkey BV as Deputy Country Manager. His main responsibility is stakeholder management and coordination of external relations within EQUINOR's Thrace upstream activity and potential renewable energy investments in Turkey. He is currently coordinating the negotiations of ERSAN Oil Refinery (the only onshore private refinery investment in TR) with potential partners, investors and financial institutions. He is a prolific speaker at international conferences on the energy sector and has published numerous works on academic energy economics, oil history, oil crises and the seven sisters, regional and global pipeline politics, and the global oil and gas sector. Dr. Pala holds a BA and MA in Economics from Gazi University and a PhD from Hacettepe University. He is married with two children and speaks English.