Realising the impossible dream

Financial Times (England), FT Report-Turkey; June 28, 2006 Wednesday, Pg.3

By Michael Kuser

Michael Kuser on why Turkey is no longer content to be merely a transit country

Hundreds of dignitaries are scheduled to arrive in Istanbul early next month to attend a ceremony to mark the opening of the Baku-Tbilisi-Ceyhan BTC) pipeline terminal at Ceyhan, a port on Turkey’s Mediterranean coast.

Earlier this month, the first tanker was filled with Caspian oil at the terminal. BP, which led the consortium that built the pipeline, has booked hundreds of hotel rooms for arriving guests.

BP will stage a party to celebrate completion of a project that seemed an impossible dream when it was first proposed in the mid-1990s – a 1,100-mile (1,760km), Dollars 4bn pipeline running from Baku, the capital of Azerbaijan, via Georgia, to Ceyhan.

The realisation of the BTC pipeline shows that Turkey has become a terminal point as well as a transit country for energy supplies, says Nihat Gokyigit, chairman of Tekfen Holding. Mr Gokyigit’s conglomerate has built sections of several natural gas and oil pipelines in Turkey, as well as running a yard in Baku building platform rigs for the BP-led consortium developing the Azeri-Chirag-Gunashli field in the Caspian Sea.

Azeri gas from that field is also on its way to Turkey and should arrive by September, he says. This will be the fourth natural gas line to Turkey, along with two from Russia and one from Iran. The fifth likely gas supplier will be Egypt, he says.

The sixth candidate, Turkmenistan, is to be followed by Iraq, when stability is achieved. These gas supplies are meant to fill the proposed Nabucco pipeline running from Turkey to Austria.

All the various pipelines criss-crossing Turkey, either built or being planned, fit into the European and American visions of diversifying supplies so as to minimise dependence on Russia and Iran. Kazakstan this month became the latest supplier to join the east-west energy corridor, agreeing to ship 25m tons of oil through the BTC pipeline.

« A Turkey subject to such developments may not be a paradise for planners, but the work is being planned and going forward, » says Mr Gokyigit. « My figures show the need for some Dollars 4bn in energy infrastructure investment per year over the next two decades, which includes all kinds of energy spending, such as electric power generation and distribution. »

An energy conference in Istanbul this month organised by Cambridge Energy Research Associates focused on the one topic on everyone’s mind: energy security. Coinciding with the energy conference in Turkey, the US and the European Union met in Brussels to give political support to the same goal: diversifying supplies to ensure that the increasing demand from developing countries does not skew the supply chain or drive prices unsustainably high. Turkey illustrates how a growing economy can create strong energy demand.

Turkish electricity consumption growth is outstripping production increases, according to figures from the official statistics agency. The figures show that first quarter electricity production grew by 7.31 percent to 42.4 gigawatts (Gwh), while consumption climbed 9.33 per cent to 30.4 Gwh.

The Turkish energy ministry estimates that Turkey will need 54 Gwh of new electricity generating capacity. It plans to supply 10 per cent of that with nuclear power, proposing the construction of three nuclear power plants. Hilmi Guler, the energy minister, said earlier this year that Sinop, on the Black Sea coast, would be the site of the first reactor. The government is conducting feasibility and environmental studies, as well as beginning talks with reactor builders from France, the US, Japan and the UK.

Turkey has also been privatising the energy sector. The largest deal was last year’s Dollars 4bn sale of Tupras, an oil refining business, to Koc Holding, Turkey’s leading conglomerate. The government has pledged to get out of the oil and gas business and to sell companies in the sector that remain in state hands.

Bankers say the biggest investment opportunities lie in the electricity generation and distribution field. Ankara has carved out 21 electricity distribution regions from the 81 provinces which make up the country and has plans to privatise the hydroelectric dams it has not already sold. The government has looked at clean coal technology, energy installations and controls, earthquake-resistant construction and oil exploration techniques to help diversify energy production and supply.