The discovery of new sources of energy has always led to changes in energy geopolitics. If oil and gas fields are found in consumer countries, the changes in the region's energy market will be felt on a wider scale. Turkey's current oil and gas production is less than 10% of its annual consumption.
The economic growth, energy security and national security of countries like Turkey, which supply most of their oil and gas through foreign sources, have always been affected by geopolitical events. Ankara has invested heavily in the purchase of drilling vessels and the continuation of exploration and drilling operations. The country's navy has played an active role in securing these ships by supporting reconnaissance activities.
Turkey's plan to take advantage of its geographical location to become an energy hub seems to have helped the country discover a new gas field. Ankara has invested heavily in its energy infrastructure in recent years. In terms of energy security, Turkey can reduce the threat of cyberattacks without facing a serious risk by investing in cybersecurity. Turkish drones can secure pipelines very efficiently. Reducing dependence on foreign resources will allow Ankara to have a say in relations with neighboring countries. The latest report from the Turkish Statistical Institute (TurkStat) shows that in the first half of this year, the country had an import bill of $99 billion (TL 725 billion) and exports worth $75 billion. Thus, the country has faced a negative trade balance of $24 billion in the first half of this year alone.
Diversification of energy resources is a fundamental principle of the national energy policy. The discovery of new sources of Mediterranean gas will allow Turkey to meet part of its domestic needs by extracting gas from this new source, as well as in current and future contracts. Gas has high bargaining power. Due to the continuation of sanctions and high domestic consumption, Iran does not have much chance of extending its gas export contract with Turkey, unless the conditions of the new contract are reconsidered. Turkey can easily find an alternative to Iranian gas in its market. The nonimport of Iranian gas for three months due to the terrorist explosion on the Iran-Turkey pipeline showed that Turkey has no problem in supplying its own gas in the absence of Iranian gas. The 25-year contract for the sale of Iranian gas to Turkey will expire by 2026, and the country, which was importing about half of Iran's 2019 gas exports, is now at the forefront of gas negotiations with exporters with the discovery of a Black Sea gas field.
Geopolitics of discovery
The geopolitics of energy, which changed with the outbreak of the coronavirus, will enter a new phase this time with the discovery of a new oil field. Turkey can play a greater role in Europe's energy security. Major gas exporters to Turkey will have to create the conditions to maintain their share of the Turkish gas market. In recent years, Turkey has imported most of its gas via pipelines from Russia, Azerbaijan and Iran. The U.S. and Qatar, along with Nigeria and Algeria, also supply Turkey with liquefied natural gas (LNG). Turkey's need for gas in the midterm will shrink and the share of these countries in the Turkish market will be drastically reduced.
Discovered gas can supply a large part of Turkish gas consumption, but to completely reduce dependence on external sources, the discovery of new gas fields and an increase in the share of renewable and nuclear energy is also needed. Some analysts believe that it will be hard for Turkey to explore gas from the new field and transmit it to the domestic market but there have been some projects in the past that took less than four years. Egypt's Zohr gas field in the Mediterranean Sea, which is three times larger than the Turkish gas field in the Black Sea, was discovered in 2015 and gas production from this field began in less than three years. More than $11 billion has been invested in the field so far, and another $5 billion to $6 billion will be spent in the coming years.
Another example is the second phase of the Shah Deniz gas field in Azerbaijan, located in the deep waters of the Caspian Sea, which is twice the size of the Turkish gas field. Shah Deniz not only became operational in less than four years but 3,500 kilometers (2,175 miles) of the pipeline from Baku to Turkey and from there to Italy was also built to transport 16 billion cubic meters (bcm) of gas a year to Turkey and Europe. The development of the Shah Deniz field was unprecedented as, although it is located in 600-meter- (nearly 2,000-foot-) deep water, the field itself is more than 7 kilometers (4.3 miles) below the seabed and the gas pressure of the field is about 800 atmospheres.
Natural gas prices
One of the most important issues regarding gas exports to Turkey is the price issue, because currently, Iranian gas is one of the most expensive gases being bought by the country. Turkey currently imports Russian gas at a lower price than Iranian gas. For this reason, Turkey occasionally receives additional discounts from Iran by suing it in international courts. Therefore, with Turkey's increasing access to new gas resources, it seems that Tehran should consider the realities of gas prices in the region, not the opinion of nonexperts inside the country who have intervened in recent years, to determine the price when the contract is extended. Iran's pricing has prevented the formation of many new business and strategic relationships.
If repricing does not happen, the 25-year contract for the export of Iranian gas to Turkey, which has been one of Iran's most important regional gas collaborations, may not be extended. In the event of this happening, if no alternative buyer is found, the volume of daily gas exports to Turkey will be injected back into Iran and possibly lead to overconsumption.
With the decline in world gas prices following the outbreak of the coronavirus and the decline in oil prices and excess supply of gas and LNG, market conditions do not favor Iran in the regional or global gas markets. It should be noted that the increase in domestic consumption, the possibility of peak gas production in the South Pars field and problems of attracting foreign capital and technology to increase gas production capacity are other major problems facing the Iranian gas industry.
Energy market developments, especially in the post-coronavirus era, show that energy-producing countries are using all available tools to maintain their share of regional and global markets. Increasing energy exports, along with increasing foreign exchange earnings and improving economic situation, provide an opportunity for energy-producing countries to play a role in regional peace and security by creating interdependence. This should also be considered by the Iranian diplomatic apparatus.
Due to the increase in pressure drop in some phases of South Pars and the exit of French multinational integrated oil and gas company Total and the China National Petroleum Corporation (CNPC) from phase 11 of South Pars, Iran intends to use the capital and technology of domestic companies in this important phase. But the important point is that the financial resources and technology of domestic companies cannot meet this phase.
All the above shows that if no measures are taken for Iran's energy industry and foreign policy, we should see the loss of regional markets, especially the Turkish energy market, and the reduction of Iran's influence in the energy market. Iran's influence in the foreign policy of energy-buying countries will also decrease. Given that the major oil and gas producing countries have largely retained their market share, Iran will not have an easy task in the energy market even if the problems with the U.S. are resolved.
Some observers highlighted the fact that the gas discovery is not a "game changer" for Turkey, in the sense that it will not fully cover its energy needs. But when it comes to Turkey's energy security, the gas finding is, if not a game changer, at least an especially important element. There will be major implications on the gas contracts with Russia as well, which will begin expiring in 2021.
It will be highly interesting and intriguing to see how Turkey will use this new leverage in its negotiations with Russia. It is highly likely that we will witness relevant changes in comparison with current contracts: shorter-term contract(s), lower prices, lesser volumes and probably less restrictive conditions.
Energy diplomacy in Iran needs to be redefined. Domestic consumption should be managed and reduced over time. If Iran fails to reach an agreement with Ankara to extend the gas contract, it will lose the Turkish market. The U.S. is not happy with Turkey's energy imports from Iran and is seeking to increase its share of the Turkish energy market and reduce the share of Russia and Iran by increasing LNG exports to Turkey.
* Visiting research scholar in the Schar School of Policy and Government at George Mason University, holds a Ph.D. in international relations