Turkey needs better regulations for shale gas

Clearly, energy is Turkey’s vulnerable underbelly and it needs to be enhanced through new sources, including shale gas. The country is in dire need of energy supplies to fuel its rapidly growing economy – despite some difficulties Turkey’s GDP still grew 4 % to $826 billion last year.

However, the picture is not as rosy as it looks at first sight. Turkey’s balance of payments remains in red. The current account deficit increased from $49 billion in 2012 to $65 billion in 2013. This “financial gap” is mostly driven by the country’s “energy bill” – the country’s oil & gas imports alone reached $56 billion in 2013. Turkey buys from abroad up to 98 % of its demand in natural gas and up to 93 % of its oil consumption.

Ankara knows how to cope with this challenge. Drastic reduction of hydrocarbon imports is one of the three major energy goals for the decade to come. While Turkey is unlikely to become energy self-sufficient in the near future, the new sources of imported and domestically produced energy supplies are vital for sustaining the Turkish economy’s growth and competitiveness.

Domestic production – both conventional and unconventional – is, therefore, crucial for Turkey’s energy security. Unconventional hydrocarbon total reserve bases could potentially reach 5.8 trillion cubic meters in three provinces.

There is already a significant presence of foreign companies, knowledgeable on unconventional production: TransAtlantic Petroleum Ltd. has already drilled 31 horizontal and deviated wells, while Shell and TPAO are jointly drilling into the Dadas shale formation in eastern Turkey.

At this point, it is difficult to forecast Turkey’s shale gas “break-even price” – each of unconventional wells has de facto its own “geology” and “economics.” While shale gas might not be cheaper than Russian or Azeri imports, it might be less expensive than Iranian gas and LNG cargos and will be produced at home.

However, environmental and regulatory challenges seem to be, at present, the biggest barrier on the way to Turkey’s potential “unconventional revolution.”

Environment and water issues

The issue of water usage and water/aquifer pollution is particularly important for the unconventional gas industry. Hydraulic fracturing is a water intensive process. Certain wells require the usage of more than 10 million liters of water during their lifetime, which rarely extends longer than 5 years. The amount of water used (and wasted water produced) explains public concerns, especially in water-scarce areas.

Countries are considered water-rich if their annual per capita water consumption exceeds 10,000 cubic meters, while in Turkey this number barely reaches 1,500 cubic meters and the country just cannot afford to deal with polluted aquifers. Turkey is already facing serious problems caused by the water deficit and high soil salinity.

Turkey’s lakes’ surface continues to diminish in the face of unregulated irrigation, lack of long-term water management policy and climate change. Turkey’s alimentary sector is also heavily dependent on constant freshwater supplies and national agricultural productivity is primarily dependent upon sustainable irrigation.

Current debates in the U.S. show the water usage issue might be a particularly sensitive topic – both from a political and environmental point of view. It can affect political campaigns and change the fate of politicians. This issue, therefore, should not be neglected.

What tools are necessary to deal with the water issue? – Technology and regulations, with regulations possibly being more important than the purely technological component. The regulation of shale gas is an evolving landscape, as the industry has developed so rapidly that it has often outpaced the availability of information for regulators to develop specific guidance.

Kingdom for a series of new regulations?

In principle, Turkey has all of the necessary legislation to proceed with the unconventional hydrocarbon production. A new version of the Petroleum Law, adopted in June 2013, has raised hopes for the country’s energy sector. Indeed, a combination of the relatively low Royalty Tax (12.5 %) and Corporate Tax (20 %) create an investor-friendly fiscal regime.

However, existing legislation is missing some important points – flexible fiscal regime – similar to the fiscal incentives offered in the U.K. or the U.S. – and specific fracking disclosure laws, securing safe development of unconventional hydrocarbons.

Land-owners in Turkey – unlike in the U.S. – do not own subsurface mineral resources and are only compensated for their land. This certainly reduces the interest level of local population in shale oil and gas production. Turkey also misses a special shale gas fiscal regime, with special incentives for the companies and local communities, similar to one recently proposed by the U.K.

So far, debates on fracking in Turkey have paid little attention to the development of a separate legal framework for shale gas. More precise regulation might be necessary to establish universally acceptable and mutually beneficial “rules of the game” for the unconventional oil and gas industry.
Commercially-based unconventional oil and gas production is in principle compatible with Turkey’s two key energy priorities – security of supply and access to affordable energy supplies, but is it compatible with the country’s environmental sustainability?

All will depend on a proper application of comprehensive and environmentally-sound project management mechanisms. This process will be also impacted by the population’s willingness to pay an “environmental premium,” future development of Turkey’s national energy mix, security of supply perceptions and availability of affordable energy imports.

 

The original source for this post can be found here.

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XOM Eyes Shale In Turkey

The head of Turkey’s General Directorate of Petroleum Affairs (a division of the energy ministry), Selami Incedalci, said late Sunday that ExxonMobil is in talks with state-run Turkish Petroleum Corporation (TPAO) over a venture to explore for shale gas in the southeast and northwest of the country, Reuters reported on Monday.

enter image description hereSelami Incedalci, head of Turkey’s General Directorate of Petroleum Affairs

In 2012, the US O&G major held discussions with TPAO over a possible shale exploration partnership, but the talks were inconclusive. Since then, the deliberations have advanced and are likely to yield an agreement, Turkish officials said.

Incedalci said ExxonMobil has expressed interest in onshore exploration in Thrace, located in northwestern Turkey, as well as in the southeastern region of the country.

enter image description hereTurkey Shale Map; Source: shaleexperts.com

Turkey is seeking to cut its annual energy bill of roughly $60 billion by reinvigorating efforts to develop domestic resources including coal, solar, nuclear and wind energy.

Given that Turkey’s domestic gas consumption is increasing, as well as its geographical placement that makes it an ideal location from whence to supply global markets, significant exploitable shale reserves could likely be a game changer for Turkey’s economy.

Incedalci also said that US, Canadian and European investors have also expressed interest in Turkey’s shale oil and gas. The energy ministry, he added, is planning to conduct talks with potential investors in October.

So far, Canada’s TransAtlantic Petroleum and the Anglo-Dutch major Shell are conducting exploration activities in the area around the southeastern city of Diyarbakir.

Current estimates as to how large Turkey’s shale gas reserves vary significantly.

One energy official told Reuters that data from some international agencies indicate Turkey could hold a large 20 trillion cubic meters (cbm) of total reserves. Another expert told the news agency that proven reserves thus far were significantly lower, at 6-7 cbm.

TPAO currently has operations in Iraq, Azerbaijan, Libya, Kazakhstan and Colombia.

Why Turkey Is A Key Player

According to the IEA, energy use will continue to increase at an annual growth rate of about 4.5% from 2015 to 2030, approximately doubling over the next decade.

Turkey is a key player in O&G supplies movement from Russia, the Caspian region and the Middle East to Europe, the EIA recently said in its annual country analysis. The country has been a major transit point for seaborne-traded oil and is becoming more important for pipeline-traded oil and natural gas.

Currently, growing volumes of Caspian and Russian oil are being sent by tanker via the Turkish Straits to Western markets, while a terminal on the country’s Mediterranean coast of Ceyhan serves as an outlete for oil exports from the Kurdish region of northern Iraq (currently beset with conflict) and for both O&G exports from Azerbaijan.

As of the beginning of this year, the Oil & Gas Journal (OGJ) estimated Turkey’s proved oil reserves at 295 million barrels, located principally in the southeast region.

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In 1991, Turkey’s oil production peaked at 85,000 bbl/d, but it subsequently declined each year and reached its nadir in 2004 at 43,000 bbl/d. Although Turkey’s production of liquid fuels has slightly increased since 2004, it is far shy of what the country consumes annually.

In 2010 and 2011, Turkey’s economy was one of the fastest growing in the world at more than 8% annually. The country’s oil consumption grew with this economic expansion. However, while economic growth slowed in 2012 and Turkey’s economy grew at just over 2% from the previous year, total consumption of liquid fuels rose by 6% in 2012.

In 2013, Turkey’s economy grew by 4%, and total consumption of liquid fuels increased by another 6%. Turkey’s domestic production, however, shows no indications of any significant growth in the short-term future.

Some analysts speculate that offshore reserves may emerge as a future source of Turkey’s oil supply. A significant volume of reserves may be located under the Aegean Sea, although this has not been confirmed because of an ongoing territorial dispute with Greece. Additionally, the Black Sea may hold significant oil reserves. TPAO has increased its exploration activities in the Turkish region of the Black Sea, which could hold between 7 and 10 billion barrels of oil. The offshore region is being explored with TPAO, which has formed joint ventures with ExxonMobil and Brazil’s Petrobras. Turkey’s ministry of energy plans to commence commercial production in the Black Sea by 2016.

Last year, the country’s total liquid fuels consumption averaged 734,800 bbl/d. In excess of 90% of crude oil consumption and significant quantities of petroleum products came from imports.

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The IEA recently revealed that Turkey’s crude oil imports are expected to double over the next decade. In 2012, most of Turkey’s crude oil imports came from Iran, which supplied 35% of Turkey’s crude oil. Russia has fallen behind Middle East suppliers in terms of volume and is now the fourth-largest supplier of crude oil to Turkey. Russia was until recent years the largest source country of Turkey’s crude oil.

Natural Gas Overtakes Oil As Most Important Fuel Consumed

In terms of natural gas, Turkey’s natural gas reserves as of the beginning of 2014 stood at 241 Bcf, according to the OGJ. In 2012, the country produced 22 Bcf of natural gas, depending almost exclusively on imports to meet domestic demand. Turkey’s growth in energy demand has been among the most rapid in the world in 2010 and 2011, although decelerated economic growth in 2012 has dampened the natural gas consumption increase to some extent.

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In terms of the volume of fuel consumed in Turkey, natural gas has overtaken oil and continues to account for an increasing share of the energy mix in Turkey.

 

The original source for this post can be found here.