Turkish officials are hoping that the new opportunities created by the deregulation of the energy sector will be enough to support sustainable long-term growth for the world’s 18th largest economy.
Despite exemplary advances in many of Turkey’s key economic sectors, energy policy has long been a point of vulnerability that threatens to hamper the sustainability of economic growth. To overcome the challenges posed to the country’s growth potential by an insufficient energy policy, the government introduced a plan in 2003 to gradually deregulate the energy sector, with the aim of fully liberalizing the energy market by the end of 2015. Within the guiding framework of the 2023 Vision, Turkey’s leader devised the 10th Development Plan 2014-2018, which lays out a set of strategic initiatives for proceeding in the final years leading up to 2023 including the expansion of the country’s domestic energy generation capacity using local resources.
According to the International Energy Agency, natural gas accounts for 44 per cent of the country’s total energy production. Turkey’s domestic production of natural gas in 2014 stood at approximately 502.0mcm, whereas natural gas imports reached 49.173bcm. Turkey sources 18 per cent of its natural gas from Iran and 12 per cent from Azerbaijan. Accounting for nearly 55 per cent of natural gas imports, Russia is a vital source of Turkey’s energy supply whose long-term trade cooperation remains unclear. This uncertainty of Turkey’s key energy import underlines precisely why the government is hoping that the deregulation of the sector can transfer the impetus to meet the country’s growing energy needs on to the private sector, whose share of the energy market has increased from 38 per cent to nearly 61 per cent in 2013. According to the Turkish Ministry of Energy and Natural Resources, the demand for energy has grown by 5.7 per cent annually over the past 12 years, and the annual electricity demand is projected to reach 420TWh per year by 2020, a growth in demand surpassed only by that of China. To meet this rising demand, more than $100 billion is expected to be invested in the energy sector by 2020.
Recent energy reforms have brought about an influx of private-sector firms. In July 2014, the World Bank approved a $400 million supplementary loan to finance the Tuz Golu natural gas storage facility. Once completed, the Tuz Golu facility will have the capacity to store nearly 960mcm of gas available for consumption plus an additional 460mcm of cushion gas. ExxonMobil furthered its shale gas exploration efforts throughout the northwest and southeast of Turkey together with the Turkish Petroleum Corporation. Shell also made headlines by transferring to the Black Sea the equipment and labour force needed to commence drilling and extraction operations. Halliburton expressed its plans to engage in natural gas exploration in the region of Thrace, near Turkey’s vital border with European neighbours Greece and Bulgaria.
Turkey joined the European Network of Transmission System Operators for Electricity in April 2015, which will enable greater electricity trading with countries in Europe’s electrical grid. Integration into global energy markets is a keystone for Turkey, which as a net importer of dollar and Euro-denominated energy resources is precariously exposed to the effects of the lira’s ongoing depreciation. The Enerji Piyasaları İşletme Anonim Şirketi (EPİAŞ), known in English as Energy Exchange Istanbul (EXIST), is a new energy market exchange established in March 2015. Based on the Electricity Market Law of March 2013, EPİAŞ is the pinnacle of Turkey’s energy liberalization movement and will be overseen by the Energy Market Regulatory Authority (EMRA). EPİAŞ will initially be an electricity exchange, but future plans include the trading of hydrocarbons as well as renewable energy. EPİAŞ will facilitate increased investment in the Turkish energy sector by creating market reference prices for these energy sources while also generating energy derivatives. A recent study conducted by the think tank SETA projects that EPİAŞ will become the world’s third largest energy exchange, a testament to the long-term success of Turkey’s deregulation efforts in its energy sector.