Watch it Flow

Turkey is set to establish its position as a regional energy transport powerhouse with the construction of the Trans Anatolian Natural Gas Pipeline (TANAP), a core component of the European Commission’s overarching Southern Gas Corridor initiative.

One of the most rapidly developing economies in the world, Turkey’s rising population and expanding industrial zones are driving a growth in energy demand that is second only to that of China. According to the International Energy Agency, 44 per cent of the country’s energy demand is met using natural gas, for which Turkey is largely dependent on imports from Russia, Iran, and Azerbaijan. Despite Turkey’s historical challenges faced in meeting its own energy needs through domestic production, it maintains aspirations to leverage its strategic geographic position to become a key gas transit state and regional energy hub. Working towards this aim, Turkey is collaborating with its cultural cousin, Azerbaijan, on the Trans Anatolian Natural Gas Pipeline (TANAP), which began construction in March 2015 and is set for completion in 2018. The TANAP is an ambitious energy megaproject that will lay a 1,850km gas pipeline across Turkey from its Georgian border in the east to its border with Greece in the west. The TANAP will transport an estimated 16bcm per year from Azerbaijan’s Shah Deniz Stage 2 gas field, 6bcm of which will supply Turkey while the remaining 10bcm will continue on to the markets of Europe. That annual supply figure is projected to reach 23bcm by 2023 and 31bcm by 2026.

One of the key strengths of the estimated $7-10 billion TANAP project is the structure of its capital financing. The project was established as a closed joint stock company, with Turkey’s state-owned energy transport company BOTAŞ holding a 30 per cent stake in the joint venture, while BP owns 12 per cent of the equity. The remaining 58 per cent of the JV is owned by Azerbaijan’s national oil company, SOCAR, which is in turn supported by Azerbaijan’s $34 billion State Oil Fund. Together with the South Caucasus Pipeline (SCP), which connects the Shah Deniz field with Turkey via Georgia, and the Trans Adriatic Pipeline (TAP), which will connect Turkey to Italy via Greece and Albania, the TANAP constitutes the backbone of the European Commission’s larger Southern Gas Corridor (SGC) initiative to secure the long-term stability of energy supply to the European Union.

The world’s future longest pipeline

Turkey will no doubt reap many benefits from the TANAP, which once completed will be the world’s longest gas pipeline and the most complex gas value chain along the SGC’s 3,500km-long path to Europe, running through 20 of Turkey’s cities and 67 of its districts along the way.

Construction of the TANAP will occupy around 70 million sqm of land with an average width of 36m. This undertaking will profit a number of companies in Turkey’s energy infrastructure, engineering, and construction sectors, which together stand to earn $5-6 billion in remuneration for the completion of the pipeline. The project is expected to create more than 15,000 direct jobs while indirectly generating thousands of additional employment opportunities.

Furthermore, with the TANAP in place, Turkey will not only secure its own long-term domestic energy supply, but will also boost its strategic positioning as a major player in this most cost-efficient transmission scheme for supplying Azerbaijani gas to European countries, with the potential to incorporate supplementary connections to Central Asian countries via the proposed Trans-Caspian Pipeline (TCP).

The significance of the SGC as a foundation for alternate sourcing of key energy resources for the EU also carries immediate potential for the economies of the Caspian region. Consolidating links between Italy and the rest of the European gas markets will largely influence the long-term impact of the SGC and TANAP on EU energy policy.