[NEWS ANALYSIS]
US presses Turkey against forging energy ties with Iran

Bodman is scheduled to attend a ceremony to be held on the Maritza River separating Turkey and Greece on Sunday to mark the beginning of the flow of Azeri gas via the 300-kilometer-long Turkish-Greek pipeline to Europe without using a Russian route for Caspian gas resources.

Despite Turkey's stated determination to go ahead with furthering energy cooperation with Iran, even technical-level talks between the two countries have seen delays, as a scheduled visit by a delegation from the Iranian Energy Ministry to discuss electricity cooperation was unable to take place late last week.

A total of 55 percent of the natural gas exported by Turkey, mainly from Russia and Iran, is used to generate electricity. This percentage is expected to increase, as Turkey has already established electricity cooperation, mainly in the form of barter deals, with neighboring countries including Bulgaria, Georgia, Greece, Iran and Iraq.

While acknowledging close NATO ally Turkey’s growing energy needs, for oil, gas and electricity, the US has been pressing Turkey not to engage in investment in Iran, saying it would play a role in further encouraging Tehran to go ahead with its alleged nuclear arms buildup project. Turkey cites its growing energy needs and has signaled it will go ahead with Iran projects, including investments. In response to a question posed over US reaction to the energy deals Turkey has signed with Iran this year, at a press conference held on Nov. 2 Turkish Energy Minister Hilmi Güler stated that Ankara will proceed with energy cooperation with Iran.

However, despite earlier plans the technical work necessary before the two countries can conclude an agreement - to take place during a visit by Iranian Energy Minister Parviz Fattah under which electricity connection lines between the two countries will be strengthened and thus pave the way for building natural gas plants in both Iran and Turkey -- has not even taken place.

The electricity lines between Iran and Turkey are planned for completion in one year.

“Iran wants the Turkish private sector to construct a 10,000-megawatt hydroelectric power plant in this country. Once we conclude a deal with the Iranian minister of electricity [Fattah], the Iranian petroleum minister [Seyyed Kazem Vaziri-Hamaneh] will visit Ankara. There has been no change in the earlier planned schedule with Iran on energy deals. Thus, both this month and the coming month will be a very important period in this respect [in concluding energy deals with Iran],” Güler said in İstanbul.

Turkey signed a deal with Iran on Aug. 20 for the import an annual 3-6 billion kilowatt hours of electricity from Tehran.

Turkey has said that as part of its new deals with Iran it will build three 2,000-megawatt natural gas transformation power plants in the Islamic republic. In July Iran and Turkey signed a memorandum of understanding (MoU) to pave the way for $3.5 billion of Turkish investment in Iran’s South Pars gas field on a buy-back basis. The deal would also turn Iran into a transport country for Turkmen gas on its way to Turkey.

Turkey is almost 80 percent dependent on foreign sources in meeting its oil and gas needs. Iran is Turkey’s second-largest natural gas supplier after Russia. Under a 25-year, $30 billion contract signed between Iran and Turkey in 1996 that went into effect in December 2001, Iran has exported 20.74 billion cubic meters (bcm) of natural gas to Turkey.

The July MoU drew criticism from the US, which reminded Ankara of the existing sanctions against Iran while stressing its own commitment to pursue trans-Caspian energy policies bypassing the busy Dardanelles and Bosporus Straits -- but also bypassing Iranian routes.

Turkish Energy Ministry sources told Today’s Zaman that Washington has not so far objected to Turkey’s imports and exports of gas and oil, but that investment in Iran, such as that involved in building power plants, poses a problem.

The US Iran Sanctions Act of 1999 says that if any foreign company invests more than $20 million in Iran’s gas and oil sector it is subject to US sanctions. But due to real concern over its increased energy needs, Ankara seems determined to go ahead with Iran over energy deals, provided that Ankara will ensure maximum guarantees from Tehran for its own energy security.

Iran should, among other things, agree to reduce the price of gas that it sells to Turkey and withdraw its claim from an international arbitration court currently examining both countries’ complaints over gas prices.

Meanwhile, according to the latest data released by the Turkish Statistics Board (TIK), one-fifth ($23.3 billion) of Turkey’s total imports realized in the first nine months of this year consisted of energy imports, including crude oil, fuel oil, natural gas, liquified petroleum gas (LNG) and coal. Thus energy imports made up almost half (44.1 percent) of Turkey’s foreign trade deficit recorded during the same period.

Turkey’s energy imports reached $19.6 billion in the first nine months of this year, compared to $18.6 billion during the same period last year. 

Turkey’s total imports are estimated to reach to $166 billion this year.

First Caspian gas to reach to Europe bypassing Russia

Meanwhile, the Turkey-Greece natural gas pipeline project to carry Azeri gas to Europe bypassing Russia will be launched on Nov. 18 during a ceremony to be held on the Maritza River with the expected participation of the presidents, prime ministers and/or energy ministers of Greece, Turkey, the US, Azerbaijan, Georgia and Italy.

Turkish Energy Ministry officials noted that this will mark the first time Caspian gas reaches Europe without going through the Russian route.

The first flow of Azeri gas to Europe (the Southern Caspian corridor) became possible due to Turkish cooperation and will send a message to the Caspian states that they need not depend on Russia alone in exporting their hydrocarbon resources to Europe or in meeting their energy needs, said Ankara-based Western energy analysts. The Turkish-Greek pipeline, known as the Southern European Gas Ring Project and launched in July 2005 when the groundwork was laid, will be extended to Italy via a pipeline to be constructed under the Adriatic Sea, according to an intergovernmental agreement signed on July 26 this year between Greece, Italy and Turkey.

The construction of the pipeline between Greece and Italy is planned to start next year and scheduled to be completed in 2012.

The 130 million euro Turkish-Greek pipeline project is supported by an EU fund.

Azerbaijan’s Shah Deniz gas already started flowing into the Greek pipeline via Turkey last month. A total of 700,000 cubic meters of gas per day, amounting to around 250 million cubic meters (mcm) of gas, is planned to be pumped to the Turkish-Greek pipeline annually.

“This is currently a symbolic amount of gas that will increase in the coming years. Though the amount is symbolic, it is important in developing relations between the two NATO allies [Greece and Turkey, still at odds over the sovereignty rights in the Aegean Sea] as well as an important step in opening a new corridor to Europe,” said an Energy Ministry official.

The total amount of Azeri gas planned to be shipped to Greece and then to Italy will reach around 12 bcm per year, with 3.6 bcm going to Greece and 8 bcm to Italy, said Güler during the presentation of his ministry’s budget on Nov. 6 to Parliament’s Planning and Budget Commission.

The South European Gas Ring Project marked the first concrete step taken by Turkey to support its policy of becoming not only an energy bridge between Caspian oil and gas reserves but also to pre-empt expected increases in both domestic and international gas demand. Turkey aims to become a bridge carrying at least 20 bcm of natural gas annually to Europe by 2010.

In July of this year, Turkey received the first shipment of natural gas via the 1,050-kilometer-long Erzurum line from the $4 billion Shah Deniz project under a 15-year agreement it signed with Azerbaijan in March 2001.

The Shah Deniz gas project will supply 1.3-1.4 bcm of gas to Turkey and 0.3-0.4 bcm to Georgia in 2007. The maximum annual exports within the project’s first stage will amount to 6.6 bcm to Turkey and 0.8 bcm to Georgia between 2009-2020. BP has a 25.5 percent share in the Shah Deniz group, along with Statoil at 25.5 percent, Iran’s OIEC’s 10 percent, TotalFinaElf’s 10 percent, the Russian-Italian joint venture LukAgip with 10 percent, Turkish Petroleum Corporation’s (TPAO) 9 percent and Azerbaijan’s state oil company SOCAR, with 10 percent.