Southern Gas Corridor Risks Rise on Turkish Arrests

The arrest of leading Kurdish politicians in Turkey has profound implications for the future of the Southern Gas Corridor (SGC) in general and, in particular, energy exports from the Kurdistan Region of Iraq.

A series of dramatic moves by the government against opposition figures and media critics, including the suppression of most forms of internet-based social media and the closure of the nation’s principal independent newspaper, is challenging the very concept of democracy in a country whose stability is crucial for the transit of oil and gas to markets in Europe; for the Mediterranean; and for North America.

These events pose two questions of massive importance concerning Turkey’s role in energy security. The first is whether depriving Turkey’s Kurdish community of its elected leaders will prompt militants of the PKK, considered terrorists by both Turkey and its NATO allies, to attack existing pipelines in the way they did when the two-year truce between Turkey and the PKK broke down last year. This would have an immediate impact on plans to develop a 10-20bn m³/yr gas pipeline from the Kurdistan Region of Iraq (KRI) to southern Turkey.

The second is whether the government’s moves will be seen by an increasing proportion of people in Turkey as signalling the end of effective democracy, leading to conflict within Turkey’s cities as well as to an intensification of the government’s current war against the PKK in southeastern Turkey. This could trigger a general collapse in foreign investment and, in particular, the failure to secure fresh input into the SGC.

The vulnerability of transit pipelines in Turkey was highlighted last week when a bomb blast – almost certainly carried out by the PKK – closed the gasline from Iran for four days from October 27. Turkey is now reported to be considering re-laying the pipeline underground, an effective protection against casual violence but not against a determined attack.

The PKK clearly believes pipelines constitute vulnerable targets. When the truce in the last PKK war collapsed in July 2015, it was immediately followed by a five-week spate of PKK attacks on pipelines. Two of them targeted the Baku-Tbilisi-Erzurum line bringing gas from Azerbaijan, one damaged the Iran-Turkey gasline and a fourth hit the Kirkuk-Ceyhan pipeline that carries oil from the Kurdistan Region of Iraq (KRI) to world markets. There was also a fifth attack – on a train carrying pipe for the TANAP gasline.

In February, a PKK offshoot, the Group of Communities in Kurdistan (KCK), specifically warned that plans for a gas pipeline from the KRI to Turkey would only benefit Turkey’s ruling AK party. “We will not accept such an agreement to bolster Turkey and to let it stand on its feet since this agreement is a conspiracy putting the lives of the Kurdish nation at risk,” a KCK spokesman said in a comment widely interpreted as a threat that the PKK would regard the gas pipeline as a target for attack. Such a line, for which Turkey’s Botas was reported to be preparing a tender last April, is vital if the Anglo-Turkish Genel Energy is to implement its plans to deliver some 10bn m³/yr of Iraqi Kurdish gas to Turkey by 2020 and 20bn m³/yr thereafter.

Southern Gas Corridor

(Source: Tanap)

As well as the direct threat to the physical security of pipelines, there is the indirect threat: loss of additional input to the $38 bn Southern Gas Corridor. The SGC is predicated on initial delivery of 16bn m³/yr of gas from the $18.4bn Second Stage upstream development of the Shah Deniz gasfield (SD2) in Azerbaijan. This will be then carried to market via $19.7bn worth of new pipelines stretching from Baku to Italy, notably the $9.2bn, 1,850-km TransAnatolian pipeline across Turkey.

Deliveries for Turkey are scheduled to start in 2018 and to Greece and Italy in 2020. But the pipeline systems under construction are eventually designed to carry twice the initial volumes destined for Turkey and the European Union, and, with gas prices at their current low level, can only be expected to secure even a modest rate of return for their investors if they are full.

But who, now, will want to take the risk of investing in upstream projects if they are dependent on transit through Turkey?

John Roberts, Chief Analyst