Turkey’s Shale Gas Boom or Bubble
A growing economy, increasing energy demand, and limited domestic reserves have challenged the sustainability of Turkey’s rising star. To overcome this risk, Ankara is facilitating foreigner investments’ penetration into the market with new regulations. In this favorable environment and due to the Energy Information Agency (EIA)’s optimistic estimations on technically recoverable shale oil and gas, Turkey has become a frequent flyer destination for energy investors, opening the debate on if the future holds a shale gas boom or, conversely, a bubble.
Energy hungry Turkey has a vulnerable energy balance. More than 30 percent of energy consumption comes from natural gas and another 30 percent from oil, while the country's reserves don’t constitute any considerable part of this consumption. Thus, the market remains import dependent. To adjust for this balance, Turkey at first decided to diversify its supply portfolio and has invested over the last decade in the southern energy corridor project. This first investment brought joint investment with Azerbaijan, resulting in the Trans-Anatolian pipeline (TANAP), which will bring 16 billion cubic meters of gas per year to Europe.
With TANAP’s success, Ankara became an important player in the Eurasian market and has begun investing in the promotion of its domestic oil and coal reserves. Turkish shale oil and gas reserves arrived on the international energy market agenda the EIA ranking Turkey’s shale oil and gas reserves among the 40 top countries in the world in a 2013 report.
On September 29, Turkish media officially reported the beginning of hydraulic fracturing operations to extract shale gas from Dadaş shale field in the provinces near Turkey's Syrian border--one of two basins highlighted by the EIA. The EIA estimated that the Dadaş Shale field and the Hamitabat Shale field in the Thrace Basin contain, respectively, approximately 6 billion cubic meters and 2 trillion cubic meters of risked shale gas in-place. The EIA remains the unique public geographic data source for these estimates, which raises the question of the lack of interest and data from European research authorities. Moreover, estimation about the scale of resources remains divergent. Some sources say the estimated shale source could meet Turkey’s demands for ten years, while others say up to forty.
Beside of this lack of reliable systematic data on reserves, it is still unclear if exploitation of Turkish shale gas will be profitable. Indeed, EIA estimations are based on technically recoverable resources that represent volumes of natural gas that could be produced with current technology, regardless of gas prices and production costs. Different factors, such as drilling and completing wells’ cost and the produced amount of natural gas within a drill's lifetime, will no doubt influence cost estimations.
The major change in the Turkish energy sector dates back to September 2012, when Shell built a partnership with the state-owned TPAO to explore shale gas in the eastern province of Diyarbakır's Sanbuğday-1 natural gas field. Under the terms of the TPAO-Shell agreement, Shell is expected to drill five wells into the Dadas Shale formation. The company is expected to drill three more wells in Diyarbakir in 2013. Beside these investments, Shell did not accept making any public assessments before completing the first well.
Nevertheless, over the last two yeas Turkish fields have been explored by international medium sized companies: TransAtlantic Petroleum, Anatolia Energy, and Valeura Energy. (The US-based Cun Energy later acquired Anatolia Energy as well.) In April 2013, Valeura Energy had a new exploration license in Banarli. Some Turkish companies also had decisive roles in the flourishing shale gas market. In January, Anatolia Energy announced that its partner, Çalık Enerji, is drilling at Giremir-1, with the Sinan Licence. In May 2013, Canada’s Transatlantic acquired all of the shares of Arar Energy’s Molla licenses in the southeast region. In September the Dublin-based San Leon Energy announced it had entered into an agreement conditionally to acquire 75 percent of the issued share capital of Alpay Enerji, expecting a quick cash flow return.
From a purely economic perspective Turkey’s shale gas sector risks being a bubble rather than a boom. Additionally, it is not still clear if the cost of shale gas extraction will be cheaper than simply importing natural gas from suppliers in the region. Even though Turkey’s economic expectations are not clear and distinct, the shale gas initiative’s political expectations match with the southern energy corridor’s intentions—i.e., independence from a Russian energy monopoly.
Olgu Okumuş is an affiliated lecturer in energy diplomacy at Sciences Po, Paris and director of strategy development at LEO Advisors. She is also a PhD candidate at Sciences Po, Paris, where her research focuses on Turkey’s energy transit policy.
She can be reached at olgu.okumus@leoadvisors.com