Turkey's 320-billion-cubic-meter (bcm) gas discovery in the Black Sea announced last month could save the country up to $21 billion in import costs, according to an analysis by Norway-based independent research institution Rystad Energy.
Palzor Shenga, an oil and gas analyst at Rystad Energy told Anadolu Agency that the hydrocarbon find is based on tests from a single well. However, further flow tests are needed to determine the potential of the reservoir by drilling more wells.
Shenga explained that exploration in the Black Sea region historically failed to establish any major hydrocarbon finds until now.
“All the wells drilled in the deepwater area [of the Black Sea] have either been dry or encountered minor hydrocarbon shows. These led the companies, including the majors, to leave the region by 2012."
He surmised that if Turkey's state-owned company, Turkish Petroleum, which has been drilling in the region, is able to prove the actual potential of the find, it could help attract back those companies that are capable of taking risks for frontier exploration with a renewed appetite for investment.
Nonetheless, he warned the Black Sea currently lacks the necessary infrastructure for the development of such a huge find given Turkey's ambitious target for a production start in 2023. Therefore, he surmised that the project would need to be capital intensive to achieve this.
Analysis of Turkey's giant gas field reveals that the country's actual savings could even be higher as global gas prices and import costs are expected to rise over the coming years.
The size of the actual recoverable reserves is still uncertain although it was estimated to be in the region of 320 bcm. Forecasts of the production yield also vary between 2.5 bcm and 20 bcm per year.
"In any case, a successful development of the field would represent a substantial reduction to the country's import costs between $200 million and $1.5 billion annually based on the field's breakeven price range and Turkey's average gas import price for 2020," Rystad Energy said in the analysis.
According to Sindre Knutsson, Rystad Energy’s vice president of Gas Markets, "the timing of the discovery could hardly be better, as nearly 40% of Turkey’s contracted import volumes, representing 24 bcm out of the country’s 59 bcm per annum of pipeline gas and liquefied natural gas (LNG) imports are set to expire in 2020 and 2021."
- Discovery to increase Turkey's bargaining power
Knutsson explained that a successful development of the Sakarya Gas Field in the Black Sea could offer Turkey significant natural gas supplies at much more competitive terms.
The effect of weak Brent prices this year will be seen in the second half of 2020, as Brent-indexed gas prices are normally priced with a lag of 3 to 6 months while some of Turkey's gas imports are oil-indexed.
Rystad foresees that Turkish buyers will likely be keen to move away from oil-indexed contracts and instead use a European price benchmark, such as TTF [Title Transfer Facility], to which they can index their contracts.
Turkey's gas imports last year stood at 44 bcm with Russia, Iran and Azerbaijan constituting 73% while the remainder was in the form of LNG.
Algeria, Qatar, Nigeria and the US have a significant share in Turkey's LNG imports and it is estimated that this will rise to 50% of total gas imports this year.
Rystad forecasts that Turkey’s natural gas demand will recover after seeing two consecutive years of falling gas consumption.
“Turkish demand for gas will rebound to 59 bcm by 2030 and 71 bcm by 2040. The two main sectors contributing to this increase are the industrial sector, driven by high economic growth, and the residential sector," the Norway-based company estimates.
It also foresees the prospect of a new competitive source of gas will mean the country will be less reliant on imports in the future while giving Turkey more confidence and bargaining power in trade with its current suppliers.
"Turkey’s newfound hope that low-cost discoveries are feasible will no doubt pave the way for further exploration programs. The government seems to have grasped the strategic importance of this breakthrough, as demonstrated by its decision to send no fewer than five warships to escort the seismic vessel, Oruc Reis, through the Mediterranean Sea," Knutsson concluded.
By Nuran Erkul Kaya