Turkey's discovery of 320 billion cubic meters (bcm) of natural gas in Black Sea will play a critical role in reducing country's annual $12 billion gas import bill as well as changing the dynamics of the region.
Turkish President Recep Tayyip Erdogan announced the discovery as "the country's biggest gas discovery in its history."
The discovery in the well Tuna 1 at Sakarya Gas Field, which is around 170 kilometres offshore Black Sea, is the result of Turkey's insistent efforts for finding domestic hydrocarbon resources.
Fatih drill ship, which started drilling in the location on July 20, 2020, discovered the well after a month of drilling.
This marked Turkey's first offshore deep sea gas discovery with the country's domestic sources and vessel in the Black Sea region. The country had cooperated with international companies like ExxonMobil, Shell and BP to conduct drilling in the Black Sea although Turkey still continues seismic and drilling activities in the Mediterranean.
While this is the first national deep sea drilling in the Black Sea and the 9th deep sea drilling of Turkey together with the completed and ongoing drillings in the Mediterranean.
The discovery is expected to attract international energy companies to the Black Sea as it will pave way for Turkey's future discoveries.
Turkey strives to Increase domestic gas production as the country is 99% dependent on imports both via pipelines and liquified natural gas (LNG). The majority of the imports comes from Russia while Azerbaijan and Iran also have a significant share in total gas imports.
Due to increasing investment levels in LNG infrastructure, Turkey achieved a rising share of LNG in its mix with LNG cargoes from major destinations including the US, Norway, Qatar, Algeria.
Turkey imported 45.3 bcm natural gas last year to which it paid approximately $12 billion. The total bill for gas imports heavily relies on oil prices, and Turkey's long term oil-indexed gas contracts with Russia, Iran and Azerbaijani directly contribute to country's foreign trade deficit.
Higher prices for gas imports drive country's deficit to higher levels since it is totally dependent on imports of natural gas for its consumption.
Turkey had paid over $20 billion for its gas imports in 2014 when the price of oil stood at around $120 per barrel. The country's gas import bill retreated to levels between $10-15 billion in the following years.
A possible production of 10 bcm per annum is forecast to decrease country's trade deficit by around $3 billion annually.
- Reserve 20 times larger than Turkey's total gas production to date
The reserve discovered is almost 20 times larger than Turkey's domestic aggregate gas production which has reached 16.6 bcm. Turkey's annual gas production was 473,8 million cubic meters in 2019 -- the amount is produced both by Turkish Petroleum company and other domestic and international companies.
Turkey's remaining proven gas reserves are at 3.3 bcm, mostly on onshore fields.
The discovery of the 320 bcm gas reserve came after the extensive research in the area by Barbaros Hayrettin Pasa and MTA Oruc Reis seismic vessels over the last 2 years.
The government plans to start production from the field by 2023.
The amount of the investment in Sakarya Gas Field will be determined depending on the geological structure of the location as well as the number of the wells and the technology to be used.
Therefore, it is hard to estimate an exact amount of investment since the discovery could also be a part of the larger reserves in the area.
- "Turkish gas export a possibility"
The Head of the Turkish Natural Gas Distributors Association (GAZBIR) Yasar Arslan says that Turkey imported 45.3 bcm of natural gas in 2019 and paid around $12 billion for the amount.
"With a possible 10 bcm annual production rate, our natural gas import bill will decrease by approximately $2.6 billion per annum," he said.
Arslan said that considering Turkey's import dependency, increasing local production is important in many respects.
"In the next 5 years, around 30 bcm of the Turkey's long term natural gas contracts will expire. The production capacity in the discovered natural gas field will provide the opportunity to meet some of the consumption with domestic production and that will create excess capacity of gas supplies," he said.
"Thus, more domestic production will create a great opportunity in terms of price formation and supply diversity in the coming years" Arslan said.
Excess supply could create a possibility of natural gas exports for Turkey in the medium and long term, according to Arslan.
- "Discovery will increase Turkey's negotiating options"
Deloitte Turkey's Energy and Natural Resources Industry Leader Elif Dusmez Tek said that the discovery of natural gas is an extremely important development for Turkey.
"Of course, there are many steps to be taken to develop the project and uncertainties regarding them," she said.
"However, in an ever-changing energy sector, natural gas will continue to play a pivotal role as a reliable energy source. So the discovery is very vital for Turkey."
She said that the shrinking demand with falling oil and gas prices can negatively affect the feasibility of new discoveries.
"But for our country, which is totally dependent on gas imports, the existence of these reserves has strategic importance in terms of supply security and negotiating power," she explained.
"The discovery should be considered as a development that strengthens our hand as a country in reshaping the long-term natural gas contracts that will expire in the coming years," Tek said.
By Nuran Erkul Kaya and Firdevs Yuksel