Alternatives & Analyses: The net geopolitical value of the new gas find in the Black Sea

The largest offshore gas finding in the Black Sea in the Turkish EZ has stirred agitation and tempted President Erdogan into geopolitical grandstanding, both in the Mediterranean and the Black Sea. The main question is whether and to what extent his access to ostensibly cheap and large gas deposits in the Black sea could translate into more substantial leverage for Ankara vis-a-via its neighbors and rivals?

One general observation – recent developments in the global gas business mark a shift from suppliers’ to buyers’ market. Russia has learned that natural gas has become an obsolete foreign policy tool and is paying a very high price for defying gravity.

President Erdogan has missed this particular lesson and is on his way to painfully acknowledge that gas and energy, in general, have long become a globally tradable commodity that rarely translates into political leverage.

Suffice it to look at OPEC, OPEC+, and their gas equivalent. Botas’s Black Sea discovery might positively affect the country’s current account and trade balances. Still, if the economy’s fundamentals are not solid, the slide towards a weaker Turkish lira, hitting today a new low of 7.44 to the dollar, will persist. 

The mere fact that the Turkish currency’s devaluation trend largely ignored the gas discovery news attests to how the financial markets are reading the situation.

Turkey has already benefitted from access to cheap gas, and in July 2020, it ranked second in Europe in cheap gas. This year’s total annual gas bill could amount to $ 4-4,5 billion, which is hardly the make or break for an economy with a $ 750 billion economy.

The abundance of cheap gas in Turkey with many supply options, including global GDP, should make the new deep water gas finding developers cautious in projecting future sales revenues. With potentially higher extraction costs, the locally produced gas will have to compete against Russian, Azeri, Iranian, and global LNG. 

While gas production from the new field in the Black sea is likely to make a business case, the industry profit margins might not overwhelm as the demand recovery is uncertain.

One should not overrate the net positive impact of this or any other significant gas deposit found in the Black Sea or the Mediterranean, on equally challenging to predict [MV1] Turkish GDP growth.

President Erdogan is repeating President Putin’s mistake in believing he could play the energy card both inside and outside Turkey, and exert leverage over Greece or Israel and subdue his neighbors to his Putinesque grandstanding.

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Ankara’s appeal as a transit country for energy resources might suffer from his drillship gun diplomacy. Most countries that have relied on Turkey’s safe transit are reconsidering implications, alternative sources, and routes. Just as Europe, after Mr. Putin declared his pincer strategy against Ukraine, ended up more diversified, and Gazprom’s market share shrunk, President Erdogan might find himself against more significant challenges after the gas findings. Turkey and Botas are nowhere near the super heavyweight category of Russia as a gas producer.

What used to be a boon in the past – Russia’s inexhaustible gas reserves, has become a liability in a world of oversupply, transitioning to a low carbon economy and insufficient demand.

What is relevant for the global gas market is twice more relevant for Southeast Europe’s market, where Turkey will have to sell its growing surplus gas.  Prices might dip even below current levels.

On top of that, Greece has positioned itself as the entry point of LNG gas to the region and has succeeded in attracting regional investments in developing the Alexandroupolis FSRU project, which will compete with Botas’s own FSRU project in the Gulf of Saros. While the long-term capacity take-up forecast is risky, the likelihood of idling capacities should not be overlooked.

One thing is indisputable in today’s interdependent energy world – Turkey, Greece, Bulgaria, Romania and other SEE countries, depend on each other to make transnational investment-intensive projects successful. It is not a zero-sum game, where Turkey calls the shots and the tune. The countries in the region could easily find substitutes for gas originating in Turkey, albeit at a cost.

President Erdogan should reconsider his options and reconcile his interests with Greece. If nothing else – he could resort to International arbitration and mediation. He has a lot to lose and too little to gain.

In the world of energy, appearances of success and power are often deceiving.

Ilian Vassilev

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