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Necdet Pamir: Turkey is Energy Dependent #Energy

Necdet Pamir: Turkey is Energy Dependent <a class="hashtagger" href="">#Energy</a>

As it stands, Turkey is not in a position to influence global energy policies. We may talk about our geographic location, our qualified work force and other potential strengths but we can not claim to be using these strengths effectively.

What is Turkey’s role in international energy policies? How is it affected? And in what way is the tense situation in the Middle East reflecting on Turkey?

As it stands, Turkey is not in a position to influence global energy policies. We may talk about our geographic location, our qualified work force and other potential strengths but we can not claim to be using these strengths effectively. Turkey is an energy dependent country, and it has no say in the oil and natural gas prices which makes it precarious rather than seminal.

Currently world’s energy use comes from 33% oil, 24% natural gas and 28.1% coal. 48% of proven oil reserves around the globe are in the Middle East. Turkey’s influence on either side of the equation is not substantial, really. 42.5% of global natural gas reserves also lie in the Middle East. We are geographically very close to the richest region in terms of oil and natural gas. Explorations done in Turkey in terms of both resources have not given us a very positive picture so far. We may be able to make a better evaluation our situation in terms of potential reserves via a new understanding and with the help of our national institutions. I am not saying that we don’t have untapped oil and natural gas reserves, but from what we can gather from the explorations done so far, Turkey is dependent on oil by a margin of 94% and on natural gas by 99.7%. In short, we are completely dependent to foreign powers for our energy needs. When we look at the aggregates, we see that Turkey is 75% dependent on energy imports for our primary energy consumption. The dependency has, in fact, gone up from 67% to 75% during the current government’s reign despite their claims that they have and continue to reduce our national reliance.

Energy Dependency 1

This situation and our current energy policy is not sustainable for much longer. Energy takes up as much as 18% to 24% of all our imports -which means that our energy dependency is one of the biggest culprits for our current account deficit and thus our economic woes.

What I mean to say is that Turkey has neither any meaningful contribution to global energy policies in terms of resourced and production nor any meaningful effect on worldwide energy trends at its current situation. Turkey’s position has actually been deteriorating thanks to the flurry of privatization. During AKP’s governance, the state’s share in energy sector has sunk from 65% to 15%, and the nation’s energy matters are left in the hands of private companies looking to maximize shareholder value. Our most prominent energy institution, TPAO has been systematically ripped off its qualified workforce and its vertical structure has been demolished. TUPRAS, Petrol Ofisi, DITAS, IPRAGAZ, PETKIM any many other affiliates of TPAO before 1980, have been fragmentized and privatized separately. This is in direct opposition to the established understanding that energy companies work better and more efficiently when they are integrated vertically. For example, Italy’s ENI is one of the world’s biggest energy companies although it doesn’t have many operations or reserves inside Italy to speak of. Thanks to amendments made to current laws, TPAO was first dismantled and then transferred to a state fund. Turkish Petroleum Act has banned TPAO from meddling in any exploration and drilling. In short, it has lost whatever influence it has domestically or internationally. It doesn’t have the authority or the ability for refining, transportation or sales. TPAO has no say in either marine transportation or pipelines. This makes it basically of no importance when it comes to international operations. When you bring all that together, you can easily say that Turkey which is 75% energy dependent, cannot have a meaningful role in global energy unless current policies are reevaluated.

How about Turkey’s geographical location? What can you say about that?

This is something that is constantly repeated: Turkey has rich resources and is an important consumer of energy, and it is located at the threshold between Europe and Asia. That we are a bridge, and a “hub”, etc. If we could use our location to our advantage coupled with a proper management of our energy companies and policies that are suited for the betterment of the nation, only then could we talk about being an important actor in the energy sector. That we are in the middle between the regions of vast reserves and regions of large consumption is misused by our politicians, and that makes Turkey nothing more than a geographical transition zone. We cannot realize our claim to become a trading hub. Our energy companies have been weakened. Because we are largely dependent, and we are not a player in the energy market in terms of either pricing or production nor consumption, changes in oil prices and exchange rates continue to have a negative impact on our economy. The consumer is forced to carry all the weight here. Prices are set by OPEC members, and non-OPEC countries that are producers. Although OPEC is often in disagreement because of domestic policies of its member states such as Saudi Arabia, Iran and Venezuela, it is still the largest price setter in terms of oil. And oil is quoted in US Dollars. This makes us and other energy dependent states vulnerable to the rise and fall in exchange rates in addition to fluctuations in the price of oil. All in all, we are not an actor in the energy game. And our geographical advantage is ruined by bad politics. Furthermore, we are making new purchasing agreements for petroleum, natural gas and coal while we have our renewable energy sources lying idle. Energy Market Regulatory Authority is giving away licenses to powerplants that exclusively use imported energy resources. 70% of new power plants that are 35% or more completed will be using natural gas or imported coal. We are still tying our hopes to full Russian control over Akkuyu NPP while our own renewable resources are vacant. We are further increasing our dependency, but not only that: we are increasing our dependency on Russia in particular.

What do you make of the recent government contracts? YEKA and others, for example?

Unless they change the rules after the game commences, I am positive here. By changing the rules, I mean, readjusting the buying rates for the winning consortium’s benefit. Generally, the government lends favors to companies that have won the contract and they are close with. Under normal conditions, the agreed upon sum is too low to be feasible. So, we have to monitor if the government conducts a favor here. Another issue with YEKA I found is that Turkey has 278K MW of solar energy potential, and here you are bragging about a 1000 mw contract! You have been in power for such a long time, and all you could contract out is a measly 1000 MW.

We must also pay attention to the fact that costs for renewable energy plants have been going down steadily for the last 6 years. And we expect this trend to continue in the coming years.

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Energy Dependency

Moreover, electricity can now be stored; we are quickly decreasing the loss of efficiency in that regard. And that will help renewable energy sources in the future. The more we use our own renewable energies, the less dependent we will be on energy. Provided, of course, that we use our own resources and not start importing those as well. Renewable energy will also create an unprecedented opportunity for employment in the energy sector.

Which renewable energy recourse do you think we must concentrate the most on?

Solar followed by wind. Their costs go down exponentially, the more we use them.

Are they being intentionally fastidious in issuing licenses so as to only grant them to those who are capable, or are there other reasons for it?

I must first express that we have a quite a large capacity for power generation -more than we can possibly consume, in fact. Why don’t we use that first before granting new licenses? And then we can issue new licenses for indigenous resources particularly those that aim for renewables and new technologies. But I must also state that under current policies, solar and wind plants are being held back. And which plants are being handed the licenses? Those that use imported coal and natural gas! This is pumping up our dependency on a daily basis. The ratio of excess of our installed capacity over our peak load has reached 45%. If we can work our plants at 100% capacity, we can produce more than 100 billion kw/hr. These numbers are coming out of a study conducted by the Chamber of Mechanical Engineers. We consumed 295 billion kw/hr of electricity in 2017. Full capacity of our plants can give us another 100 billion kw/hr. In short, we have the capacity for 395 billion kw/hr, but we are using only 295 billion k/w. Which means there is already a surplus, which means we have already issued more licenses than required. So, it makes sense to prioritize renewable plants at this point.

Installed power capacity that is about to be operational will use 35% imported coal and 35% imported natural gas (where we already have 99.7% dependency). That means that when these new plants are in operation, we will be even more energy dependent. Compare that with the share of wind (9.9%) and geothermal (1.3%) in upcoming power plants. We have 278K mw capacity in solar resources, but you are using only 22 mw.

Is it too costly to set up solar energy systems?

It starts costly, but the costs quickly go down. And we have many parties interested in setting them up. All they are saying is “we do not need any subsidies. Just spare us the obstacles and grant us connections to transformers. We will recuperate our investments in 3 to 4 years.” The costs do go down fast! What is keeping solar energy in Turkey from soaring, is the government deeming the energy field as a profit center. Akkuyu NPP with its 20 to 25-billion-dollar investment cost is a case in point. Many opportunists are waiting in line to grab a piece of it.

In the meantime, the forecasts for demand are blown out of proportion. We already have a surplus in generating power, and yet we still have many power plants under construction.  The government has long been ignoring our warnings against this, but now they had to accept that their estimates were too far-fetched, and they downgraded them accordingly. There is a huge gap between what was forecasts prior to December 2016, and what the actual number turned out. I am stressing this because when plans for Akkuyu and Sinop NPPs were drawn, we had the old, bloated forecasts on hand. When we compare the before and after forecasts we see that there has been a downward revision of 103 billion kw/hr for 2026. Sinop and Akkuyu are supposed to produce 69 billion kw/hr, which is really not needed at all.

We always talk about its downside. What positive outcomes can come out of nuclear energy?

In its current state it has so many drawbacks that I wouldn’t know where to start. First of all, nuclear electricity is one of the most expensive ones out there. It is expensive even without the disassembly and waste management costs involved. According to US Dept of Energy -who is an advocate of nuclear energy by the way, nuclear energy is one of the 3 most expensive resources when you consider the costs associated with construction, maintenance and repairs and not including disassembly and waste management. Which brings us to nuclear’ s lack of operational safety. We’ve all seen what happened in Fukushima, the Three Mile Island incident in the US and, of course, Chernobyl. And these are only the ones that we know of. There are many others that have not been disclosed. Germany, a global superpower is getting rid of nuclear energy. France, which has also been a long-time advocate of nuclear energy decided to bring down its share from 75% to 50% in the next few years. A lot of countries have stopped building NPPs. When you look at the ongoing 40 or 50 projects in the field, most of them are taking place in Russia, China and India.

The problem with nuclear waste has still not been eradicated. USA has argued about what to do with the waste storages they built next to the reactors for the last 20 years. Finally, it was decided during the Bush presidency that they would build an underground storage below Yucca Mountain and stock them there. The decision was met with an upheaval by both the residents of Nevada and Democrats. Obama promised to put and end to the project, and indeed he kept his promise here. The US had already spent upwards of $B11 up to that point. When completed the whole project would have cost them $B77. The commission that was in charge of inspecting the nuclear waste management in the US listed many disadvantages in its deposition to the House of Representatives: risks stemming from the movement of underground waters, possible seismic activities, doubts regarding complete insulation, risks of transporting the waste from a hundred reactors, etc.)

We must also consider the risk of terrorist activities. There is a real risk of terrorists getting hold of nuclear materials and waste.

There is also the risks associated with the locations chosen in Turkey. Russians were given all the rights to construction, operation, fueling and waste management without so much as presenting a tender bid. Russians will have 100% control of the whole process. That means we will be 100% dependent on nuclear energy in addition to others. They will build the NPP from the ground up, they will employ the people for the operation, they will bring in enriched uranium and they will decide on what to do with the waste involved. These are the terms of our agreement with them. And AKP has the audacity to claim that they are lessening our dependency for energy.

Surely there are significant start-up costs. But is it not possible that it will pay for itself later and become economically feasible?

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No, because Russians have secured a purchasing guarantee. Wholesale selling rate for electricity in Turkey in the last year was $0.04 per kw/hr. We have given the Russians a purchasing guarantee at $0.1235 per kw/hr. That is more than 3 times our current cost!

How long will this guarantee be good for?

15 years. And we are not going free afterwards, there will still be partial purchasing guarantees going forward. The agreement stipulates that they will control at least 51% of the NPP, which means we will never have the majority stake. And they have the discretion to transfer up to 49% ownership to domestic of foreign companies.

You are saying that we can decrease our dependency provided that we make appropriate investments.

Yes, but with a caveat: As long as you import the wind turbines from the Netherlands and China, and the solar panels from other countries, you are not really helping your energy dependency. While we invest in wind, solar, geothermal energies, we must also work towards the production of energy equipment. You have to invest in R &D, you will bring the academics together with industrial enterprise and private sector with the state leading the proceedings. You have to make way for local production with subsidies gradually. When I say gradually, I mean maybe you won’t be able to produce everything in house right away, but with proper policies and subsidies you have to pave the way.

What is your advice for the president-to-be?

I have been writing and speaking about my advice extensively. Access to energy is a fundamental human right. With that in mind, the essential principles for a sound energy policy can be summarized as follows:

Energy must be supplied to consumers in a clean, sufficient, choice, uninterrupted, continuous, affordable, safe and diverse manner.

All energy planning must take into account the fact that future generations have a claim on the resources.

The argument that Turkey’s energy resources is insufficient is not a scientific, but a political and unfounded one. We have 3 times the idle capacity of the electricity we produced last year. Turkey’s resources must be determined scientifically, and they must be realistically deployed. We cannot say how much oil and natural gas we have because no serious exploration has been done in either the Black Sea or the Aegean and Eastern Mediterranean.

We must encourage a transition into a paradigm where energy is used more efficiently and derived from renewable resources with local means and tools.

We must focus on business sectors where energy use is more efficient and can be supplied locally like high-tech, computer, robotics, avionics, laser, telecommunications, genetics, Nano technologies, etc., rather than those that are heavy users of older energy such as cement, ceramics, iron &steel, etc.

We must give up on our obsession of setting up new power plants, and instead concentrate on our existing ones and figuring out ways to utilize them more efficiently.

Electricity is a basic human need as well as a crucial part of social life. Thus, the state’s energy policy must adhere to social needs benefitting the people. And this can only be achieved through public service.

The administration of energy affairs must cease acting nepotically and be reconfigured to direct and administer public institutions and corporations in a way to better serve the public.

Energy policies must complement those that govern foreign affairs, security, economy, agricultural, industrial, transportation and environmental ones.

The share of all foreign energy resources (natural gas, petroleum, coal) must gradually come down through limiting of licenses that propagate their use.

Demand forecasts must be apolitical and must take into consideration population growth, industrialization, mass migration, fuel price predictions and energy policies.

Why is it that we still do not know our potential for energy resources? Why hasn’t there been extensive exploration done particularly below our marine shelf? Is it because of the agreements we have in place?

No, that’s not the reason. We have settled the disputes regarding the exclusive economic zones in the Black Sea with the riparian states. The same thing has not been done in the Eastern Mediterranean region. Turkey is at odds with everyone around us, thanks to our mismanagement of foreign affairs. It is not really a question of who is right and who is wrong. There is a vast difference there in terms of borders for the EEZs. What ends up happening is that they decide to do exploration in disputed zones and we send up our Navy to stop them. But this is not a policy and it is not viable. We can’t perform any exploration in the Aegean because of or dispute with Greece. This leaves us with the resources we have on land. WE need to do a complete inventory. And it is not only oil and natural gas that have not been explored deep enough, coalbeds are still pretty much unexplored as well. All planning regarding these resources must take notice of the rights of our future generations on them.

What are your views on privatization, and where do we stand in the energy sector?

State’s share in electricity was 65% in 2002. Today it is below 15%. But energy prices have soared in the meantime. Turkey used to be the cheapest OECD country in terms of energy in 2002.

The OECD Energy Price Index shows the average change per country in energy pricing from different sources. With 2010 taken at 100 points, Turkey’s value in 2002 is registered as 41.9 against OECD average of 63 and OECD’s European average of 64.7. This means Turkish citizens and industrialists used to pay 50% less than OECD average and a whopping 54.4% less than OECD’s European average.

Fast forward to 2016, and we see a completely different picture. According to 2016 report, Turkey’s value has shot up to 138.8 making it the most expensive OECD country in terms of energy costs. We are paying 38% more than the average OECD country and 28% more than Europe. Turkey is the world leader in energy price hikes during the 12 years of AKP reign with a 231% increase.

Energy Dependency 3

State companies such as Petrol Ofisi, Ditaş, Petkim, Tüpraş have all been sold to private sector. Apart from Tupras all these companies are now under the control of foreign corporations. Thousands have been made redundant with no unionization allowed.

Is it possible to reverse the privatization trend?

The energy sector is a strategic one. When justice prevails, we will see an end to irregularities and illegal transfers. You can expropriate the companies if you see the need and benefit to it.

But there are agreements in place…

As long as you believe that these institutions and the sector in general is strategically important, you will do whats necessary. There have been irregularities in some privatizations, and you can lawfully get them back. As for others, if you want them back, you pay for them and that’s it.

Originally published at:

About The Author

A. Necdet Pamir

Petroleum engineer (METU graduate) and senior energy strategy and policy expert on world energy politics, energy security, sustainable energy policies and energy management. Worked for the national oil and gas company TPAO for 26 years; more than half of it being in managerial positions to include the Deputy General Manager status. Contributed to the successful implementation of Baku-Tblisi-Ceyhan Crude Oil Pipeline as a top level public servant for the Republic of Turkey with his dual capacity in TPAO and Prime Ministerial Pipeline Coordination Team. Lectured in 6 different universities and still teaching on energy policies, scenarios, strategies, sustainable energy, energy security and related matters in Bilkent & Atılım Universities, Ankara. Member of the Scientific Committee (Responsible for Subsea Resources), KOÇ University Maritime Forum (KÜDENFOR). Writes a column in monthly magazine Bütün Dünya (a Başkent University publication). Senior lecturer and prominent invited keynote speaker on intarnational conferences. Frequently interviewed by local and international TVs, radios and a well known writer on energy politics. Experienced top level manager both in public and private energy companies. Co-directed Deputy Chairman and General Coordinator) Turkey's first and most prominent think thank (Center for Eurasian Strategic Studies-ASAM) between 2000 (its establishment date) and 2007 as its Deputy Chairman and General Coordinator.

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