Will Turkey become the new Mediterranean gas hub?

24-09-2014

The energy world is at a tipping point. Trade relations between Europe and Russia are under pressure and constantly in the news. The relationships with the Middle East and North Africa (the MENA region) are characterized by their fickle character. Since the Arab Spring, the MENA region has seen a wave of uprisings, protests and revolutions. European countries such as Italy, France, Spain and Portugal used to be able to fulfil their energy requirements by importing it from MENA via pipes and in the form of LNG (Liquified Natural Gas). However, after the Arab Spring, many governments of source countries were unable to carry out a deliberate energy policy. This also meant much-needed investments were postponed. It is high time for these states to pull out all the stops to meet their own energy demands. States are forced to deploy LNG exports destined for Europe for their own use.

Geert Greving
Geert Greving

For decades, the MENA states have tried to keep the population happy by offering enormous fuel subsidies. This kept energy prices low, to let the population enjoy the use of their mineral resources. In the meantime, population growth and economic growth have led to a growing demand for energy. This growing demand for energy does not stop in times of rebellion and revolution, while the production of energy has come under pressure. The population continues to buy energy-guzzling devices and equipment, whether the energy sector is able to meet demand or not. Keeping the population happy has meant that the demand for energy has grown by more than five percent per year. In fact, the demand has become unmanageable. This has meant that the entire MENA region is suffering the effect of rolling black light. This is a measure to prevent that the energy network is overloaded, by disconnecting one half of the city in the morning, and the other half in the afternoon.

This uncontrollable demand for energy is not new. To assuage the tumult in the region, the local population was offered ‘gifts’. Recently, sales of electrical devices increased: flat screens, computers and air conditioning systems are all plugged into the grid, resulting in peak demands that the current network can’t handle. To prevent a total system failure, ‘controlled’ rolling black light has been introduced.

Apart from this energy problem, which has caused a lot of dissatisfaction among the population, the export sector is also being stretched to its limits. Egypt was forced to stop LNG exports, Libya is able to export occasionally, and Algeria has now set an export ceiling. All of a sudden, the region has become an importing customer, and is itself looking for possible supply channels: Israel, gas from Azerbaijan and/or gas from Iran. Europe has clearly gained a new competitor and at the same time has lost its long-term gas supplier.

But, new opportunities may be arising on the horizon for MENA and Europe. While Iraq is still very unstable, a new and special oil and gas supplier has entered the market: Kurdistan. It should however be noted that the agreements made in Baghdad are also adhered to. But despite the chaos, it is still possible to make Kurdish energy available via Turkey. Will Turkey become the new Mediterranean gas hub, and maybe a new option to reduce the energy supply from Russia, by diversification, something politicians are focusing on at the moment?

Geert Greving, Public Affairs manager GasTerra