TURKISH-AZERBAIJANI ENERGY RELATIONS: BASIS FOR PRAGMATIC RELATIONS BETWEEN THE TWO COUNTRIES

Introduction

turkey-azerbaijanModern international relations are a reflection of successful coordination of various factors, close cooperation and strategic vision for the future. A very significant example of this aspect is the relations between Turkey and Azerbaijan. These two countries initially have their own specific relationship based on common culture and ethnic origin. Skillfully using advantage of these factors, two countries Turkey and Azerbaijan rapidly began to develop their relations in all spheres. Special attention should be paid to the mutually beneficial cooperation in the energy sector, which is the driving force of economic and political initiatives.

The ratios of these countries in the energy sector are complementary: Azerbaijan is a major oil and gas producer, in which Turkey, not having its own energy resources, actually needs. In turn, Azerbaijan, as the landlocked state which, is needs in Turkey, whose territory is located in an advantageous geographical position and has no access to the open seas. Through this country, oil and gas extracted in Azerbaijan has the opportunity to access to the global markets. Based on these circumstances of complementarities, relationship between the two countries in the energy sector has a degree of permanent development. A lot of projects in this sector have already been implemented and continue to emerge.

Turkey’s contributions to the development in the energy sector relations with Azerbaijan

  The basis for the first concrete cooperation between the two countries was the participation of Turkey in Azerbaijan International Oil Company (AIOC). Along with eleven companies from eight countries the Turkish company TPAO (Türkiye Petrolleri Anonim Ortaklığı) has took place in consortium. This consortium was established with the aim of exploiting Azeri, Chirag and Guneshli offshore oil fields. Hydrocarbon deposits are estimated up to 1 billion tons of oil and about 130 billion m3 of gas in those fields.[2] 

For the first time in its history TPAO has participated in the production of crude oil outside the borders of Turkey. At the initial stage, TPAO share in Azeri Chirag and Guneshli oil fields was small and consists only 1.75%. Subsequently, the share of TPAO in the project has been increased. SOCAR delivered 5% of its share to TPAO. With this purpose, on April 12, 1995, in Baku, Azerbaijan President Heydər Əliyev and Turkish Prime Minister Tansu Çiller signed an agreement on transferring this share to the TPAO.[3]

TPAO participation in projects in Azerbaijan was not limited with this. Another important project in which TPAO has received a share is the Shah Deniz gas field -a maritime deposit, which was explored by BP on August 1999 and total reserves of which are estimated at 1.2 trillion m³ of natural gas and 240 million tons of gas condensate.[4] Shah Deniz is strategically important in terms of the supply of alternative sources of gas to European markets. At the beginning, TPAO share in this field consisted 9%. Then, on May 30, 2014, TPAO has increased its stake in the project up to 19% by acquiring a 10% stake from TOTAL.[5] Thus TPAO has become one of the main shareholders in this field.

The development of Shah Deniz under the framework of Stage-1 was already initiated. Gas which produced from this field is exported to Georgian and Turkish markets. Extraction of the Stage-2 is expected in 2018.

TPAO is also involved in another consortium for exploitation of energy resources in Azerbaijan. This company has a 10% stake in the consortium to develop the Araz, Alov and Sharq offshore field.[6] The deposit reportedly holds around 7 million barrels of oil and 400 billion cubic meters of natural gas. The field has not been developed to this day because of disagreement which was took place between Azerbaijan and Iran on August 22, 2001.[7] Iran believes that these deposits are located in its territorial waters. Because of this, exploitation is not started until today.

Cooperation between Turkey and Azerbaijan in the energy has a multi-faceted structure. One of these areas is transport. Thus, these states are also cooperate in transportation of energy sources to the world markets. For example, oil from the Azeri, Chirag and Guneshli fields has exported through Georgian and Turkish territories. The oil is pumped from Sangachal Terminal via Baku-Tbilisi-Ceyhan pipeline, a total volume of which is 50 million tons, to the world markets.[8] For the first time talking on this project started in 1992. Later it took a concrete shape and, on March 9, 1993 in Ankara, Turkey and Azerbaijan signed a framework document on the construction of the Baku-Tbilisi-Ceyhan pipeline. On October 29, 1998, presidents of Azerbaijan, Turkey Georgia, Kazakhstan and Uzbekistan signed Ankara declaration, affirming the importance of this pipeline. The U.S. energy secretary Bill Richardson was also participated during signing ceremony.[9] At last, the final decision on its construction was made, on November 18, 1999 during the OSCE Summit in Istanbul, when presidents of U.S., Azerbaijan, Turkey, Georgia and Kazakhstan have signed a document confirming the support of these states for the construction of the Baku-Tbilisi-Ceyhan pipeline.[10] The share of TPAO in this pipeline, whose construction began in 2002 and ended in 2005, is 6.87%.[11]

The implementation of the Baku-Tbilisi-Ceyhan oil pipeline was also made it easy to construct another transport pipeline- South Caucasus gas pipeline or also known as Baku-Tbilisi-Erzurum gas pipeline, which links to the markets in Georgia and Turkey and carries the Azerbaijani gas from the Shah Deniz field. Construction of the Baku-Tbilisi-Erzurum pipeline was started on February 27, 2003 and ended in on December 13, 2007. TPAO has also received a share in this project, which consists 9%.[12]

After the construction of this pipeline, Turkey began receiving Azerbaijani gas annually in the amount of 6.6 billion cubic meters. It should be noted that the Azerbaijani gas is cost less than gas, which is exported by other major suppliers to the Turkish market- Russia and Iran. As of January 2015, the Azerbaijani gas price was $ 335 per thousand m3. For comparison, the price of Russian gas at that time was already 425 dollars per thousand m3.[13] The most expensive gas supplied from Iran: Turkey pays to this $ 490 per thousand m3.[14]

In general it can be stated, that the participation in all of these projects in Azerbaijan became the main TPAO activities abroad. In the period from 1994 to 2012, this company invested in the Azeri, Chirag and Guneshli project $ 2.3 billion. Also as part of its obligations aroused from this project, TPAO has paid to the Azerbaijani budget $ 650 million. Overall, TPAO invested in all the projects in which it participates in Azerbaijan about $ 3.4 billion. Income of this company for the same period amounted to $ 5.4 billion. TPAO is the largest Turkish public investor in Azerbaijan.[15]

SOCAR and its presence in the Turkish market

Azerbaijan’s state oil company SOCAR is also provides great contribution to the energy cooperation between the two countries. The first step in the vigorous activity of the company in Turkey was made in 2007 when SOCAR President Rövnaq Abdullayev and chairman of the Turkish oil company Turcas Erdal Aksoy signed a protocol on establishment of a joint company. One of the milestone events in this regard was that alliance between SOCAR Turcas and Injaz acquired 51% of Turkey’s largest petrochemicals company Petkim Petrokimya Holding, which manufactures plastic packaging, fabric, PVC, detergents and is the only Turkish producer of such products.

Lately, SOCAR through its offices in Turkey, SOCAR Turkey Enerji A.Åž and SOCAR International DMCC OGG acquired an additional 10.32% of the shares of this company, bringing its stake in the company to 61.32%. Annually, Petkim Petrokimya Holding production covers about 25% of the market needs in Turkey.[16] With the SOCAR‘s investments to the company, market share of this company in Turkey will increase from 25% to 40%.[17]

Participation of SOCAR in Petkim Petrokimya Holding is prompting further investment in Turkey. On October 25, 2011, during the visit of Azerbaijan President İlham Əliyev in Turkey, the groundbreaking ceremony of a new Star oil refinery was held in Aliaga (near Izmir), which projected capacity of production, is up to 10 million tons of oil annually. This plant will provide the necessary raw materials for Petkim Petrokimya Holding Company. The total cost of this refinery will be more than five billion dollars. It is expected that the first production at the plant will be obtained by the end of 2017.[18]

Along with the construction of this plant, the largest container port in Turkey, with a capacity of 1.5 million TEU has been constructed near Izmir. The project will cost $ 400 million. Completion of construction of this port is planned in July 2015.[19] Some foreign investors have also expressed interest in participating in this project. The investment company Goldman Sachs signed a contract with SOCAR Turkey Enerji in order to buy 30 % stake in the company Petlim Limancılık A.Ş., which is owned by the Petkim Petrokimya Holding.[20]

Another important energy project, which is carried out by both countries, is the construction of Trans-Anatolian gas pipeline – TANAP, transport corridor to supply natural gas from Azerbaijan’s Shah Deniz field to Turkey and Europe.[21]

It is expected that the first stage of the TANAP pipeline, length of which is 1841 km will be completed in late 2018. TANAP pipeline runs through the territory of Turkey from its border with Georgia in the east to the border with Greece to the west.

At the initial stage through the pipeline will transport 16 billion cubic meters of gas: 6 billion cubic meters of Azerbaijani gas will be sold directly in the Turkish markets, while 10 billion cubic meters, will be further transported to the markets of South-Eastern Europe. Already in 2023 the pipeline capacity will be increased to 23 billion cubic meters, and in 2026 its volume will reach 31 billion cubic meters.[22] The project will invest about $ 10-11 billion. The consortium for the construction of the pipeline includes SOCAR, whose share in the project is 58%, Turkish – BOTAÅž with a 30% stake and British energy giant BP – 12%.

On March 17, 2015, in the district of Selim in the Turkish province of Kars with the participation of the presidents of Turkey, Recep Tayyip Erdoğan, Azerbaijan İlham Əliyev and Georgia Giorgi Margvelashvili held an official ceremony of the TANAP construction.

In general, it is worth noting that in the face of Azerbaijan SOCAR is the largest foreign investor in Turkey, and future investment will reach $ 20 billion. In turn, SOCAR Energy Turkey, which is a subsidiary of SOCAR in Turkey, claims to be the largest industrial companies in Turkey, whose total turnover in 2018 reached $ 15 billion, and in 2023 – $ 30 billion.[23]

Conclusion

Energy security is a key task for any country in the world today. This goal is relevant both for countries which not having their own considerable energy sources and for energy producers and exporters. Energy cooperation between the two countries is developing successfully, and this aspect is the impetus for the further deepening of relations not only in the energy sector, but also in all the others. With regard to energy cooperation between Turkey and Azerbaijan, we are faced with a successful synergy between producer and consumer. Turkey has an opportunity to purchase natural gas from alternative sources and at an affordable price, while Azerbaijan has the ability to export oil and gas, as the Turkish market, and through its territory to the world markets

This mutually beneficial cooperation is very important for both countries. In this case, energy relations are not limited to supplies from Azerbaijan and transportation through Turkey. Two states have formed synergy in energy relations, which have a factor of influence on the development in other areas. In this sense, energy factor plays a very important role in the implementation of foreign policies of both countries. Experience shows that cooperation between Turkey and Azerbaijan contributes to the success of their achievements. While foreign policy priorities are different, simultaneously they are not contradictory and do not compete with each other. Therefore, the combined effect of allowing each of the states more effectively achieves its national interests.

It is worth noting that this process is dynamic and has a vision for development. Further cooperation between Azerbaijan and Turkey in the energy sector also creates the conditions for obtaining benefits for both countries. The development of major international pipeline projects will allow Turkey to become an energy hub, receive political and economic dividends at the regional level. At the same time, Azerbaijan, diversifying gas supplies, has access to the European gas market. National company SOCAR will have the opportunity to invest in the region’s economy. This will allow it to strengthen its position as major international oil and gas company and for consumers, consistently import gas from an alternative source, generate additional revenue and create new jobs.

[1] â—‰ “This work was supported by Hankuk University of Foreign Studies Research Fund of 2015”

[2] Rovshan Ibrahimov, “Azerbaijan Energy History and Policy: From Past Till Our Days”, Rovshan Ibrahimov (ed.), Energy and Azerbaijan: History, Strategy and Cooperation, (Baku, SAM, 2013), p. 24.

[3] Rovshan Ibrahimov, “Azerbaijan Energy History and Policy: From Past Till Our Days”, p. 25.

[4] Rovshan Ibrahimov, “Azerbaijan Energy History and Policy: From Past Till Our Days”, p. 26.

[5] Aynur Jafarova, “TPAO ups Stake in Shah Deniz Project”/ Azernews/, (May 30,2014), retrieved April 6, 2015, from http://www.azernews.az/oil_and_gas/67564.html.

[6]Yurtdışı Arama ve Üretim Faaliyetleri, Official site of TPAO,  http://www.tpao.gov.tr/tp5/?tp=m&id=29

[7] Ровшан Ибрагимов, К Истории Азербайджанско-Иранских Отношений: Взгляд из Баку/Caspiania/ June 2, 2014/ retrieved April 6, 2015, from  http://www.caspiania.org/2014/06/02/k-istorii-azerbajdzhansko-iranskix-otnoshenij-vzglyad-iz-baku/.

[8] For More Information: Rovshan Ibrahimov, “Azerbaijan’s Strategy for the Diversification of Energy Transport Routes”, İhsan Bal&Selçuk Çolakoğlu (ed.), USAK Yearbook of Politics and International Relations , Volume 6, (Ankara:USAK, 2013), pp. 175-192.

[9] “Timeline of the Baku-Tbilisi-Ceyhan Pipeline”, Huriyet Daily News, July 13, 2006, retrieved April 7, 2015, from http://www.hurriyetdailynews.com/default.aspx?pageid=438&n=timeline-of-the-baku-tbilisi-ceyhan-pipeline-2006-07-13.

[10] Steve Le Vine, “The Oil and the Glory: The Pursuit of Empire and Fortune on the Caspian Sea”, (New York: Random House, 2007), p. 356.

[11] “Turkish Petroleum BTC Ltd. (TPBTC)”/ Official site of TPAO/ retrieved April 7, 2015, from http://www.tpao.gov.tr/tp2/sub_en/sub_content.aspx?id=68.

[12]Ровшан Ибрагимов, “Энергетический Потенциал Азербайджана: Может ли Он Быть Использован Как Альтернатива России?”/Eurasian Home/ December 19, 2006, retrieved April 8, 2015, from http://www.eurasianhome.org/xml/t/expert.xml?lang=ru&nic=expert&pid=905.

[13] Александр Лабыкин, “Турция Торгуется за Российский газ”/ Expert Online/ January 26, 2015, retrieved April 7, 2015, from http://expert.ru/2015/01/26/turtsiya-torguetsya-za-rossijskij-gaz/.

[14] “Turkey Eager to Buy More Iran Gas”/Presstv/ retrieved April 7, 2015, from http://www.presstv.ir/Detail/2015/04/07/405133/Turkey-eager-to-buy-more-Iran-gas.

[15] “Turkey`s TPAO Invested $3.4bn in Azeri Projects,”/Azernews/ March 14, 2012, retrieved April 7, 2015, from http://www.azernews.az/oil_and_gas/42141.html.

[16] “ГНКАР Намерена Приобрести Нефтеперерабатывающий Завод в Европе”/1news.az/ September 25, 2008, retrieved April 8, 2015, from  http://www.1news.az/economy/20080925104535367.html.

[17] Ф. Асим, “ГНКАР Собирается Приобретать НПЗ в Европе,”/Zerkalo/ September 27, 2008, retrieved April 8, 2015, from http://www.zerkalo.az/rubric.php?id=36347.

[18] “Another Refinery to be Built in Turkey”/Oil and Gas in Eurasia/, March 20, 2015, retrieved April 8, 2015, from https://www.oilandgaseurasia.com/en/news/another-refinery-be-built-turkey.

[19] Эмиль Исмайлов, “Энергетический Вектор Азербайджан-Турция: от Каспия до Европы”, /News.az/, March 25, 2015, retrieved April 8, from  http://news.day.az/economy/565909.html.

[20] “Стало Известно, Когда Закончится Мегастройка SOCAR в Турции”/Day.az/ May 23, 2015, retrieved April 9, 2015, from http://news.day.az/economy/565543.html.

[21] Ровшан Ибрагимов, “Газовая Политика» Азербайджана как Страны без Выхода в Мировой океан»/1news.az/ May 26, 2015, retrieved April 9, 2015, from http://1news.az/analytics/20120526014613059.html.

[22] Ильхам Алиев: “«Шахдениз» Является Единственным Ресурсным Источником для «Южного газового коридора»”/1news.az/ March 18, 2015, retrieved Arpil 9, 2015, from http://www.1news.az/chronicle/20150317072707068.html

[23] “Энергетический вектор Азербайджан-Турция: от Каспия до Европы”/Day.az/ March 25, 2015, retrieved Arpil 9, 2015, from http://news.day.az/economy/565909.html