Exclusive Interview with Mehmet Ogutcu, Chairman, Global Resources Partnership

Back in June 2015 at the Big Gas Debate, The Energy Exchange interviewed Mr. Mehmet Ogutcu. Mehmet serves as chairman of Global Resources Partnership and also leads the Bosphorus Energy Club, an exclusive gathering of senior executives and leaders in finance, energy and politics. Here are his insights on Turkey’s potential in becoming a regional gas hub.

Mehmet Ogutcu photo

Giulia: So, Mehmet, thank you so much for attending tonight the Big Gas Debate here in London. It’s such a pleasure to have you here. I have a couple of questions for you, especially regarding Turkey, that is such an important country currently for the gas market.

Do you feel that Turkey is actually going to become a regional gas hub?

Mehmet: Well, right now it is not a regional gas hub, but it is on the way to becoming a powerful regional gas hub. If you look at the projects currently in for gas or on the drawing board you’ll realise that. Southern gas corridor, which is going to be first Azeri gas from Shakh-Deniz II about 16 bcm of gas, that’s not much.

But this is a forerunner of a greater Southern energy corridor. I meant only gas corridor, but (there will be) the energy corridor. But there’ll be more gas coming from Azerbaidjan’s Nakhchivan and also Absheron and couple of other new gas fields.

And plus one day, if it happens – I don’t think it will happen soon – Turkmen gas might be coming through Azerbaijan to Turkey. And also Iranians, after the sanctions will be progressive and lifted, they are likely to send their gas to high value markets in Turkey, because Turkey is a very attractive gas market, a starting new hub.

And right now we are consuming around 50 bcm of gas. And then, whatever surplus we have, will be sent by pipelines system – infrastructure is in place more or less – to Europe.

Giulia: I actually have a question about infrastructure. So, do you think that all these different projects that obviously are bothering Turkey at the moment, do you feel that any of them are going to overtake over the other? Is Turkish stream going to kill TAP (Trans Adriatic Pipeline) or can they equally survive?

Mehmet: Well, that’s a good question actually. If you look at the international schedule or time table for large-scale projects, 2018 is a critical date for Shell LNG projects to produce LNG more than half of Russian export to Europe. Then you have Tanzania, Mozambique, also Shah-Deniz II coming on stream and sending its gas to Turkey and through TANAP to Europe.

And also Turkish stream, as you mention, is coming into the picture, because, you remember, President of Russia, Putin came to Ankara 2nd of December – I remember very well – he announced the death of South Stream.

And in his next sentence he said he reincarnated the Turkish stream with around 63 bcm of gas: 13 – 14 bcm for Turkish needs, and the rest will be going to Europe through Turkey, not through Bulgaria or other countries as South Stream was supposed to. But what will happen to all this gas coming, because the demand in Europe is low and we don’t expect expansion of demand in Europe. In Turkey we have nuclear power plants coming on stream, and then we have renewables, coal coming to picture, hydro power and LNG projects also going to happen.

So, Turkey could become a real hub, whereby demand and supply could be somehow moderated. And for this what you need is not pipelines crisscrossing Turkey from east to west and north to south. What you need in Turkey, yes, pipeline infrastructure. But also you need legal and institutional certainty, so that investors will feel comfortable. Then you need a financial system, whereby all this arbitrage could take place.

More importantly, Turkey has to pursue a soft power diplomacy, rather than hard power flexing muscles. Geopolitical confrontations are not what investors or producers and consumers are interested in. So, if these conditions come together, I think Turkey is an ideal location geographically, politically and also in terms of its economy being a measure absorber of additional gas, but also sending it to Europe.

But, of course, whatever is happening in that region, you cannot treat it in isolation from what’s happening elsewhere in the world. Look at China. China is also collecting, like Turkey, gas from every direction. Myanmar gas will be coming to Yunnan province from South-East Asia. With Russia, with the agreement signed in Irkutsk, four hundred billion dollars project.

And, then, also from Central Asia, especially from Turkmenistan, where they’ll be getting around 80 – 85 bcm of gas. And more gas through LNG, then domestic shale gas .
Where will this gas go? Is there any infrastructure? Is there also enough demand? Because they also have strong nuclear industry now, renewables. So, gas picture is becoming increasingly complicated.

Giulia: And what about the infrastructure then? How all this different pipelines cost Turkey?

Mehmet: I think pipelines are not an issue. In sixteen months you can build a pipeline, so long as you have a supply at a good price and demand at the end of the market. If you could organise it, I think infrastructure is not a problem. Also some countries like Israel, for example, and also US, they are trying to gasify their economy. Gasification means using more gas in transportation, power generation, industry, and also even in support of renewables. That way you will increase consumption of gas. This could happen only if you have an abundant supply of gas, and you can source cheap gas, because the gas price right now is very high and there’re long-term contracts. Ideally, it shouldn’t be more than 7 – 8 dollars to you.

Giulia: So how do you see the price?

Mehmet: If there is so much supply coming to the market and demand is somehow depressed, I think there will be in an ideal situation – it will be a buyer’s market. And those countries consuming gas will be having a great leverage on suppliers to negotiate the right price.

Giulia: Thank you so much, Mehmet. Thank you for coming tonight.

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