BACKGROUND: On May 30, the Turkish state-owned, oil and natural gas pipeline company BOTAŞ purchased an additional 10 percent share in the Trans-Anatolian Natural Gas Pipeline (TANAP) from the State Oil Company of the Azerbaijan Republic (SOCAR). The new investment increased BOTAŞ’s share in the project to 30 percent. With an initial capacity of 16 billion cubic meters (bcm) and costing US$10.5 billion to build, TANAP will receive gas from Azerbaijan's massive, Caspian Sea Shah Deniz field via the South Caucasus Pipeline (SCP-X) running across Azerbaijan and Georgia.  TANAP will then transport the gas across Turkey to the Turkish-Greek border where it will link with the Trans-Adriatic pipeline (TAP) for delivery to the European Union.  Expected to be fully operational by 2018, Turkey will receive approximately 6 bcm with the remaining 10 bcm intended for the EU.  Since Turkey’s domestic natural gas consumption has more than tripled, jumping from 15 bcm in 2000 to 46 bcm in 2010, the gas delivered via TANAP is of critical importance to the continued functioning of the Turkish economy.

The volume of natural gas transported via TANAP to European markets is expected to increase by one billion cubic meters per year as the second phase of development of the Shah Deniz field reaches full production.  Aside from TANAP’s importance for alleviating Turkey’s domestic demand for natural gas, TANAP has important geo-political ramifications for Turkey as the pipeline will likely transport gas from other regional producers besides Azerbaijan.  In the short term, TANAP also creates the potential for the export of natural gas to the European Union from Turkmenistan and the Kurdish Regional Government (KRG) in Iraq.  Experts estimate that the KRG could export 10 bcm of natural gas to Turkey as early as 2020. In the longer term, should the political obstacles be resolved, TANAP also could deliver natural gas to the EU from Iran and Israel.

With BOTAŞ’s purchase of an additional share of SOCAR’s share of TANAP, Turkey has become Azerbaijan’s economic partner in the strategic enterprise and not simply the geographical outlet point.  After SOCAR, BOTAŞ is now the largest stakeholder in TANAP.  Concurrent with BOTAŞ’s TANAP investment, Turkey's national Oil and Natural Gas Company, Türkiye Petrolleri Anonim Ortaklığı (TPAO), has bought out French energy giant Total’s stake in the Shah Deniz field.  TPAO now maintains a 19 percent interest in the Shah Deniz field, making Turkey Azerbaijan’s primary partner in the production and transportation of natural gas to Europe.

IMPLICATIONS: The Turkish investments in TANAP and the Shah Deniz field were reciprocated by the expansion of SOCAR’s investments and operations in Turkey’s energy and transportation sectors.  SOCAR’s latest investments focus on a new oil refinery and container port that will service the SOCAR-owned Petkim Petrokimya Holding A.Ş., the largest Petrochemicals manufacturer in Turkey.  On June 3, SOCAR Turkey’s CEO Kenan Yavuz announced that SOCAR will invest an additional US$1.5 billion in projects in Turkey by late 2014.  Three days later, SOCAR signed loan agreements worth US$3.29 billion with 23 financial institutions in Istanbul as part of SOCAR’s construction of the new US$5.6 billion STAR oil refinery at Petkim’s petrochemical manufacturing complex on the Aegean coast. As an indication of the importance of the agreement, the Istanbul signing ceremony was attended by the Energy Ministers and Industry Ministers of both Turkey and Azerbaijan, as well as the head of SOCAR and the head of Azerbaijan’s state oil fund SOFAZ.  

Petkim currently accounts for approximately 30 percent of Turkey’s market share for refined petroleum products and is aggressively seeking to increase its market share by replacing imported products with its own products produced in Turkey.  Before SOCAR’s 2008 acquisition of Petkim, the facility employed relatively outmoded technology and itself was dependent on imported inputs, especially fuel, to run its plants.  These deficiencies are being ameliorated by SOCAR’s construction of Turkey’s STAR Refinery as part of the expansion of the Petkim complex.  Built on the Petkim’s Aliağa Complex about 50 km north of Izmir, the STAR refinery will provide Petkim’s plants with feedstock fuel that will enable Petkim to manufacture high value petroleum products at a considerable cost reduction.  Aside from supplying Petkim’s facilities, the STAR refinery will significantly reduce Turkey’s dependency on imported refined petroleum products, particularly in critical sectors such as diesel fuel and jet fuel.  In addition to Azeri Light grade and Urals grade oil from Russia, the STAR refinery will be capable of refining Kirkuk grade crude oil providing Petkim with the capability to manufacture high value petroleum products from crude oil imported from the KRG.  Test production of the refinery will start in early 2017 and it is expected to become operational by 2018.

Along with Turkey’s new refinery, Petkim is constructing a new container port on Turkey’s Aegean coast.  The ‘Aegean Gateway Terminal’ is being built by Petkim on Izmir’s Nemrut Bay at a cost of US$400 million.  The 15.5 meter water depth, state-of-the-art terminal will have a capacity of 1.5 million TEU making it 50 percent larger than Izmir’s current Alsancak port.  Petkim’s port company subsidiary, PETLİM Limancılık Ticaret A.Ş, is managing the construction based on the design specifications of APM Terminals.  The Netherlands-based, world-leading port operator APM Terminals will manage the Petkim container port after construction is completed in 2015.  According to SOCAR’s investment plan, the Petkim port will be able to more easily accommodate 11,000 TEU container vessels than any other port in the eastern Mediterranean, providing faster transit and lower costs than the current facilities at Greece’s Piraeus port. “Nemrut Bay has a strong position to serve Aegean and Mediterranean industries,” stated Kenan Yavuz.  In his comments to the press, SOCAR Turkey’s CEO continued and outlined SOCAR’s strategic vision for the Petrochemical, Refinery, and Port complex, “We plan to make Petkim Port, along with Alsancak Port, the largest integrated port and logistics center in the region and one of the world’s leading logistics centers.”

In addition to TANAP, the STAR refinery, and Aegean Gateway Terminal, the Baku-Tblisi-Kars (BTK) railway will carry an estimated 10 million tons of Chinese goods through Azerbaijan for further transport across Turkey to European markets. The BTK railway is also being constructed to accommodate the shipment of oil exports from Kazakhstan’s Kashagan oil field in the Caspian Sea, the largest oil discovery in the last forty years.  While Turkey and Azerbaijan have already partnered to establish the Baku-Tbilisi-Ceyhan oil pipeline and the Baku-Tbilisi-Erzurum gas pipeline, the mega-projects of TANAP and the BTK railway taken together with the STAR refinery and Aegean Gateway Terminal create an energy and commercial transport corridor bridging Asia and Europe. With the two anchoring supports of this Caspian-Anatolian bridge being Azerbaijan and Turkey, the high-level, economic partnership between the two countries in energy and transportation is creating the framework for wider economic and political cooperation in an emerging Caspian-Anatolian region. 

CONCLUSIONS: With the countries of the Arab Middle East embroiled in unprecedented political turmoil that is straining their relations with Turkey, the continued deepening of Turkey’s partnership with Azerbaijan may be the AKP government’s foreign policy achievement of singular importance for Turkey’s long term geo-strategic position.  In 2010, Turkey and Azerbaijan signed an Agreement on Strategic Partnership and Mutual Support that in some manner resembles the Franco-German 1963 Élysée Treaty of Friendship that created the political mechanism for Franco-German cooperation in the creation of what today is the European Union.  The European integration project was driven foremost by the economic cooperation of the Franco-German partnership.  While no supranational organization equivalent to the 1950s European Coal and Steel Community exists in the Caspian-Anatolian region, a parallel level of economic cooperation in the fields of energy and commercial transport is emerging from the Turkish-Azerbaijani partnership that could become its functional equivalent, with the participation of Georgia and the Caspian littoral states of Turkmenistan and Kazakhstan.  Indeed, the first trilateral summit of the presidents of Turkey, Azerbaijan, and Georgia was held in May 2014 as was the first trilateral summit of the foreign ministers of Turkey, Azerbaijan, and Turkmenistan. (See May 28, 2014 Turkey Analyst) The planned institutionalization of these summit meetings indicate that the Turkey-Azerbaijan partnership has started to serve as the framework for a wider Caspian-Anatolian regional organization.

Micha’el Tanchum is a Fellow at the Shalem College, Jerusalem, and at the Middle East and Asia Units, Truman Research Institute for the Advancement of Peace, Hebrew University. Dr Tanchum also teaches in the Departments of Middle Eastern History and East Asian Studies, Tel Aviv University.  

(Image Attribution: Republic of Turkey Ministry of Foreign Affairs)