Turkey: Management of natural gas project criticized over high costs, non tranparency

Turkey: Management of natural gas project criticized over high costs, non tranparency
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Considering high CDS rates, the investment of over $8 billion and technical risks involved require a minimum of 20-22% internal rate return, a former BOTAS official has said.

The former head of the natural gas purchasing department at Turkey's state-owned crude oil & natural gas pipelines & trading company BOTAS criticized the way the Black Sea natural gas project is delivered by authorities.

After a commissioning ceremony attended by President Recep Tayyip Erdogan yesterday, Ali Arif Akturk, currently a senior official of opposition Democrat Party (DP), said in Twitter:

"They are now investing some $8.5-9 billion in a non transparent way in the Black Sea natural gas project. This money comes from tax payers and should be managed transparently. Besides, the cost of this money is very high. Considering that the credit default swap (CDS) for the country is around 7% and the Treasury borrows at an interest rate of 9.5%, the $8-9 billion to be spent by the investor TPAO [state-owned Turkish Petroleum Corporation] and the technical risks involved require a minimum of 20-22% internal rate return, and the final decision for investment should have been taken accordingly."

Turkey's former permanent representative at OECD, Mithat Rende, had earlier criticized Turkish authorities over their efforts to start commissioning of natural gas before the elections, despite higher costs.

Stating that an early commissioning in 2023 would have a symbolic significance while it would be more proper to wait till 2026, Rende had said:

"They want to start commissioning before the elections, but this will further raise the costs. They spend a lot of money for early gas, through operations on a round-the-clock basis."

President Erdogan boasted yesterday: "The average period of time required for commissioning natural gas after its exploration is six to seven years globally, but on our pace we made it in less than three years."

Rende had also underlined that many more wells should be drilled in the next three years:

"According to statements by the minister of energy, the reserves are estimated to be 710 billion cubic meters. But 58 billion cubic meters have been confirmed so far. This is not an amount that matches Turkey's annual consumption, it's not actually a big reserve. However, work is in progress, and while 10 wells have already been drilled, there's got to be a further thirty by 2026."

Journalist Bulent Falakoglu said in independent daily Evrensel that the recent commissioning of the Black Sea gas would not signify a step towards Turkey's energy independence, as the amount to be extracted daily is 3 million cubic meters in the first phase, and it may reach 6.5 million cubic meters by September, with new wells in service.

"This is insignificant considering that Turkey's annual consumption is 55-60 billion cubic meters," he said, adding: "The objective is to step up production to 10 million cubic meters per day, and continue to raise it till 2030. It is projected that the production will slow down after 2030. It will eventually drop down to 1.5 million cubic meters per day."

Citing Turkey's current natural gas contracts with Algeria, Iran, Russia and others, he asked:

"Will they be able to say to these countries, 'We won't buy gas from you anymore,' and even if they can't, will they at least be able to negotiate for lower prices saying 'Now I have my own gas?' We don't yet have answers to such questions, we have only a marketing of dreams.

He added that the commissioning of Black Sea gas did not mean lower prices in the domestic market either, because of the uncertainties in production costs.