Wednesday, 30 November 2011

Turkey boosts energy security with Chinese deal

China and Turkey have signed a major deal to build a gas storage facility in central Anatolia, underscoring China’s growing investment profile and Turkey’s progress towards secure gas supplies.

Energy security has long been a major headache for Turkey for a number of reasons, from the PKK blowing up pipelines to less headline-grabbing issues like inefficient distribution networks and the slow pace of privatisation.

Lack of adequate storage, particularly for natural gas, has been one of the biggest challenges: without substantial domestic resources Ankara has not felt the need to build up strategic reserves, and has banked on steady import flows instead. But political and commercial volatility as well as Turkey’s soaring energy demand have led to greater emphasis on storage facilities.

The new deal was signed on 29th November with Tianchen Engineering, a major state-controlled firm. It provides for the construction of a 1 billion cubic metre (bcm) underground storage facility near Lake Tuz in central Anatolia. This figure is rather less than initial estimates made by Turkish gas firm Çalık Enerji: their website anticipated storage capacity of 1.4bcm.

The project will take about eight years and cost around $559 million, according to Energy Minister Taner Yıldız, although other reports have the cost at $460 million, provided by a loan from the World Bank agreed five years ago. The Tuz facility will be the second major underground gas storage facility in Turkey, and will bring underground capacity to 3.6bcm – a welcome boost, still only about 5% of annual consumption.

It will also be the largest Chinese investment in Turkey to date, reflecting burgeoning trade ties which reached $20 billion in 2010. Ankara and Beijing plan to bring total trade volumes to $50 billion in four years.

This is an ambitious target, but China has shown strong interest in large-scale strategic projects in Turkey, such as the Tuz facility, so it is quite feasible. Growing partnership between the two – the western and eastern anchors of Eurasia – has manifested itself in military exercises, potential arms deals, and deals to build dams and high-speed railroads. Certainly a relationship to watch.

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