Turkeys Energy Market

Turkeys Energy Market

Matthew Medell, Chance Pryor, and Cindy Nguyen
University of Texas at Dallas
Professor Jane E. Salk
IMS 3310.007

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Abstract

Turkey is quickly becoming one of the worlds fastest growing economies, its name has even
been thrown out in comparison to the BRICs, the worldwide leaders in developing economies.
Specifically, the energy sector of the Turkish economy has great potential for growth. Turkey is
strategically located around 70% of the worlds natural energy resources, but it only produces
enough energy domestically to supply 9% of the countrys demand. Of course, this means that
they are importing over 90% of their energy needs from other countries, which is a staggering
amount. Discussions have been under way for a while, and a natural gas pipeline project called
the Turkish Stream has been set in motion to connect Turkey with Russia with a projected
completion date of December 2016. The company behind the construction of the Turkish Stream
is Gazprom, an open joint stock company out of Russia, and the largest extractor of natural gas
in the world. We see a great opportunity to invest in Gazprom and the Turkish Stream project
due to the nature of the company and the growth opportunities in the Turkish energy sector.

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Indicators

A few of the main indicators to focus on when analyzing the state of an economy are
GDP, GDP per capita, real GDP, unemployment rate, population, and inflation. In order to make
an informed decision about possibly investing in a countrys economy, trends and statistics for
these indicators must be well understood. High and increasing GDP and population statistics
coupled with low inflation and unemployment are ideal for growth opportunities. Turkeys
statistics satisfy all of these guidelines, and the data supplied by BMI research group has the
numbers to back it up. For example, GDP will rise to 1,268.7 billion USD projected in 2024
from 799.7 billion USD in 2014. To be precise, the energy sector in Turkey is growing at a rate
of 1.3% annually overall, while natural gas consumption rates are growing at a rate of 2.9%
annually until 2020 (Business Forecast).
Economy
Turkey has rebounded strongly from its own economic crisis in 2001, as well as
rebounded from the recession in 2008. Economic growth in Turkey has not only sustained itself
throughout these hard economic times, but also done so amidst great turmoil in the surrounding
areas, specifically Europe and the Middle East. Turkey has been a bright spot economically in
the region over the past decade, and the data projects that it will continue to be one in the future.
Turkey also enjoys a strategic geographic location as mentioned earlier, surrounded by large
amounts of natural resources, and this location is coupled with an open and increasingly liberal
trade environment. Also, economic reform has strong political support within the Turkish
government, adding another strength to the list of reasons for economic growth opportunity in
Turkey. With the energy production in Turkey projected to remain constant while the

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consumption is projected to increase by 4.7% a year for the next five years, the energy sector in
Turkey poses as a great place for investment.
Trends
Turkey as a country has many trends that make investing in the Turkish Stream a very
enticing proposition. Turkey has a population that is growing, and projected to grow 9.6% within
the next ten years (Business Forecast). This population growth will affect the amount of energy
consumed, as well as the urbanization in Turkey with people moving from smaller rural villages
to bigger urban cities to find work and be able to provide for their families. Infrastructure within
Turkey has an expected growth of 5.8% as well as a 6.2% real growth in the energy and utilities
sectors to account for these factors of population growth and urbanization (Business Forecast).
Turkey currently imports about 60% of its gas from Russia, so the pipeline between the two
countries is a perfect fit (Reed). The high desire for gas in Turkey and the location plans to
transport that very resource is what makes Gazprom so confident that its huge pipeline project
should run through the country.
Risks
When investing in Turkey there are some risks that need to be taken into consideration.
Turkey has a very high security risk and a significant level of political risk. Turkey supports
organizations such as the Muslim Brotherhood, and they have political tension with the
separation of parties within the government, the moderate Islamists, and the Secularists. These
two groups struggle to agree on much of anything, and the Turkish public in general is having a
problem with issues and policies the government is trying to enforce upon them. Another
problem within Turkey is the Kurdish desire for separatism. The Kurds are a group of people that
wish to be independent and are willing to fight for that right. With these risk factors, Turkey is a

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country that could erupt at any moment and turn an investment into a potential bust. One positive
would be the extremely low legal risk in Turkey, where it is extremely easy and fast to start a
business, which could be as quick as six days. All of these risks and factors were considered by
Gazprom and to investors in the pipeline. It would be a disaster if fighting and war were to take
place while the pipeline is being constructed.
Potential
The Turkish Stream project has an extremely high potential when considering all of the
trends and factors at hand. Gazprom is an extremely successful company with a great track
record, and is responsible for the building and completion of the pipeline. Russia would solidify
itself in Turkey, which is an extremely fast growing gas market (Reed). Everything about the
pipeline to Turkey just seems to make sense, such a fast growing market, and in such a tactical
location in conjunction with the buyers that Russia provides to, leads to the high potential that
the pipeline offers. This pipeline would create much lower gas prices within Turkey, which in
turn helps the Turkish economy greatly. Obviously this pipeline project is an extremely huge and
expensive investment due to the length and terrain it would have to travel through, but the
potential it possesses outweighs the risk and costs. Gazprom will make tons of money after the
project is complete and it seems to be a very safe investment. The project will also potentially
create many jobs within Turkey with the pipeline needing to be built and then maintained after
completion, and gas being distributed throughout Turkey from the pipeline. The Turkish energy
economy is ready to boom, and Gazprom is clever enough to take advantage of this via the
Turkish Stream project. With so many positive factors contributing to this pipeline being a
potentially huge success, and with gas being a much needed commodity in Turkey, this pipeline
seems to be a win-win for Gazprom and the Turkish economy.

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Competitive Races

With all the influences measured in risks and potential, we need to reflect the competition
in the energy market surrounding Turkey. With Europes imports accounting 60% total energy
from Russia, the consumption will only continue to rise about 80% in the next 20 years.
Obviously thats an indication of Europes reliance on Russian energy supplies. Yet EU, a
supranational intergovernmental institution, has been dynamically finding alternative sources
efficiently using their energy. EU has therefore, become a strong competitor in the international
energy market besides China and India- the other two strong competitors (Crossroads).
Take in respect that Gazproms Turkish Stream will deter EUs main control of crossborder competition across the region (Crossroads). Excitingly, Gazproms ties with Turkey and
the new energy projects will definitely intensify the competition amongst the country and other
energy rulers of the region, including Iran. Investing in such an extreme race for control of these
energy routes from Turkey has produced rivalry between the regional competitors (Crossroads).
The expert notes that should Europe welcomes the Turkish Stream it could potentially drive
down Europes gas import bill. Some analysts have conveyed that its not the location itself that
makes a suitable fit, but the route of the pipeline itself from Turkey to Russia is strategic
(Dadashova).
Besides the macho power of the EU, the Turkish government has stressed their obligation
to make positive relations with Iran. Iran is the second-largest provider of natural gas to Turkey
after the Russian Federation. Of course the energy sector is not only limited to this. There will be
other initiatives related to meeting Turkey's growing needs (Hurriyet Daily). Even with another
market just a neighbor away, it is who they are targeting not the Turkish Streams market. So
far, we have witnessed that Turkey has been playing a balancing role by allowing Russia to

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engage in their ties to this major pipeline project, even with Russias tight grasp on European
markets. Turkey is able to sustain an equilibrium of attentiveness across the affairs with Europes
and Russias energy politics (Crossroads).

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Conclusion

With deliberation of Turkeys own projected growth as a country alongside the

prospective progression of the energy market, the Turkish Stream will have numerous strides of
being a strong player in energy hub. With a strong economy, impending factors of the everblooming energy industry, and a highly competitive liberal market structure, the investment in
the Turkish Stream will only gain dynamic affirmative results.

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Work Cited

Dadashova, G. (2015, March 15). How's European gas race going? Retrieved April 1, 2015.
Reed, Stanley, and Sebnem Arsu. "Russia Presses Ahead With Plan for Gas Pipeline to Turkey."
The New York Times. The New York Times, 22 Jan. 2015. Web. 29 Apr. 2015.
<http://www.nytimes.com/2015/01/22/business/international/russia-presses-ahead-withplan-for-gas-pipeline-to-turkey.html?_r=0>.
"Turkey at the Crossroads." Editorial. Financial Daily 15 Jan. 2013: n. pag. LexisNexis
Academic. Web. 14 Apr. 2015.
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"Turkey: Business Forecast Report." Business Monitor International Ltd, 1 Feb. 2015. Web. 29
Apr. 2015.
<http://web.a.ebscohost.com.libproxy.utdallas.edu/ehost/pdfviewer/pdfviewer?sid=37cbb
dfe-c5bb-457b-8d9f-8d0b0df246b8@sessionmgr4003&vid=9&hid=4107>.
Turkey said firm on expanding energy, trade ties with Iran despite US criticism.(2011, May 4).
Hurriyet Daily News. Retrieved April 1, 2015, from
http://www.hurriyetdailynews.com/default.aspx?pageid=438&n=turkey-iran-boostenergy-trade-ties-despite-growing-us-pressure-2011-05-04