Huge Gas Find Lends Turkey More Ammo in Contract Talks

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Turkey’s Black Sea Sakarya gas discovery looks increasingly like the real deal. In June, fresh drilling at the Sakarya North offshore prospect prompted state-owned TPAO to boost in-place reserve estimates to 540 billion cubic meters (19 trillion cubic feet) from 405 Bcm. And success with the initial test well suggests first-phase output of 10 million cubic meters per day (3.65 billion cubic meters per year) is achievable. Subsequent appraisal wells and an offshore exploration program west of Sakarya should swell reserves further. Major success could allow TPAO to plan for even higher peak output than the 14.6 Bcm/yr now targeted for Phase 2. Given minimal domestic output and demand of 45 Bcm/yr-50 Bcm/yr, political boasts that the field will turn Turkey into a net energy exporter appear exaggerated (WGI Aug.26'20). But it will definitely be transformational. A successful full-field development will put a big dent in the hefty energy import bill. It will be the first deepwater Black Sea project, potentially opening up a new hydrocarbons province. If TPAO remains in the driving seat, Sakarya will also represent a quantum leap in the scale of project it has operated. Lever in Negotiations Moreover, even before production starts, the resources have "reset Turkey’s ability to hold a firm negotiating position in gas contract renegotiations,” says Ashley Sherman, upstream director at consultancy Wood Mackenzie. “We are already seeing this in talks with Azerbaijan, its most strategic of bilateral partners.” Ankara's 6.6 Bcm/yr Azeri contract expired in mid-April and other expiries loom. A deal for 1.2 Bcm/yr of Nigerian LNG split between state-run Botas and private firms is expected to end in October, and contracts for 8 Bcm/yr of Russian gas by the end of the year. Turkey is seeking shorter, cheaper deals (WGI Mar.24'21). It has replaced some of the Azeri contract gas by booking 7 MMcm/d of Azeri spot gas from August to the end of December, says Emre Erturk from Istanbul-based consultancy EnerjiIQ. Talks continue on the Russian contracts. “I don’t expect an instant agreement due to the necessity of a political settlement between Turkey and Russia," Erturk says. Another source says Russia probably wants to renew contracts with well-connected firms, and companies such as Botas, Bosphorus Gaz and Royal Dutch Shell will likely get priority. Turbo-Charged TPAO TPAO is not waiting on a firm recoverable reserves figure before starting development. Declaring that the "countdown to Black Sea gas continues," Energy Minister Fatih Donmez said last week that construction has begun of a 169 kilometer (106 mile) subsea pipeline from Sakarya to an onshore processing facility at Filyos on the northwest Anatolian coast, where foundations have been laid. Around 10 production wells will be needed for Phase 1. The company's target of first gas in 2023 may be overambitious. Even discounting the project's pioneering nature, that “would be up there with the most positive production execution we have seen for deepwater projects,” Sherman says. Still, TPAO has some advantages. Deepwater location aside, Sakarya is not a complex development: It has no associated liquids and hydrogen sulfide is not expected to cause problems. Its phased nature will help. And as Sakarya is of "immense political and economic importance to the country,” it will benefit from the full backing of the state. Finally, TPAO will use its own drillships and “will be able to benefit from the deeply experienced Turkish supply chain,” Sherman says. ‘Made in Turkey’ Since the find was announced a year ago, there has been a buzz about who might join TPAO as a partner. Reports of discussions with Exxon Mobil and Chevron were incorrect. It would seem to make sense to bring in a partner for later stages, given TPAO’s inexperience with projects of this size, but signs are that the Turkish company will go it alone for Phase 1. This is partly because of resource nationalism and national prestige. But Sakarya looks to be a good project. At the time it was discovered, much was made of Exxon's failure to develop its Neptun find in the Romanian sector of the Black Sea. But this was largely down to financial and regulatory challenges in Romania, not geological complexity, Sherman says. At Sakarya, “per unit production costs look to be highly competitive. That is because of scale and then because of the nature of the Turkish taxation system,” with buoyant domestic prices. "In some ways," he argues, "this is advantaged gas." Rafiq Latta, Nicosia Turkey’s Natural Gas and LNG Imports (Bcm) 2018 2019 2020 Jan-May '21 %Chg. From

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