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FEATURE: Turkey's rising Sakarya reserves could shake up regional gas market

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FEATURE: Turkey's rising Sakarya reserves could shake up regional gas market

Highlights

Sakarya field upgraded to 405 Bcm on Oct. 17

Could free up more Azeri gas for transit to Europe

Questions still remain over field's viability

Istanbul — The announcement on Oct. 17 that Ankara was increasing the estimate of reserves in its newly discovered Black Sea Sakarya gas field to 405 Bcm from 320 Bcm should go some way in ending questions about the field's viability.

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If accurate, the estimated reserves promise both to make a sizable dent in Turkey's existing gas imports and have a knock-on effect beyond its borders.

Sakarya's development would certainly reduce the potential Turkish market for gas from existing pipeline suppliers Russia, Iran and Azerbaijan, and potential suppliers like Iraqi Kurdistan and even Israel.

And according to announcements, there is a possibility that the potential reserves could increase further with drillship the Fatih due to drill a second well -- dubbed Turkali 1 -- at another location in November, and a second drillship, the Kanuni, expected to join it by the end of 2020.

Turkish President Recep Erdogan has said first gas from the field will be delivered to Turkish consumers by end of 2023.

A market for the gas certainly exists despite falling Turkish gas demand, having reduced imports by 18% over the two years prior to the COVID-19 pandemic, and by a further 4% in January-July this year.

Contracts for 15.9 Bcm/year of Turkey's 57.9 Bcm/year long-term import portfolio are due to time out between 2021 and 2022, of which only one contract for 6.6 Bcm/year with Turkey's close ally Azerbaijan is certain to be renewed.

For most of the past two decades, the bulk of gas imports have been used for power generation but since 2017, gas demand for power generation has fallen.

Government policy has also been to reduce gas imports and pressure Turkey's pipeline suppliers to reduce prices and ease take-or-pay terms.

Coupled with imports of cheap spot LNG -- expected to account for 35% of Turkey's gas imports this year compared with 29% last year -- the policy appears to be working.

Imports from Turkey's former main supplier Russia in the first seven months of this year totaled 5.52 Bcm, down 40% on the same period in 2019.

Impact on gas transit

The discovery of the Sakarya field -- meaning likely reduced Turkish demand for imported gas -- could also make more gas available for transit to markets in southeast Europe.

The Russian TurkStream pipeline potentially faces increased competition from gas transiting Turkey from existing pipeline suppliers Azerbaijan and Iran, and also LNG, all of which could be transited to markets in southeast Europe and beyond.

By the end of this year, Turkey is expected to have three functional pipelines that can be used to transit gas to Europe.

An underused 8 Bcm/year interconnector to Greece already exists, which with the completion of other regional interconnectors, will allow gas flow through the Balkans.

By the end of this year Azeri gas is expected to be flowing through the 31.5 Bcm/year TANAP and the 10 Bcm capacity TAP pipelines via Turkey to Italy.

Turkey is also expected to realize the reversing of flow through the Malkoclar/Strandzha interconnection to Bulgaria.

This in addition to Turkey exiting the Marmara LNG terminal and a planned new floating storage and regasification unit, expected to be operational by the end of 2022, both connecting to existing transit lines, and with a planned connection to TANAP.

Questions over Sakarya remain

Ankara remains bullish over the new gas find, even though critics have questioned a number of issues, not least confirming reserves on the basis of a single well, announcing that the field will be developed without an experienced international partner, and the promise to deliver gas to Turkish consumers by 2023.

While further wells are planned, no clear drilling program has been confirmed beyond a second Turkali-1 well and the planned arrival of a second drillship.

There is also no indication of how Ankara plans to develop the estimated 170 km of offshore pipeline to deliver gas onshore -- a difficult and highly expensive process.

There has yet been no published costing of the field development and pipeline to confirm whether the gas delivered will be competitive against spot LNG cargoes.