1. Contribution of new supply sources and transit routes for establishing a TR gas hub
Dr. Cenk Pala, TAP Government Affairs Advisor Turkey

2. OUTLINE Turkey’s Excellent Geographical Location on Gas Map
Short History of 4th Gas Corridor
TANAP/TAP Opening up the Southern Gas Corridor
Current Supply Sources to Turkey With Only Small Idle Capacities
Turkish Natural Gas Market is Tight
Turkish Natural Gas Demand and Supply Developments
Import Projects to Turkey/Europe – Fundamental for Becoming a Gas Hub
Liberalising Turkish Natural Gas Market Is Indispensable
The Answer
The answer is on the title of my speech is yes, but when and how?
I will structure my views on that issues as follows:

3. Turkey’s Excellent Geogrophical Location on Gas Map
Turkey is surrounded by vast natural gas reserves
Azerbaijan
Reserves : 0.9 tcm
(Total share : ~0.5%)
Consumption : 8.5 bcm
Production : 15.6 bcm
Russia
Reserves : 32.9 tcm
(Total share : ~17%)
Consumption : 416 bcm
Production : 592 bcm
..but becoming a real gas hub will require more: there is a stoney way to first become a gas corridor and then develop to a gas hub
Turkmenistan
Reserves : 17.5 tcm
(Total share : ~9.3%)
Consumption : 23.3 bcm
Production : 64.5 bcm
Turkey is surrounded by
63%
of World NG Reserves
Iran
Reserves : 33.6 tcm
(Total share : ~18%)
Consumption : bcm
Production : bcm
Iraq
Reserves : 3.6 tcm
(Total share : ~1.9%)
Consumption : - bcm
Production : 0.8 bcm
The starting points:
TR already represents the 4th largest gas market in Europe
TR is located in between huge gas reserve regions and European consumption markets with high gas import needs
Algeria
Reserves : 4.5 tcm
(Total share : ~2.4%)
Consumption : 30.9 bcm
Production : 81.5 bcm
Israel
Reserves : 0.9 tcm
(Total share : ~0.5%)
Consumption : 2.6 bcm
Production : 3 bcm
Qatar
Reserves : 25.1 tcm
(Total share : ~13.4%)
Consumption : 26.2 bcm
Production : 157 bcm
Source: BP Statistical Report 2013

4. History: Gas to Europe – Southern Route
Downstream
Upstream
DISQUALIFIED IN FEB. 2012
Gas from
Caspian Region
Azeri,
Turkmen etc...
Midstream
Marmara Sea Crossing
IGI
ITG
Adriatic Sea Crossing
Gas from Middle East Iran, Iraq, Egypt,
Syria etc...
Greece Section
DEPA)
Turkish Section
(BOTAŞ)
Botaş, Depa, Edison Gas
In total 12 bcm : Greece (3.6) & Italy (8)
Start with late 2006 to reach plateau capacity in 2012

5. SCALED DOWN AS NABUCCO WEST IN 2012
Gas to Europe - NABUCCO the ORIGINAL
Azerbaijan
10-15 bcm/y
Iran
20-30 bcm/y
Iraq
10 bcm/y
Syria/Egypt
6+2 bcm/y
SCALED DOWN AS NABUCCO WEST IN 2012
Botaş, Bulgargaz, Transgaz, MOL, OMV Gas
25-31 bcm target market
Start with 2011

6. TANAP/TAP Opening up the Southern Gas Corridor
TANAP and TAP supports the EU’s initiative to enhance Europe’s energy security by connecting to new sources of natural gas in the Caspian Sea
TANAP and TAP will be the first pipeline to open the Southern Gas Corridor
Pipeline Construction
TAP Selection
TANAP/TAP will be the first pipelines to open up the Southern Gas Corridor to transport gas from Shah Deniz 2 to Turkey and EU countries
FIDs have been taken 17 December last year
Both pipelines support the EU initiative to enhance Europe’s energy security by connecting to new sources of natural gas in the Caspian Sea Region
6 bcm/a are sold to Turkey, 10 bcm/a to EU countries
So the first step towards a gas hub is taken ; but becoming a real gas hub will require more: there is a stoney way to go from a gas corridor to a gas hub
Let’s have a closer look into the Turkish gas market
Q4 2013
Resolution
to Construct
Q4 2013
Shah Deniz II
FID
End of 2014
Final Contract
Award
Jan 2019
First gas
TAP starts
operation

7. Southern Gas Corridor
Complete Value Chain - investment of approx. USD 50 bln 8 6 4 7 3 5 1 2
1. Drilling of wells
2. Offshore production
3. Onshore processing Sangachal Terminal
4. SCP
5. TANAP
6. TAP
7. Expansion of Italian network (SRG)
8. Further transport to western Europe
Crossing 6 countries – 4,000 km; more than 10 energy companies involved

8. TAP's key features ? ? ? Aligned with EU’s energy policy objectives
Designed to expand from 10 to 20 bcm (plus) per year
Built-in physical reverse flow and potential gas storage
Connecting directly to TANAP on the Turkish-Greek border
Interconnection with various existing and proposed pipelines providing energy security in South Eastern Europe
Providing Bulgaria with a new source of gas through IGB or Kula-Sidirokastro Interconnector
Delivering gas and interconnecting to multiple markets in Western and Central Europe ? ? ?
Title, Revision Number, Confidential/Internal/External

9. Current Supply Sources to Turkey with Only Small Idle Capacities
Turkey has access to major supply sources through 4 import pipelines and 2 LNG regasification terminals.
WEST LINE
- BOTAŞ bcm
- Private-I bcm
- Private-II bcm
AZERBAIJAN
- BOTAŞ bcm
- SOCAR* bcm
BLUE STREAM
- BOTAŞ bcm
ALGERIA
- BOTAŞ bcm
NIGERIA
-BOTAŞ bcm
IRAN
- BOTAŞ bcm
LNG
(Spot )
Current specifics of TR gas market
4 pipeline gas import points
2 LNG import facilities
58 % share of Russian gas, 12 % share of AZ, % 20 % Iran and 10 % LNG from Algeria and Nigeria
But TR gas market faces some challenges:
Tight supply/demand balance with deceisively growing gas demand
No seizable free import capacities upstream the inlet points
Insufficient transport and storage infrastrucuture within TR
This means: TR needs significant domestic investments and new import contracts to satisfy own growing gas demand
Let’s have a closer look to the figures:
*Note: 1.2 bcm is a volume transfer from Azeri BOTAŞ contract to Socar.

10. Peak Daily Demand vs Total Daily
Turkish Natural Gas Market is Tight
Long term import contracts have become insufficient to meet winter demand
bcm
*All Values are in standard cubic meters at 9155 kcal/m3
Blue Stream
West Line
Iran
Azerbaijan
Algeria
Nigeria 17 31 36 37 35 38 44 45 46 21 23 27 48
Turkish Natural Gas Demand
LTC Supply 2013
Power
Industry
Residential
Peak Daily Demand vs Total Daily
Send Out Capacity
mcm
Daily Peak Demand
Capacity
193
215
TR gas consumption had a tremendeous growth, on average by 10 % last 10 years
And no new supply contracts were entered into
Turkey is currently short on gas: on an annual basis it’s tight, winter supplies are insufficient as December ’13 and February ’14 events have shown
Reasons are:
- too low daily max. import volumes
- insufficient infrastructure, especially with regards to storage (2.6 bcm working gas representing only 5 % of demand)
- facing a significant temp. dependent demand
What will happen now?
Supply problems were already faced during peak demand periods due to insufficient supply and infrastructure capacites
Source: EMRA, Turkey

11. Turkish Natural Gas Demand and Supply Developments
LNG, Azeri SD Phase II, Iraqi, Black Sea and Israeli volumes will compete to fill the gap between demand and supply after 2019
bcm
Demand
57.9 bcm
51.9 bcm
Contract totals if GazProm and Sonatrach contracts extended
Contract totals if Shah Deniz I is extended. 6bcm Shah Deniz II volume reflected as of 2019
Demand will further increase, on lower level than in the past and capped by growth in availibility of supplies
Drivers for consumption growth are GDP and population growth as well as increase in electricity consumption which will at least partially be fuelled by natural gas.
And on the supply side? There is a huge gap building up; how to close that?
Note: Values are in 9155 kcal/m3
Source: IHS CERA, 2013

12. Import Projects to Turkey/Europe – Fundamental for Becoming a Gas Hub
Iraq
10-20 bcmpa
Azerbaijan
16 bcmpa
Israel
8-10 bcmpa
Black Sea Gas
6 bcmpa
IMPORT PROJECT
EXPECTED START YEAR
END YEAR
VOLUME
Azerbaijan (Shah Deniz II)
2019
2044
16 bcmpa
Iraqi Gas
2017
2037
10-20 bcmpa
Israeli Gas
2039
8 to 10 bcmpa
Black Sea (Romanian) Gas
6 bcmpa
Only firmly contracted new volumes are the 6 bcm/a from SD II, not arriving before 2019.
Plus bcm/a from KRI – according to statements of the TR Government – but facing some political challenges to be overcome
But as described before, TR is in a lucky situation being surrounded by plenty of gas reserves
The key is mobilization of these reserves. Further candidates for supplies are Israel offshore gas, Black Sea volumes, further volumes from AZ, Turkmenian and maybe additional Iranian gas
This mobilization will not happen to the extent needed unless the TR gas market will be fundamentally liberalized.

13. 2020 PIPELINE TARGETS OF TURKEY-BOTAS
Transbalkan
14 BCM
Azerbaijan
Türkmenistan
Kazakhstan
30-40 BCM
Blue Stream
16-32 BCM
TR Gas Demand
Iran
30-40 BCM
SUPPLY POTENTIAL
TRANSIT POTENTIAL
65-70 BCM
BCM
BCM
LNG
12 BCM
Egypt-Iraq
15-20 BCM

14. Liberalising Turkish Natural Gas Market is Indispensible
Current Framework
Major Requirements
Subsidized Tariffs are set by the government, no market fundamentals / cost reflectiveness
- Gas costs to be reflected on prices.
- Complete abolishment of regulated tariffs
BOTAŞ controls 80% of wholesale volumes and import points
- No restrictions for gas imports for private players independent of the source
Insufficient infrastructure
- Attractive and reliable legal/regulatory framework to incentivize necessary infrastructure investments such as underground storages an LNG receiving terminals
Priority to BOTAŞ
Non-discriminatory access to infrastructure

15. THE ANSWER
Turkey has an excellent potential to become a major European gas hub
but not expected before 2025 ….
and not w/o starting now to do its homework concerning gas market liberalization thus providing a stable regulatory framework to
attract foreign investments and new supply sources
Main challenges within the next years for TR on the way to establish gas hub/exchange:
The prerequisite for a workable hub/exchange is liquidity.
This can be secured with enough supplies, means freeing-up of gas imports is a must.
Cost based gas pricing mechanism should be introduced
All kind of subsidies should be lifted-off immediately. .