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Turkey’s gas problem: will TPAO need international contractors for Tuna-1 gas operation?

The discovery

In August 2020, President Recep Tayyip Erdogan of Turkey personally announced that Turkish Petroleum Corporation (also known as TPAO) had discovered a major lean natural gas deposit within Turkish territory in the Black Sea.

The find, originally estimated to measure at 320 billion cubic metres (bcm), would represent Turkey’s largest natural gas discovery to date. After spending approximately $41bn on over 45bcm of natural gas in 2019 alone, the Turkish government in Ankara are rightly excited at the prospect of the Tuna-1 discovery. The original estimate of 320bcm would be enough to meet Turkey’s gas demand for up to 8 years, with that figure potentially rising further as Erdogan is scheduled to provide an updated estimate on 17 October 2020.

Erdogan remained firm in reiterating Turkey’s ambition to become a net energy exporter, stating that Turkish Petroleum (TPAO) would be carrying out all drilling operations independent of international help. With TPAO’s lack of experience in deep-water drilling, the question remains as to whether such a plan is feasible. With the global gas and oil industries currently in crisis, as reported by New Europe, “there would be many international companies ready to respond to any calls for engineering or construction tenders”, if Turkey were to need it. Only time will tell, but all interested parties will be asking whether Turkey have the required equipment and expertise to carry out a drilling operation of such an unprecedented scale, or will they be required to hire skilled international workers on temporary contracts?

So, here at ACEpayme we’ve decided to collect in this article the important information regarding Turkey’s Tuna-1 gas operation, as we believe the development could massively influence job prospects for international contractors as well as the landscape of the European energy industry as a whole. We’ll attempt to answer the important questions relating to Turkey’s desire to perform the operation independently:

· Do Turkey have the expertise/manpower to exclusively undertake Tuna-1 project?

· Do they have the necessary equipment?

· To what extent will they need help?

· In which areas will they need help?

Why do Turkey want to go it alone?

President Erdogan had been under immense pressure in recent times following an economic malaise in Turkey combined with the impact of Coronavirus. After the June 2018 parliamentary elections, Erdogan’s party, AKP, was polling at 42.5%. That figure has now dropped to 30%, while the Turkish Lira has lost 70% of its value since Erdogan took over as president in 2014. With his popularity drastically falling, Erdogan also faced criticism for sanctioning state investment in 3 drilling rigs and seismic survey vessels. No progress had been made for three years since the investment before Erdogan triumphantly announced in August the discovery of the Tuna-1 well in the Black Sea.

When considering the whole context of the scenario, it becomes clear why Turkey wants to take on the project without foreign aid. Erdogan can simultaneously improve his political ratings and alleviate the economic slump in which Turkey finds itself, as he reduces the country’s energy dependence and create a significant number of new jobs in the process.

Can it be done without international help?

The Tuna-1 field is an ultra-deep-water exploration, which means there are a number of logistical difficulties in extracting the gas found there. WoodMackenzie researcher Thomas Purdie sheds light on the potential problems facing Turkey: “The Black Sea is U-shaped, meaning shallow coastline turns to ultra-deep water rapidly. The basin centre is deep, cold and highly anoxic. These harsh, challenging conditions require specialist experience, not currently at TPAO’s disposal. The Tuna-1 development will almost be at the deepest limits of the Black Sea. This is an ultra-harsh environment.”

The operation will require the construction of new processing and production infrastructure in addition to the construction of the pipeline to bring gas onshore. It is estimated this will cost $6bn and take over 5 years to complete, which is considerably longer than the rather optimistic projection of 3 years Erdogan announced back in August.

Due to the challenging conditions as well as Turkey’s complete lack of experience in dealing with such an operation, it is widely believed that Turkey will need help from a major exploration and production company in order to maximise the potential economic benefits. Nonetheless, Turkish Energy Minister Fatih Donmez reiterated TPAO’s desire to remain almost entirely independent as they prepare to take the project on. Donmez stated that TPAO will likely only subcontract work on the pipeline segment that connects the gas field to Turkish shores.

Prospects for contractors

It shouldn’t be overlooked that Turkey have a well-established oil and gas services sector. This certainly opens the door for independent operations to a certain degree, but the logistical problems related to ultra-deep-water exploration and extraction remain a stumbling block for their desire to carry out the whole project independently.

We believe, despite Turkey’s adamance that the project will be exclusively performed by TPAO, that international freelance contractors are likely to be required for 2 stages of development. Both in terms of deep-sea drilling and pipeline connections, Turkey currently lacks the experience and expertise to carry out operations cheaply and efficiently. If Erdogan wants his country to reap all potential economic benefits of Tuna-1 – and do so within the desired timeframe – then international exploration and production companies, alongside skilled temporary contract workers, are almost certainly going to be necessary components of the new Turkish project. In any case, Erdogan’s update on 17 October 2020 will be a fascinating insight into the future of the project, as it may illuminate the potential for job prospects for temporary contractors moving forwards.

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