TURKEY ENERGY & INFRASTRUCTURE FORECAST 2015: RISKS AND OPPORTUNITIES-1

Now is the time for our traditional annual forecast for our local energy markets in 2015. Please do note that the economy and business is always shaped by expectations, and as such market expectations are important in the economic forecasts. At the beginning of each year, there are many economic forecasts made by the nationwide daily newspaper columnists, however there are almost no local forecasts made for the energy markets. Within our professional capacity, we have tried to outline a draft forecast, albeit maybe somewhat irrational/ unfair for the New Year. Anyhow it is better to have one, rather than none. Here are our expectations for the New Year 2015:

Electricity

Turkish power generation capacity could have reached to +69K MWs in year 2014, and consumption peak is recorded as +39K in last August. Turkey is still at very low annual per capita electricity / production / consumption with approximately +3200 kWh, EU current average is +10K; North American average is +12K.
Electricity demand growth slowed down in 2014. Slowdown in local demand for electricity in the first quarter 2015 will continue. Other than early winter shortages, electricity prices will not increase in throughout 2015.

Privatization of nationwide electricity “Distribution” and “Generation” are almost completed in 2014. “WholeSale market” and “Unbundling” process are ongoing. National electricity “Retail” systems will develop in 2015.

Gas

Local Gas consumption is expected to be 48 billion Sm3 in year 2014. In 2015, Iran may not cut-off Natural Gas flow due to excessive needs of during harsh winter conditions in her own domestic market. In case of any winter interruption, Russians will increase supply capacity in the Blue Stream for a substantial premium as usual.

Gas flow from Iran to Turkey will be easier since US sanctions over Iranian exports are expected to be lifted soon after finalization of Nuclear talks in Geneva. That may cause more uninterrupted gas from Iran for long term, although gas price will not be reduced, but stay stable for medium term. Gas is still too expensive. Western Gas is now approx. 11.00 US Dollars per MMBTU as of Dec-2014 at our western border. Turkish natural gas demand will begin to fall due to counter measures taken, probably by the second half of the year. Accelerated increase in local fuel prices, is expected, after the general elections which will take place in June 2015.

Pipeline

Part of Western natural gas pipeline supply by Russia’s Gazprom is placed to local companies. We expect market share wars between them.

TransAnatolian Pipeline Tanap project is in fast-track agenda. Nabucco is closed.

New “South Stream” underwater pipeline from Russia to Thrace border, was recently announced. It needs time for full realization.
Northern Iraq oil and gas pipelines are on hold due to civil war in Syria.

Shale gas

It is too early to expect any substantial “Shale Gas” production in our country. There are two specific regions for exploration, but gas production can not be realized overnight. On the other hand, “Shale gas” boom in the USA will reduce gas prices in the spot market for sure. Europeans are reluctant since cracking process may trigger earthquakes, and huge amount of injection water is polluted.

Gas fired Combined cycle power plants

We expect less number of investments for new natural gas fired  Combined Cycle power plants due to increasing Current Account Deficiency. There are still new investments in Kırıkkale, Thrace Çorlu, Adapazarı, Ankara Kazan, Kırşehir, Bandırma, Mersin, Kırklareli, Izmit on gas fired combined cycle power plants.
We do not know who will supply the necessary gas for these new gas fired plants, and at what price.

Iranian Nuclear talks

Iranian Nuclear strike capability makes Israel nervous. Although “G5+ Iran” has already agreed on nuclear settlement for non-aggressive nuclear use, Israel may still initiate surprise attack to Iran which may lead to global energy crises in the world. So we should be on the safe side and we should have increased underground gas storage capability and fuel storage facilities.

Nuclear

Russians started to outsource all non-critical equipment for Akkuyu Nuclear Power plant, starting from local civil works, high capacity steam turbines, instrumentation and controls, due to experience on serious shortage of available commercial financing. Environmental Impact Assessment (EIA) report approval is received in late 2014.
Since the ongoing nuclear project is not commercial, but it is now purely political, political financing for that gigantic figure is not so easy. Political risks of a nuclear power plant project cannot be properly estimated; hence non-commercial project has no commercial meaning.

Hot seawater will be a chronic problem for plant cooling system in Akkuyu.

Sinop Nuclear power plant project is awarded to “Japan+ French” consortium. An Inter-Governmental Agreement (IGA) was signed between Government of Republic of Turkey, and Government of Japan on 3rd May 2013 for the construction of Sinop NPP.
We suspect if Japanese commercial companies can secure approx. 22 plus billion US Dollar project financing. We shall wait and see the outcome. They may face financing difficulties, although local public company EÜAŞ will get 35% equity partnership.

Sinop Nuclear Plant site is in the thick forest. Local “Forest Law” and compensation for demolished “trees” would be a great burden on the project budget in the long term.

Cold sea water is better for overall efficiency and for nuclear power plant cooling systems. Therefore the next nuclear power plant sites are expected to be on the BlackSea coast line, maybe in İğneada on the NorthWest and Hopa on NorthEast.

New nuclear power plants are expected to be close to metropolitan cities with heavy demand, so Kırıkkale-Ankara, Aliağa-İzmir, and even Kemerköy-Muğla are possible new sites in long term consideration. French, Korean, Chinese Nuclear companies may participate to these new nuclear power plant investment projects in future.

Privatization

3×210 MWe Yatağan- 2x210MWe Yeniköy- 3x201MWe Kemerköy thermal power plants in southwest of Turkey are privatized in 2014. After plant sales, renovation, rehab, re-power or complete demolition is expected by the investor.

Imported coal firing 2×600 MWe new thermal plant could be build at seaside Kemerköy plant site in the long term. Summer holiday facilities can also be considered.

Local hard coal firing 2×150 MWe Çatalağzı-B thermal power plant in Zonguldak county on the BlackSea coast is also sold. Orhaneli 210 MWe, Tunçbilek 430MWe thermal power plants are also privatized in late 2014.

Due to low investor appetite both local and international, privatization strategy will be reconsidered in order to increase the ongoing high income based tendering process.

Coal

We expect new investment initiatives on new found coal mine fields in Konya Karapınar, Afyon Dinar, Eskişehir-Alpu in order to build new thermal power plants under locally developed clean coal technologies.

Local coal firing new thermal power plant constructions in Bolu Göynük, Eskişehir Mihalıccık, Bursa Keles (EIA reactions), Manisa Soma, Adana Tufanbeyli (two separate plants 700 MWe and 450 MWe) are in construction progress.

Thermal power plant investments in NorthWest BlackSea coast are expected to be on hold for a while due to  ongoing EIA scheme, and due to high reaction of local environmentalists.

Local Regulation of foreign personnel employment is changed, so cheap foreign employment from FarEast countries is not possible any more.

Situation in Soma for new 450 MWe thermal power plant seems on hold due to local reactions to olive tree demolition. Company should look for nearby empty land to build new  thermal power plant.
Moreover there are a number of imported coal firing new thermal power plant applications for Bay of Iskenderun, Soma, around Sea of Marmara, Bay of Aliağa but public authorities are quite reluctant for approval due to high impact on “Current Account Deficit (CAD)”.

Afşin Elbistan

Due to ongoing high environmental pollution, no sufficient filters, no desulphurization, no rehab, it is our sincere recommendation that existing Unit Afşin Elbistan-A group, should be shut down, dismantled and sold as scrap. However it is now in longterm hand-over process in privatization. New plant installation is strongly recommended.

Elbistan Çöllolar landslide disaster was forgotten after the event. Reutilization is enforced after legal procedures are completed. De-watering- drying of the landslide region is continued. Hurman Creek riverbed is changed, it will flow from north without passing through the mine field.

Çöllolar coal mine field will be in preparation by the end of next year, and only after normalization of coal fields in Çöllolar, then AfşinElbistan-B plant can work at higher capacity factor.

Afşin Elbistan Coal is supplied to the plants at about 1.75-1.80 US Dollars per MMBTU, which is very competitive. But calorific value is too low. So we need to have proven coal firing technology for the local coal.

Afşin Elbistan-B plant has proven technology for firing local nearby coal. However two units are now out of operation. Second unit had fire accident in boiler dust filters. Third unit had steam turbine break down. Repair works are recently tendered. It will need at least minimum two years for complete operation.

New international partners are sought for Afsin Elbistan C-E.