Turkey and Venezuela to swap houses for crude

By bne IntelliNews February 9, 2011

David O'Byrne in Istanbul -

As if to prove that all markets are indeed global, a visit in January by Turkish Energy Minister Taner Yildiz to Venezuela resulted in an unusual offer from President Hugo Chavez.

The details of that offer, for Turkey's state housing cooperative TOKI to build houses for Venezuelans left homeless by December's floods in return for Turkey's state oil company TPAO taking a stake in a Venezuelan oilfield, are still under discussion and will be nailed down by Turkish officials in Caracas during February. However, some facts have already been confirmed by Turkey's energy ministry. "We've been offered a stake in an oilfield producing 200,000 barrels a day," a ministry spokesman tells bne. "The minister has suggested 10% as a suitable stake, and negotiations now focus on the number and type of houses TOKI will build."

The spokesman confirmed that TPAO will take payment in the form of oil from the Venezuelan field, either returning the oil to Turkey for refining or negotiating a swap deal with an oil supplier closer to Turkey.

Belarus, which last year signed an agreement to buy up to 10m tonnes per year of Venezuelan crude has already arranged a swap with Azerbaijan, under which Azeri state oil company Socar receives Venezuelan crude to sell in north America in return for giving landlocked Belarus Azeri crude by pipeline through Ukraine.

A similar deal for TPAO would give it crude closer to home, but with only one oil refinery in Turkey its options will still be limited whether it holds heavy Venezuelan crude or a lighter crude from a near neighbour. Turkey's sole oil refiner Tupras - owned by a consortium of Turkey's Koc group and Shell - operates three main oil refineries processing crude bought on international markets, from Russia, the Caspian, Iran and the Middle East. However, it is currently unclear whether it could handle heavy Venezuelan crude and if so, in what sort of volumes.

A company spokesman declined to confirm or deny the possibility, commenting only that, "As we do not know the details of talks between the parties, we think that it would not be appropriate to comment on this issue at this moment."

Crude storage

Options will be further complicated if Turkey takes up another of Chavez' offers, that of providing storage in Turkey for up to 4m barrels of Venezuelan crude. No reason for the request has been given, but it seems to indicate an interest in marketing Venezuelan crude to east Mediterranean markets.

While building new storage capacity is on Turkey's agenda, the storage planned is for Turkey's existing oil export hub of Ceyhan - the terminal for the Baku-Tiblisi-Ceyhan pipeline carrying Azeri crude and the Iraq-Turkey export line, and is planned to hold oil to be carried by the long-planned Samsun-Ceyhan oil pipeline. Initially slated to carry Caspian crude from Kazakhstan, Russia and Azerbaijan currently arriving by pipeline in the Black sea, the Samsun-Ceyhan line was designed as a safer alternative to shipping crude through the crowded Bosporus straits by tanker, a route which Ankara has long warned will become too congested to be viable.

However, despite a highly publicized ground-breaking ceremony in early 2007, development of the Samsun-Ceyhan pipeline has been stalled due to a lack of commitments of crude from Caspian producers happy to continue shipping crude by tanker through the straits. The future of the pipeline rests now with Russia, with Moscow confirming in December that two of the country's state-owned oil companies, Rosneft and Tatneft, have agreed to join Turkey's Calik Enerji and Eni in a four-way consortium to build the pipeline, which will carry largely Russian crude. Despite this apparently unequivocal support, the originators of the project, Calik Enerji, have made little public comment and are yet to name a date for construction to start.

The picture is further complicated as energy ties between Turkey and Russia go even deeper, with Russia already supplying more than half of Turkey's natural gas and a consortium led by Russia's state nuclear power plant developer Atomstroyexport about to start work on Turkey's first nuclear plant. This begs the question of whether Russia will welcome the arrival in the region of large volumes of Venezuelan crude eating into its existing markets.

The Belarus deal with Caracas cost Moscow 40% of its oil exports to its western neighbour, while any Venezuelan crude taken by Tupras will likely be in place of at least some Russian crude - even before markets for any Venezuelan crude stored and marketed from Turkey are considered.

All this means that Ankara will need to weigh its options carefully before proceeding if it wants to avoid alienating the Kremlin, even at the possible cost of failing to help Venezuela's homeless.

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