Turkey said to sign Black Sea oil deal with Shell

By bne IntelliNews February 11, 2013

bne -

Turkey's state oil and gas firm TPAO is set to sign a deal with Shell next week to explore the Black Sea for oil, as the country tries to overcome the challenges it's facing in securing the necessary energy supplies via import routes, local media reported February 8.

The international oil major is set to agree with TPAO to work together in the western section of the Black Sea after recent bids by the Turkish company to partner with international energy companies have flopped due to its controversial role in exploration off the northern coast of Cyprus. Last week, Hurriyet Daily News reported that Shell and TPAO will sign a deal on February 14, citing unnamed government sources.

"Shell and TPAO's oil exploration work will be in the western Black Sea," said one industry source, according to Reuters. "Depending on the results of this work, drilling will be carried out in at least one well within two years."

The pair has been discussing the possibility of exploration off Turkey's northern coast for some months, according to reports. Meanwhile, Turkish Energy Minister Taner Yildiz stated in January that TPAO would make a deal with "a giant company" in the next two or three weeks for oil exploration in the Black Sea. He also said in November that a company that has not made oil explorations in the Black Sea yet had applied for a licence.

For its part, Shell has been stepping up its activity in the region. Last week, it signed off on a deal to explore for shale gas in Ukraine, which sits on the opposite side of the Black Sea. Most controversially, Shell is reported to have proposed working with TPAO in the Mediterranean. Turkey has struggled to find investors off its southern coast due to the growing energy conflict surrounding the divided island of Cyprus.

In 2011, following the launch of work by Greek Cyprus on development of the shelf, Turkey together with the unrecognized Turkish Republic of Northern Cyprus began exploring for oil and gas. TPAO said in September it would press on with exploring the Gulf of Mersin on its own, after failing to find a partner. "Companies are concerned about stability in the region," an energy ministry official admitted last year.

However, Turkey has little option but to try to raise its level of domestic production. Its rapidly expanding economy is increasingly energy hungry, but it faces several challenges to securing the imports it needs.

A February 1 report by the US Energy Information Administration (EIA) indicated that Turkey's dependency on imports is growing, with its energy use expected to double over the next decade. In 2011, Turkey imported more than 90% of its total liquid fuels consumption, and imports are expected to double over the next decade.

Meanwhile, Turkey is currently fighting pressure from US sanctions over its purchases of Iranian crude - its biggest supplier. The central government in Iraq - which provides the second-largest oil exports to Turkey - is furious over direct Turkish deals with the semi-autonomous Kurdistan region. Add in frequent interruptions to flows due to terror attacks on infrastructure carrying imports, civil war next-door in Syria, and the general instability and sensitivity in the eastern Mediterranean and Middle East, and Ankara's security of supply is clearly compromised.

On top of that, the vast import bill those imports denote provokes the country's chronic current account deficit - an issue which has played havoc with its credit ratings and exposes it heavily to risk in the Eurozone banking sector. Energy imports totaled $60.1bn last year.

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