FT released an article about 4 questions necessitating to be answered in the energy market. The article, arguing that the surge in oil prices is not sustainable, states a new war may erupt in the Middle East in 2018 to be shaped by the answers to these questions. WHAT ABOUT the outlook of the oil market equilibrium in 2018?

It’s difficult to find a strict answer to this question. Nevertheless, the top issues to be followed are obvious. An article released by the British Financial Times newspaper, warns that 4 essential topics should be followed this year. According to the analysis, these 4 essential topics incorporating several uncertainties are the political unrest in Saudi Arabia, shale gas, Chinese demand and the renewable energy. The article emphasizes that the questions here below may have different answers from people, the oil prices may decrease rather than increase and this situation may open the way to a new war in the Middle East.

In the article, the main issues looking for answers in the energy market in 2018 are summarized as follow:

1HOW WILL THE POLITICS IN SAUDI ARABIA AFFECT THE OIL PRODUCTION?

It’s still unclear whether the stability will come back to Saudi Arabia. The oil produced in the kingdom is mostly sucked by Asia but the high amounts may create volatility in the market. Although Prince Mohammad bin Salman seems to have established the order, a strange and fragile atmosphere falls upon the country where some of the businessmen and members of the royal family are sent to prison. Until now, Prince Bin Salman conducted a successful PR campaign on the international platform seemingly assuring that he’s putting his country on the track of a modern liberalization. However, Yemen and the other Middle East countries don’t agree with him. Some of the new issues like the techno town worth 500 billion dollars and governed by robots and the decision of granting for the first time driving license to women are criticized by radical circles. This situation may trigger volatility in the upcoming months. The risk of a potential clash between Saudi Arabia and Iran is not out of question. At this point, we should remind that 40 per cent of the global oil production is provided by the Gulf countries. In this scenario, Iran defeating the other party and thus, spreading its sphere of influence is presented as the highest risk.

2CAN THE SHALE GAS PRODUCTION HAVE AN IMPACT ON THE GLOBAL PRICES?

Another question is how fast the shale gas production in US will increase. In 2017, the shale gas production in the country increased by 600 thousand barrels daily and surged over 6 million barrels. In the past six months, the rise of global prices geared up the production operations and the drilling works in US. The possibility of a similar increase in 2018 may affect OPEC production and eventually leading to quota decrease or price drop.

3WHAT ABOUT THE GROWTH IN CHINA?

China managed to maintain its economic growth in the last 3 years by limiting the energy consumption with low level increases. The growth figure is most probably lower than the declared data but still stands at important levels. The essential question is whether this trend will continue or not. In China where one fourth of the global energy consumption is realized, the economy is shifting from the heavy industry supplied with coal to a structure based on service. The pace of this shift is uncertain. Some current researches anticipate that the economic growth and therefore the oil and coal consumption will increase. On the other hand, considering the polluted air of Beijing, the target is to build the economy on cleaner energy.

4HOW FAST WILL THE RENEWABLE ENERGY GROW?

This is perhaps the most important question. In recent years, the investment costs decreased rapidly whereas the supply increased rapidly. Under these conditions, the renewable energy had a very good year. To such extent that, for example, the wind energy is now able to compete almost without subvention. The solar energy managed to lower the investment costs by 70 per cent since the year 2010. Here, the question is when all these cost effective solutions will manifest themselves in the electricity supply. Today, the renewable energy including hydro, accounts 5 per cent of the global energy supply on daily basis. In other words, the energy market still needs a transition period for a real change. At this point, the headache is about the fragmented structure of the industry.

Several companies are still small size and local. For competition in coal and natural gas, the industry needs to shed skin. The year 2018 will give some indications whether this skin shedding will happen or not. IN THE “to be discussed” list, Turkey’s first deepwater drilling, Akkuyu Nuclear Power Plant which’s foundation was laid, Yeka auctions and domestic coal subsidies come first. According to the report, while global energy consumption is projected to increase by 28 percent by 2040, changing geographical and economic balances force energy markets to long-term solutions.

Turkey took very important steps especially in Yeka(Renewable Resource Area) including auctions. How about 2018? How is it going to be? According to KPMG’s(the international tax and consultancy firm) report “Energy Industry Outlook 2018” will be the year in which domestic energy will be the main subject. At this point, renewable energy is predicted to be the world’s fastest-growing energy source. However, it seems like coal, oil and natural gas will maintain their main energy source identity until 2040. 2018 will be marked by the government’s domestic energy policy in Turkey.

COAL’S MARKET SHARE WILL INCREASE KPMG

Energy Sector Report outlines the following points: Energy consumption in the world is increasing. Global energy consumption is predicted to increase by 28 percent by 2040. Renewable energy has been increasing in response to rapidly rising consumption. Via green energy, new technologies, and energy policies, renewable energy is expected to be the world’s fastest-growing energy source.

However in the short run coal, oil and natural gas will remain as the main energy sources until 2040. In 2040, 77% of global energy consumption is still expected to be achieved from fossil fuels. Between the years 2018 and 2040, nuclear energy consumption will increase by 1.5 times. With this increase, nuclear energy will be the second fastest growing energy source in the world. Coal has 21% of overall production in Turkey. The Ministry of Energy and Natural Resources is working to evaluate all local lignite and coal reserves for energy production until 2023 and plans to support it with private sector subsidies. It is targeted to make the domestic coal reserve, which is expected to be released over 17 billion tons, to return to the economy by meeting technological and environmental expectations in Turkey.

THE WIND IS BLOWING FAST

Wind energy, one of the most important sources of renewable energy, is rising rapidly. Electricity production from wind energy in the world, which was 17.4 GW in 2000, reached to 432.0 GW in 2015. Production in 2030 is expected to reach 1749.8 GW. Wind energy in Turkey also has increased. While the installed power of wind power plants in 2016 was 5 thousand 738 MW, it reached 6 thousand 353 MW by the end of October 2017. Our country has a potential of 48 thousand MW wind power. This area corresponds to 1.3 percent of Turkey’s surface area, which means that we have an advantageous geography for wind energy to be used efficiently.

THE SOLAR CONTRIBUTION IS

2.5% Solar energy is also increasing. The total consumption contribution of grid-powered solar energy has reached 2.5%. According to the Solar Energy Potential Map, with 2737 hours of annual sunshine duration and 1527 kWh / m² annual average amount of solar energy, Turkey is positioned to benefit from this energy much more efficiently. Cost reductions in solar panels and increased panel efficiency have raised solar energy investments. While solar energy electricity production was only 40mw in 2014, it reached 2060 MW in the first 10 months of 2017.

THE WORLD’S FASTEST GROWING COUNTRY IS TURKEY IN GEOTHERMAL ENERGY

Geothermal energy, one of Turkey’s domestic energy sources is considered to have 31 thousand 500 MW potential. Geothermal energy, which had a share of 1 percent in total installed capacity in 2016, increased its share to 1.2 in the first 10 months of 2017. With this result, Turkey has become the fastest growing country for producing electricity from geothermal energy. Biomass energy, which has been rising in the past years is among the priorities of the industry. Turkey’s potential of biomass waste is 8.6 million tonnes of oil equivalent. While 467 MW electricity power was produced from biogas, biomass, waste heat and pyrolytic oil from power plants in 2016, its total installed power reached 554 MW in the first 10 months.

BORON CENTER OF THE WORLD

In the near future, in parallel to the spread of hydrogen as fuel, sodium borohydride is expected to reach a significant point in energy. 72% of the world’s boron reserves are in Turkey. Turkey, despite having more boron reserves than the rest of the world, comes second after the US in boron-based products. Turkey has sold 1.78 tons of boron which was valued at 711 million dollars in 2016. By the end of 2017, boron sales were realized at 1.16 tons which were valued at 423 million dollars.

AKFEN HOLDING CHAIRMAN HAMDI AKIN:

“We’ll have an installed power of 1000 MW renewable energy by 2020” “THE 1ST TURKEY Energy and Mining Forum: The Opportunity Year of 2018” organized under the umbrella of the Ministry of Energy and Natural Resources was held at the Istanbul Lütfi Kırdar International Congress and Exhibition Center. Akfen Holding Chairman Hamdi Akın spoke at the session “Turkey Model in the Renewable Energy: The Technology Transfer and the Future of YEKA Model” held within the scope of the Forum inaugurated by the Minister of Energy and Natural Resources Berat Albayrak.

Hamdi Akın stated that the world has come to a point where each part produces its own energy; ”it seems that this issue will be solved at least on the basis of houses and the producers will maybe not produce energy to the houses. Even if they produce, they will perhaps not receive demands because everyone will be producing its own energy. At the factories too, a system producing its own energy will be functional. The issue of storage will mark the next 70-80 years. Therefore, this is a hot topic for us. We are also planning some new actions” he stated.

Telling that the purchase and selling of electricity and the institutionalization course go hand in hand, “because our group believes that the purchase and selling of the company, the rights issue are the local dynamic of Turkey and therefore, this trend should not stop and should be kept alive. We are working as a venture capital group. You can see us as a group building a company from scratch and marketing the shares of these companies to others” he explained. Hamdi Akın added that they decided to be engaged in the field of renewable energy; “we got into this field 8 years ago.

We developed projects in the field of hydraulic power and we had an installed power of 240 MW with the power plants on the rivers. Then the wind and solar powers became very popular. Two years ago, we began to look from a broader perspective to the renewable energy in terms of solar and wind. The bio energy and geothermal energy too are considered among the renewable energy resources. We can diversify our portfolio in such a way” he continued.

“WE’LL HAVE AN INSTALLED POWER OF 1000 MW BY 2020”

Hamdi Akın indicated that they sell a certain proportion of their shares to the others within the framework of the company’s future goals and thus, they generate cash for the company. “Therefore, with this purpose, we negotiated with EBRD and IFC at our renewable energy company. They approved our strategy and they said they are willing to invest. Each of them bought 16 per cent shares and injected equity capital to our company. We continued our growth trend with this equity capital. Now, we have a total capacity of 600 MW including the installed ones and those under construction. Our target is to reach to 1000 MW by 2020 thanks to the new capital we obtained. If our money still remains insufficient, we can sell further a few stocks and inject money to the company. And thus, we’ll continue to grow. The decrease of the amount of shares is certainly important but their appreciation is much more important” he continued.

WE’LL GO PUBLIC OR WE’LL HAVE A BLOCK SALE

“We reduce the amount of our stocks but we become more valuable. Thus, we’ll offer our company to public between 2020 and 2021 or we’ll reduce our share to minimum through block sale. Thus, we’ll have a company managed by the private sector but its stocks possessed by a large number of investors and thus, it will stand on a more solid ground. It will be almost eternal. We preferred the renewable energy because it will become more valuable in the future” he stated. Hamdi Akın told that there is a huge demand worldwide for renewable energy resources; “the world is talking about the renewable energies from US to Russia. The world is talking about how to store the energy obtained from these resources. If these power sources can be stored-this is already solved-I don’t think that the common energy resources will be very important.

Because the wind and solar power sources are limitless. Now we have the wind, solar and hydroelectric assets. Bio energy and bio thermal too are within our scope. We can invest to these categories as well” he said. Akın pointed out that a new world arises for the energy storage. “Given that the wind and hydroelectric power plants operate 24 hours a day and there is no demand for 24 hours, these two factors need absolutely to be balanced. Thus, the problem of storage comes on the world’s agenda. In Turkey too, the Ministry of Energy works seriously on this issue. In the upcoming months, Turkey will take action in this field. I think that we can be one of these players” Akın told.