This interview with Dr. Fatih Birol, Chief Economist, Director of Global Energy Economics and Executive Director (starting September 2015), International Energy Agency (IEA) was conducted by Global Business Reports in May 2015. It has been edited for style and length and is a web-only supplement to the sponsored report “Power in Turkey” appearing in the June issue of POWER.

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Global Business Reports (GBR): You have worked at the International Energy Agency (IEA) since 1995 and were appointed in February 2015 to become executive director starting in September 2015, the first time in the history of the agency that someone was promoted from among its own ranks. How does your appointment speak to the significance of Turkey to the global energy system?

Dr. Fatih Birol, chief economist, director of global energy economics and executive director (starting September 2015), International Energy Agency. Courtesy: IEA
Dr. Fatih Birol, chief economist, director of global energy economics and executive director (starting September 2015), International Energy Agency. Courtesy: IEA

Dr. Fatih Birol: First, Turkey is a country that has a unique geographic location in the world. The country is surrounded by roughly 70% of the world’s oil and natural gas reserves, including Russia, the Caspian Sea region, Iraq, Iran—all Middle East countries in fact—the Mediterranean, and North Africa. Second, Turkey electricity and natural gas markets are growing strongly and have strong growth potential for the future. Third, Turkey is going through an economic transformation, is opening up to liberalization, and has a young and growing population. So, putting these things together, Turkey has a role to play in regional energy markets, if the decision makers play their cards wisely and in a timely manner.

My appointment is not a political, but it is important to note first that this is the first time that someone working in the IEA was appointed to the role of executive director. Second, it is the first time again that an executive director has been appointed by the unanimous agreement of all the countries.

It is my aim to make the IEA a less political and more technical, professional organization, but also one that is truly international. One of my main priorities will be to expand the IEA’s constituency.

GBR: The Middle East is going through political convulsions that are likely to continue for the near term, if not longer. In what ways do these convulsions most concern the IEA, and what should be done to mitigate their damage to the global energy system?

We have seen major growth in U.S. and Canadian oil production, which is very good news for global energy security; however, we should note that the United States will never be able to replace the Middle East as an oil exporter. Almost all of the oil that the United States produces is consumed at home. So, growth in Middle East production will be needed to meet growing consumption levels in global markets.

My worry today is that the appetite for investment in Middle East oil is very weak, mainly because of geopolitical developments. Investors are rather reluctant to commit capital to new exploration and production and midstream infrastructure, as they do not know what the markets or even the countries will look like in a couple years. Therefore, what is happening today in the major tension points, including Iraq, Syria, and Libya, is leading to a lack of investment appetite in Middle East oil. At the same time, oil production growth in the Middle East will be badly needed to meet future demand growth, especially in Asia.

GBR: Shifting now to Turkey, where natural gas accounts for 50% of all domestic energy generation. Though pledges to liberalize BOTAŞ, the state organization that controls import licenses for and distribution of natural gas, were made roughly 10 years ago, the market remains dominated by BOTAŞ. Does the further development of the Turkish market necessitate the liberalization of BOTAŞ or can BOTAŞ and a partially liberalized market coexist?

Turkey’s gas demand increased very strongly in the last few years. Domestic natural gas consumption is now roughly 50 billion cubic meters (bcm), which is higher than that of France and many other European countries and will continue to grow in the coming years. However, it is also important to have reasonable price levels and diversification of markets. Therefore, I expect to see further liberalization of the electricity and natural gas markets, which can take any form. It is very difficult to increase the efficiency of the natural gas and electricity market in the absence of further liberalization.

GBR: Specifically, Turkey needs a more robust pipeline network. Many international pipeline schemes have not materialized, as private investors have shied away from getting involved. Does the expansion of the pipeline network depend upon BOTAŞ’ liberalization?

There is definitely a need and hope to see more pipelines built that pass through Turkey for many reasons, diversification being chief among them, so we need to mobilize investment. For this to happen, Turkey needs investors with deep pockets and, among other things, liberalization of the markets, so that investments can be mobilized in a timely manner.

GBR: Do you think that the Turkish Stream natural gas pipeline project that plans to bring Russian gas to Europe through Turkey will be completed, and how does this pipeline affect relations between Russia, Turkey, and Europe?

There are a few projects on today’s agenda, including the Trans-Anatolian Natural Gas Pipeline (TANAP), Turkish Stream, and others. TANAP is an excellent project, which provides diversification for consumers, especially in Europe, and makes perfect sense from an economic point of view. It also represents an endorsement of all the key stakeholders, including companies and countries, and is strategic in nature. I hope and expect that the project will materialize soon.

As for Turkish Stream, it is far too early to make a judgment.

GBR: What development in energy are most people not anticipating or expecting in the future?

We have forgotten to some extent the crucial importance of Middle East oil to our daily lives. I hope that when we do remember its importance, it will not be too late or costly.

John Bowlus, executive editor, conducted this interview for Global Business Reports.