Despite the fact that investments on alternative energy sources such as solar, wind, geothermal and biomass have been sufficiently high recently, the majority of global energy demand is met from fossil fuels such as oil, natural gas and coal. These energy resources are classified as conventional fossil fuels, which constitute approximately 85 per cent of total global energy consumption. Although the share of these energy resources is large, it is predicted that we will run out of petroleum and natural gas in the next 50-55 years. In these circumstances, sustainable energy supply is becoming a crucial factor for the whole world.

As a result of the diminishing potential of fossil fuels, countries have begun searching for alternative energy resources. In this context, shale gas started to play a significant role on total natural gas production. According to the International Energy Agency’s data, total natural gas production was approximately 3,5 trillion cubic meters in 2016 and shale gas comprised more than 15 per cent of this overall production. Furthermore, the share of shale gas on total natural gas production in the U.S. was almost 60 per cent in 2016. This situation has caused a significant change especially in terms of natural gas markets in the U.S. While the natural gas unit price was in the level of 9 dollars in 2008, it decreased to 5 dollars in 2014 and 2,5 dollars in 2016.

Shale gas is a kind of natural gas trapped in rock formations and requires high technology in order to make production from this energy source. The hydraulic fracturing method that developed in recent years is used to fracture shale formations and to release the gas trapped in the shale. In addition to this method, horizontal drilling has also been developed and running horizontally underground, this system enables reaching larger gas reserves from a single well. With the combination of horizontal drilling and hydraulic fracturing, shale gas is produced intensely and is profitable to the economy.

With the above-mentioned technological developments in drilling and fracturing, the “shale gas revolution” initially began in the United States. Since the early 2000s, shale gas has been widely produced in the U.S. and, what can be described as an unconventional energy source, began to affect the global energy markets. Shale gas is considered as a “game changer” in the energy markets due to being an alternative source to natural gas. In addition to this, the competition between U.S.-based shale gas producers and oil-producing countries can be listed as one of the main reasons behind the fall of oil prices in the last years. Since shale gas is low-priced and abundant in the markets, the demand of conventional oil and natural gas tends to decrease. As a result of the improvement in shale gas production, energy markets are expected to re-shape in the near future. In other words, since shale gas has become an alternative energy source that affects the market in terms of price reduction, energy wars among states will gradually expand their sphere of influence.

On the other hand, there has been a long debate about the potential climate and environment effects of producing shale gas. According to one argument, hydraulic fracturing can cause small-scale earthquakes. However, the American Geoscience Institute reports that there are no records of any felt earthquakes caused by shale gas production operations. In addition, water pollution and the loss of soil in agricultural lands is another concern regarding shale gas production. As a result of these concerns, in contrary to the U.S., some European countries have banned the production of shale gas due to the potential environmental damage it can cause.

From 2000 onwards, shale gas attracted the attention of countries worldwide. In parallel with the increasing demand of energy, states began to seek alternative sources and wanted to utilize shale gas. Therefore, investments in this area gradually increased and new reserve areas have been investigated. In short, on the contrary to the decrease in conventional fossil fuel reserves like oil and gas, the production of shale gas is expected to increase and expand to wider areas across the globe.

The potential of shale gas in Turkey

Turkey’s energy dependency currently stands at almost 70 per cent – this means that over two thirds of energy consumed is imported from external suppliers. Such high dependency generates economic and political risks to the country and in an attempt to change this, Turkish Minister of Energy and Natural Resources (MENR) announced the “National Energy and Mining Policy” on April 6, 2017. The localization strategy of this policy is significant as it suggests that the usage of domestic and renewable sources should be promoted. In this way, the high level of external dependence on energy will be decreased by enhancing the usage of local coal, nuclear energy and renewable resources.

One of these domestic resources is shale gas. According to data obtained from the U.S. Energy Information Administration, in terms of technical potential, Turkey has 679 billion cubic meter shale gas reserves, especially in the southeastern Anatolia and Trace regions. 651 billion cubic meter of the reserves can be drilled in the first stage. When comparing this potential with other countries in the world, it can be stated that the amount of shale gas reserves in Turkey is currently low. For instance, the U.S. has a 32,89 trillion cubic meter shale gas reserve potential, China 31,57 tcm, Argentina 22,69 tcm, Algeria 20,01 tcm and Canada 16,22 tcm. So, the shale gas potential in Turkey is limited. However, the Ministry of Energy and Natural Resources has been working on exploring new reserve areas in various regions across Turkey. The Central and Eastern Anatolia regions are predicted to have high shale gas potential.

The existing shale gas potential of Turkey, though not abundant, can still decrease the country’s natural gas dependency, which is approximately 99 per cent. But how about the cost-benefit analyses? The production of shale gas in Turkey does not profitable in the short-term. However, the Minister of Energy and Natural Resources Berat Albayrak stated that in the long run, in order to reduce dependency on energy import, the shale gas potential should also be considered together with other domestic resources.

On the other hand, Turkey needs the necessary technological improvements and investments on shale gas exploration and drilling. Although vertical drilling technology is used in Turkey, improvements in the fields of horizontal drilling and hydraulic fracturing are required. High and expensive technology is a factor that limits Turkey’s drilling activities. Naturally, shale gas drilling costs can change based on geological structure, equipment and diversity. For instance, according to the Turkish Petroleum Company, while the drilling activity would cost 10-15 million dollars in Southeastern Anatolia, the same operation can cost much lower, between 6 and 8 million dollars in the Trace region. Furthermore, the required equipments for drilling operations are costly and need to be imported.

Turkey’s production tendency with regards to alternative resources is heading towards renewable and nuclear energy. However, in order to decrease energy dependency, the ministry should also consider the potential of shale gas in the long-term. Cooperation between the public and private sectors could facilitate improving the technological infrastructure and investments within this field. The production of shale gas is not yet cost efficient. However, when the country’s overall limited energy resources are considered, shale gas production can play a tangible role in at least decreasing Turkey’s energy dependency in the long run.

Sovereign Wealth Funds (SWF), which are referred to some cases as National Funds, are the savings of countries outside their official reserves. Historically, central banks in many countries that hold foreign exchange reserves in their hands for urgent needs have started to set up various funds to use their savings profitably, and therefore SWFs have emerged. Especially since the 1950s, the swift increase in oil revenues and SWFs, which manifested themselves in the practices of the Gulf countries, have also been adopted by Asian countries that have achieved a budget surplus over time.

Today, the 15 largest national SWFs in the world have nearly $11 trillion in assets. Looking at the world average, revenues from oil and gas sales constitute 56.60% of these funds, while income from other sources is 43.40% of the funds. In the beginning of the 1990s, SWFs collectively were worth for $500 billion, and by 2015, they were worth $12 trillion. It is expected that the total size of SWFs, which are continuing to be invested in all over the world, will reach close to $15 trillion within a few years.

National Asset Funds are funds under the ownership and management of the state that aim to increase their income by investing in various financial assets, and the revenue of these funds is usually composed of budget surplus. Countries that transfer the budget surplus to these funds generate income by purchasing local and/or global financial assets through these funds, with the goal of passing on this wealth to future generations. However, having a budget surplus does not constitute a necessity for the countries in the process of establishing the asset fund. Asset funds have been successfully established in countries with many high performing, income generating institutions and facilities such as Turkey.

SWFs are an important source of financing for the public, as well as a shield against speculative waves in economies in the long-term. SWFs, which also consider community welfare, can attract state savings to more sheltered ports and allow a safer investment path. About 80 countries have SWFs today, meant to ensure the sustainability of important public investments such as education, health, and infrastructure.

In Turkey, a bill called the Asset Fund law was enacted on 20 August 2016. With the Law No. 6741, the Turkish Wealth Fund (TWF) is meant to contribute to overcoming the structural problems of the economy and help Turkey have more influence in the international arena. By law, the fund will be managed by a corporation, TWF Joint Stock Company. The initial capital of this company was 50 million TL, provided by the Privatization Fund. As of February 2017, the current amount of funds in TWF has exceeded 31.3 billion TL, together with 14 companies transferred to its control, 46 fixed land assets exceeding 2.2 million square meters, as well as 3 billion TL obtained from the Defence Industry for three months.

In the short term, this fund size is estimated to be 200 billion dollars. The Prime Minister will appoint the Board of Directors, Chairman and members of the TWF. Other companies and sub-funds to be established by TWF will be subject to independent auditing. Consequently, the Court of Auditors will not monitor them. This is mainly based on the principle that this company will provide financing for major infrastructure projects. TWF’s activities are carried out within the framework of the principle of accountability, which requires a structure in which responsibilities are clearly defined and areas of authority and governance are drawn with certain lines.

Accordingly, TWF under the Prime Ministry is subject to independent external auditing. This structure is therefore strengthened by internal systems and control mechanisms in the form of policies, procedures and guidelines in the areas of risk management and investment approvals, corporate values and ethical standards. It also provides information required by the law and relevant authorities and ideas raised in various platforms to internal and external stakeholders. The organization structure of TWF is an institutional identity strictly connected to performance criteria, including all the above-mentioned processes.

As a vision, TWF is committed to creating sustainable growth of the country’s economy by adopting a pioneering, efficient, innovative, transparent corporate culture based on corporate governance principles. By contributing to the sustainable growth of the country’s economy and making strategically important investments, it aims to play an important role in socio-cultural development, economic capital and human capital development as well as to transfer economic wealth to future generations.

Together with TWF, incentives, customs exemptions, corporate tax reductions, and insurance premium exemptions will be offered to attract potential investors to the country and provide convenience for current investors. The companies that will obtain credits under the asset fund will be included in the scope of strategic investments and the debt will not be increased because the funds will be provided with appropriate terms. Furthermore, the funds will not be obtained from the Treasury. Since these transactions will be carried out from another fund, the functioning of the SWF will have worked with this mechanism.

TWF is expected be able to make capital market transactions such as foreign, public, private sector and public debt instruments, issuer shares, time deposits, participation accounts, all allocated Treasury real estate and deposit certificates, gold and other precious metals and capital market instruments based on mines. In addition, funds participations, repo and reverse repo, lease certificates, real estate certificates, warrants and certificates, money market transactions of the settlement and custody bank, cash guarantees and premiums of derivative instruments, specially designed foreign investment instruments, loan participation certificates, national investments and investments made by foreign companies and other states in the international arena and issuance of other investment instruments make up the other transactions of TWF. Without prejudice to the Turkish Commercial Code, the articles of association, liquidation, transfer, merger, dissolution, organs, committees, their formation, duties and responsibilities, accounts and distribution of profits shall be directly registered and announced.

TWF is a fund that holds and manages selected commercial assets of the state and its main duty is to undertake strategic investments on behalf of the nation. TWF primarily plays a key role in maintaining various strategic industries and national initiatives and in helping to improve Turkey’s long-term economic interests. TWF is an organization capable of providing direct or indirect investment both in domestic and overseas sectors in a broad perspective from the growth targets of financial markets to the infrastructural projects of Turkey. TWF supports the economy by providing opportunities for innovations such as Islamic finance and considering developments like the growth in the scale of financial markets, the level of transactions and financial deepening.

In addition to these, TWF is of great importance in terms of creating additional jobs in all sectors, developing the defence industry, supporting projects in areas of strategic importance for Turkey, especially energy, information and software technologies, and ensuring gains that will create a competitive advantage. Financing will be provided for large-scale projects such as Canal Istanbul, the third airport in Istanbul, the three-storey high Istanbul tunnel, high-speed train projects, a nuclear power plant, and new employment areas will be created.

Turkey, which wants to decrease its external dependency on energy, attaches a great deal of importance to TWF. The fund will also support strategic investment projects such as oil, natural gas, and renewable energy and nuclear power plants. It will open a front for domestic companies to operate, especially in industries such as defence, aviation, software and medicine. TWF is expected to reach a size of $200 billion in the near future. TWF is expected to contribute an annual average of 1.5 percent to the nation’s economy over the next 10 years.

In Turkey, as well as in the world, improvements in the field of renewable energy have been drawing attention for 15 years. Turkey is importing three-fourths of its energy from other countries. This means that Turkey’s foreign energy source dependency is about 70 percent. In 2020 it is predicted that this will be 80 percent. When considered from this point of view, it is a necessity for Turkey to diversify its energy sources to decrease its energy dependency.Besides this dependence on an unreliable energy source, the high share of energy in imports puts a lot of pressure on the economy of Turkey, and increases the current deficit of the country. The imported natural gas and oil are adequate for a large part of the energy needs in Turkey. However, in the long term, local energy production should be increased to decrease the foreign energy source dependency. Renewable energy is a good opportunity for Turkey because the country has an important location in terms of its renewable energy potential. Moreover, Turkey can utilize almost all known renewable energy sources, such as solar, wind, geothermal, hydro, wave and biomass.Today, renewable sources constitute nearly 34 percent of total energy generating capacity in Turkey. Hydropower has the majority of this ratio, whereas solar power has the minimum share. Energy production through renewable sources is growing fast globally, and in this manner, Turkey has a requirement to improve its own capacity in the modern renewable sector. For that purpose, in parallel with targets set by the government and private sectors, the potential of renewable energy is evaluated and investments are made.In 2015, investments in the field of renewable energy totaled 1.9 billion dollars in Turkey and this amount is increasing gradually. In 2002, Turkey’s installed power capacity was 12,277 MW, and it increased to 15,550 MW in 2009, and 32,275 MW in 2015. By the last quarter of 2016, the installed power capacity was 33,352 MW.

Under its National Renewable Energy Action Plan, Turkey is aiming to increasetotal capacity from renewables to 61,000 MW by 2023. 34,000 MW of this total installed capacity will be composed of hydropower; 20,000 MW of wind power, 1,000 MW of geothermal, 5,000 MW of solar and 1,000 MW of biomass energy. The total predicted cost of this goal is nearly 60 billion dollars.

In light of these targets, the share of renewable energy (excluding hydro) in electricity production is planned to be 30 percent in 2023. Although this share is only 10 percent today, the annual growth rate shows that the targets for 2023 may be achieved. The predicted electricity demand for Turkey is going to double by 2023. Under this assumption, the target of a 30 percent renewables share in total electricity generation is going to be a necessity for Turkey.

On the 100th anniversary of the founding of the Republic of Turkey, the forecasted gross electricity production for hydropower will be 91,800 GWh, for wind power 50,000 GWh, for geothermal 5,100 GWh, for solar power 8,000 GWh and for biomass 4,533 GWh. In total, the gross electricity production using renewable energy sources will reach nearly 159,433 GWh. This quantity will be 37 percent of the predicted electricity consumption in 2023 (424 TWh). The target of net electricity production by renewables will be 127,324 GWh (30 percent).

With electricity demand doubling in Turkey by 2023, the use of local, renewable and alternative energy resources should be encouraged by the government. This is very important for countries like Turkey in order to decrease foreign energy dependency.

In addition, the efficient use of energy plays a key role. According to the government’s Energy Efficiency Strategy Paper 2012-2023, by the year 2023, the amount of energy consumed per GDP in Turkey is expected to decrease at least 20 percent from the base year 2011. This means that Turkey has a target to save at least 20 percent of its energy consumption by 2023.

Turkey is a suitable place for using almost all of the renewable energy sources in terms of its geographical location as well as geological structure, and the government has noticed this. On the other hand, technological improvements in the field of renewable energy need to be considered as soon as possible. In addition to this, there are financial constraints in the way of increasing production from renewable energy sources. To overcome these difficulties, the government has developed a number of policies, including a guarantee of a fixed price, investment incentives, support from important international institutions, financial guarantees for renewable energy projects, advisory support, and a tax exemption for bio-fuels.

For the upcoming period, Turkey is following a multi-pronged approach in its strategy for renewable energy. Turkey seeks to encourage the production and consumption of renewable energy sources in order to decrease dependency and risk from using fossil fuels. The goal is to increase the share of renewables to at least 30 percent in the production of electricity. To do this, current production capacity from renewable sources will be expanded, and new sources such as bio-fuels will be encouraged in order to utilize more of the agricultural sector’s potential.

Meeting its energy needs will be crucial for Turkey to meet its broader 2023 goals, and this means the country needs to diversify its energy sources and encourage the use of renewable energy.