Turkey - Bati Raman Enchanced Oil Recovery Project

Document of The World Bank F'i C) p y FOR OFFICIAL USE ONLY Report No. 3093-TU TURKEY BATI RAMAN ENHANCED OIL RECOVERY FIELD DEMONSTRATION PROJECT STAFF APPRAISAL REPORT October 17, 1980 Energy Department Petroleum Projects Division I This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Current unit = Lira (TL) US$1.00 70.0 TL (1/25/80) TL 1.00 = US$0.0142 WEIGHTS AND MEASURES 1 Barrel (Bbl) = 0.159 cjbic meters (m ) 1 Cubic foot (CF) = 0.028 m I British Thermal Unit (Btu) = 0.252 kilocalories (Kcal) 1 Kilowatt hour (Kwh) = 2.978 Kcal 1 Metric ton (mT) of oil, 350API = 7.3 Bbl 1 Kilometer (km) = 0.621 miles ABBREVIATIONS AND ACRONYMS MCF/d - thousand cubic feet per day MMCF/d - million cubic feet per day TOE - metric tons of oil equivalent in heating value MW - Megawatt (1,000 kilowatts) GWh - Gigawatt Hour (1,000,000 kilowatt hours) Bbls - Barrels GOT - Government of Turkey EOR - Enhanced Oil Recovery SPO - State Planning Organization TPAO - Turkish Petroleum Company MENR - Ministry of Energy and National Resources GDPA - General Directorate of Petroleum Affairs TEK - Turkish Electricity Authority UNDP - United Nations Development Program TPY - tons per year FISCAL YEAR January 1 to December 31  F'OR OFFICIAL USE ONLY TURKEY BATI RAMAN ENHANCED OIL RECOVERY PROJECT STAFF APPRAISAL REPORT Table of Contents Page No. I. - .- SCO ................................................. E A. Introduction ........ .......................... . 1 B. Indigenous Resources ...... ........................ I Petroleum ................................1.............. Coal and Lignite ..........................1............ Hydro Electricity ...... ....................... . 2 Non-commercial Fuels ................................... 2 Other Energy Resources ........ .................... . 2 C. Patterns of Energy Consumption ..... .................. . 2 D. Institutional Framework ...... ...................... 4 E. Energy Policies and Planning ............................ . 4 Pricing ............................................... . 4 Planning .............................................. .5 II. PETROLEUM SUBSECTOR ........................................... 6 A. Introduction .................. . ........................... 6 B. Petroleum Resources ....................................... 7 Geology ................................................ 7 Exploration Activities ................................. 8 Petroleum Potential .................................... 9 Recent Production Trends .............................. 9 C. Development Prospects .................................... 9 Production ............................................. 9 Investment ............................................. 10 D. Government Policy ........................................ 11 Foreign Participation .................................. 11 Price Policy ........................................... 12 Wellhead Prices ........................................ 13 Refinery Prices ........................................ 13 Consumer Prices ........................................ 14 E. Bank Role ................................................ 14 This report is based on the findings of missions in February and June 1980 to Turkey comprised of R. Berney, A. El-Mekkawy, and K. Thomas of the Bank, and P. Halstead, J. Harvie, and D. Hennenfent, Consultants. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contenst may not otherwise be disclosed without World Bank authorization.  - ii - Table of Contents (Continued) Page No. III. THE BENEFICIARY ............................................ 15 A. Operations ............................................... 15 Exploration ...................................... . 15 Production ............................................. 16 Drilling ............................................... 16 Refining ............................................... 17 Distribution ........................................... 18 Subsidiaries ... ......................................... 18 B. Management and Staffing ........................... 18 C. Reorganization of TPAO ...............................20 D. Accounting and Auditing ...... .................. ........... 21 IV. FINANCIAL ASPECTS OF TPAO ............................................ 22 Financial Highlights ..................................... 22 Recent Performance (1975-79) ....................... . 23 Working Capital .......................................... 27 Future Overall Financial Requirements .................... 28 V. THE PROJECT ......................... .......................... 33 A. Background ............................................... 33 B. Project Description ...................................... 34 General Objectives . ....... ............... 34 Bati Raman Field Test ......................... . . 35 Raman Field Development ...... ........................ 38 Thrace (Hamitabat) Gas Field ... 39 Technical Assistance to TPAO ..... .................... 39 Project Implementation ................................. . . 40 Project Costs . ........... 41 Financing Plan .......................................... 43 Allocation and Disbursement of Bank Loan ............. .... 44 Procurement .............................................. 45 Project Risks ............................................ 45 Training ....................................... ........... 46 Environmental Considerations ..... ........................ 46 VI. ECONOMIC ANALYSIS OF THE PROJECT .............................. 46 Raman Oil Field Development . . .......................... 46 Bati Raman Field Test .................................... 47 Thrace Gas Component ..................................... 47 VII. RECOMMENDATIONS ..................... , 48  - iii - Table of Contents (Continued) ANNEXES 1.01 National Energy Usage by Source of Energy (in 000 tons of hard coal) 1.02 National Energy Usage by Source of Energy (in % of hard coal) 1.03 Energy Sources for Electricity Generation (Gwh) 1.04 Conversion Factors Used in this Report 2.01 Turkish Petroleum Corporation (TPAO) Proposed Program 1980-1984 2.02 The Operation of the Stabilization and Decree 20 Funds 3.01 TPAO Organization Chart 3.02 TPAO Subsidiaries 4.01 TPAO Source and Use of Funds Years Ended December 31 4.02 TPAO Balance Sheet at December 31 4.03 TPAO Income Statements Years Ending December 31 4.04 Inflation and Devaluation Assumptions 4.05 Assumptions for Financial Projections 5.01 Production History and Present Status of TPAO Fields 5.02 Summary of Geological and Reservoir Data, Bati Raman and Raman Fields 5.03 Notes on the Feasibility and the Operation of the CO Injection in Bati Raman (Excerpts from the Consultants's Report) 5.04 Details of Project Cost 5.05 Project Implementation Schedule 5.06 Estimated Schedule of Disbursements 6.01 Economic Analysis of Raman Field Development 6.02 Assumptions for the Economic Analysis of the Bati Raman Field Test 6.03 Economic Analysis of the Bati Raman Full Field Development 7.01 Selected Documents and Data Available in the Project File IBRD Map 15105- Turkish Petroleum Sector   I. THE ENERGY SECTOR 1/ A. INTRODUCTION 1.01 Petroleum supply has become a focal point of the economic problems that Turkey faces today. Indeed, it would be difficult to overemphasize the critical nature of the problem. The share of crude oil in Turkey's overall energy requirements has increased sharply over the last two decades from 20 percent in 1960 to 54 percent in 1979. Domestic oil production, which declined slowly through most of the 1970's, currently accounts for about 17 percent of Turkey's overall oil requirements of about 17 million tons. While petroleum imports of $1.4 billion in 1978 absorbed 60 percent of merchandise export earnings, they were about $2.4 billion in 1979, consuming all merchandise export earnings. 1.02 Since 1973 the Government has made concerted efforts to reduce the growth of oil consumption by replacing it with lignite and hydropower for electricity generation and with coal for process heat in industry. While these efforts have helped to stem the growth of oil consumption, the potential for additional petroleum substitution projects is limited. And given the long implementation periods required for these large-scale projects, even this limited level of substitution will take place only gradually. The Government's efforts to augment domestic petroleum production through the introduction of enhanced oil recovery technology for older oil fields and through intensified exploration and more rapid development of newer oil fields will be important elements in Turkey's overall adjustment strategy. However, despite the measures taken to develop alternative indigenous energy resources and more recently to reduce demand through pricing and rationing policies, Turkey is likely to remain heavily dependent on imported oil unless major new discoveries are made. B. INDIGENOUS ENERGY RESOURCES Petroleum 1.03 In 1979, Turkey estimated its proven recoverable petroleum reserves, at 17 million tons, about one year's consumption at current levels. Gas pro- duction was practically nonexistent. Section II will discuss the petroleum subsector in detail. Coal and Lignite 1.04 Although coal was Turkey's most important energy source in the immediate post-war period, production has been decreasing for the past twenty years. In 1978, estimated potential recoverable reserves were about 120 million tons of oil equivalent (TOE) 2/ and possible additional reserves were about 800 million TOE. Production was 4.1 million tons, or about 2.7 million 1/ Chapters I through IV are essentially identical to those in the staff appraisal report Turkey: Bati Raman Enhanced Oil Recovery Project (No. 3093-TU). 2/ Conversion factors used in deriving oil equivalents are listed in Annex 1.04.  -2- TOE, 16 percent of total energy production. Turkey-s lignite reserves are enormous. Proven reserves are 1.1 billion TOE, and probable reserves are an additional 0.5 billion TOE. Production in 1978 was about 4.6 million TOE. However, as indicated in para 1.18, there are substantial institutional and technical constraints to a rapid expansion in lignite production. Hydro Electricity 1.05 Turkey's hydro potential is estimated at 145,000 GWh (35 million TOE per year), of which about half was considered to be economically usable in 1976. In 1978 the generation of 9,400 GWh (2.3 million TOE per year) of hydro electricity accounted for 14 percent of all energy produced, but because of imports only 7 percent of energy consumed. Installed capacity is planned to grow from 2,100 MW in 1979 to 8,100 MW in 1986. However, there are likely to be substantial shortfalls as project execution in the past has been poor and output for the past several years has been unable to meet demand. Non-commercial Fuels 1.06 Animal and vegetable wastes and wood continue to be important fuel sources. However, their production has not grown significantly in the past two decades and their contribution to total energy consumption has declined from over 50 percent in 1960 to less than 20 percent in 1978. Other Energy Resources 1.07 Turkey has a rich geothermal potential which has yet to be ade- quately evaluated. Some fields are being studied, and the first geothermal power plant (15 MW) is currently under construction to test the technical feasibility and economic viability of using them for electricity generation. Uranium reserves amount to about 4,000 tons of yellow cake U308 equivalent, (a partially refined uranium oxide). A nuclear power station of 600 MW is planned for the late 1980's. Turkey has more than one billion tons of reserves of bituminous schist, a low grade oil shale, and plans are being made to use it for generating electricity on at least an experimental basis by the end of the decade. About 0.4 million tons per year of asphaltite, a non-volatile metamorphosis of petroleum with about 60 percent of the energy content of coal, is currently produced in southeastern Turkey. This repres- ents about one percent of total energy production. C. PATTERNS OF ENERGY CONSUMPTION 1.08 Per capita energy consumption in Turkey increased during 1960-77 at an average annual rate of 6.7 percent (12.8 percent in 1974-76) compared to an average annual growth rate of GNP per capita of 4.1 percent. However, per capita consumption of 495 kg of oil equivalent in 1976 remained below the average of 611 kg for 55.middle income countries. Energy consumption per dollar of GDP rose from 0.3 kg in 1960 to 0.5 kg in 1976, but again was below average for middle income countries.  -3- 1.09 The most important trends in the energy use pattern since 1960 have been the increasing share of petroleum, which now accounts for over half of total energy consumption, and the decreasing share of hard coal and non- commercial fuels (see Annex 1.02). Because of the importance of imported crude oil in meeting Turkey's commercial energy needs, the sharp increases in international crude oil prices since 1973 have seriously impaired the country's foreign trade position. With domestic petroleum prices controlled at levels well below international levels until late 1977, the volume of petroleum imports grew rapidly: from 1973 to 1977 the average increase was 13.0 percent, well above the real growth rates of both GDP (7.2 percent) and total merchan- dise imports (8.7 percent). The onset of a severe economic recession, the sharp upward adjustments made to petroleum product prices since late 1977 and a scarcity of foreign exchange caused imports to fall slightly in 1978 and 1979. TURKEY: PRIMARY ENERGY CONSUMPTION 1960 1965 1970 1973 1974 1976 1978 - ------ --- Percentage ------ -