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2015-07-07 19:15:00

RUSSIAN - TURKISH STREAM

RUSSIAN - TURKISH STREAM

After the cancellation of the South Stream natural gas pipeline last December due to the EU's blockage of the project, Russia announced an alternative project called the Turkish Stream which will hit the shore on the European side of Turkey near Kıyıköy. The project is planned to have a gas delivery point at Lüleburgaz in the Kirklareli region of Turkey for Turkish customers, while a delivery point at the border crossing between Turkey and Greece in İpsala will serve European customers. The length of the Turkish onshore section will be 180 kilometers (112 miles). The 1,100 kilometer (683 miles) Turkish Stream pipeline will have four lines and an annual capacity of up to 63 billion cubic meters (bcm) of gas. About 16 bcm will be supplied to Turkey while the remaining 47 bcm will go to a hub on the Greek- Turkish border to be transported onwards to Europe.

Although Russia determined the project route and pipeline capacity, some obstacles remain. According to the Russian authorities' road map, the project has two main partners: Turkey and Greece. On the Greek side, after the left-wing party, Syriza, came to power in the January 2015 election, Russia welcomed this result. It has been well documented that Russia favored Syriza, similar to the National Front in France and Jobbik in Hungary. This did not arise from these parties' pro-Russian tendency, but their insistence on countering Brussels-led strict policies. Therefore when Greece's Prime Minister Tsipras met with Vladimir Putin in April during Tsipras' Moscow visit, the international community, and the EU in particular, followed the visit with caution.

In addition, the EU and the U.S. began to pressure Greece to withdraw from the Turkish Stream project. Washington discharged their Greek envoy because of his failure to convince Athens to withdraw from the Russian project. While the EU and the U.S. endeavored to prevent Greece from joining the project, Greece and Russia inked a $2.3 billion deal to extend the Turkish Stream pipeline through Greek territory furthering strengthening its hand against the EU.

Firstly, while Greece suffers from a deep debt crisis and urgently needs foreign investment, Turkey's economy is in a better position and does not require foreign backing as critically as Greece. Secondly, the Turkish Stream is an important step for Greece in becoming an energy hub, while Turkey already holds other significant projects including the Trans-Anatolian Natural Gas Pipeline (TANAP). Thirdly, Turkey's geostrategic location is more attractive not only for Russia, but also for the Caucuses and Middle Eastern States like Iraq and Iran. Therefore, despite Turkey's willingness to be part of the project, Ankara does not intend to rush into the project. Instead, it is prioritizing the ongoing TANAP project.

Turkish Foreign Minister, Mevlüt Çavuşoğlu, clearly underlined its importance with his statement on Dec. 13, 2014, "We know how important [TANAP] is for Turkey, Georgia and Europe, particularly southeastern Europe. Along with the TAP [Trans Adriatic Pipeline], the TANAP is a project that could carry natural gas to different European countries. We should all exert efforts for the completion of this project, regardless of the decrease in oil and gas prices."

Gazprom had some difficulties in the project process due to Russia's own economic circumstances and Europe's imposition of sanctions on Russia after the Ukrainian crisis.

Prior to the proposed Turkish Stream, it would have been very difficult, if not impossible; to concurrently finance the Turkish Stream and any other planned energy projects. This was one of the main reasons Gazprom sought international financial partners for its projects.

Although the Russian economy is on its way to recovery, it is obvious that neither the Russian government nor Gazprom have the finances in place for the entire Turkish Stream project. As the project will be completed in stages, the first phase of the project plans to end in 2017 for the Turkish Market while the other three phases thereafter plan to be complete by 2019.

Moreover, before the South Stream was aborted, some companies in Europe were granted the rights to take part in the South Stream construction stage but with the project cancelation, these companies suffered in the stock market especially one of Austria's largest listed industrial companies, OVM. As a result, many energy companies are thinking twice before taking part in Gazprom's projects, as there are no guarantees that the project will go ahead as previously witnessed.

Furthermore, Gazprom unexpectedly signed a set of Memoranda of Intent with the European gas companies, E.ON, Shell and OMV during the St. Petersburg International Economic Forum 2015. With this move, Gazprom aims to construct two additional gas pipeline strings along the Nord Stream pipeline system connecting Russia and Germany through the Baltic Sea. With these memoranda, the aim is to double the current capacity of the Nord Stream from 55 billion cubic meters (bcm) per year to 110 bcm per year. Both the Turkish Stream and an expanded Nord Stream indicate that Russia does not intend to abandon its position in the European market by focusing attention on the Asian market instead. However, both projects will have almost the same capacity after the Nord Stream is extended.

This development triggers the progressively urgent question of the necessity of the Turkish Stream especially when considering the European tendency to make every effort possible to develop alternatives to transport natural gas from Turkmenistan to Europe, using either the Trans-Anatolian, the Trans-Adriatic or the Trans-Caspian pipelines.

As a result, Russia and Greece are moving speedily on the Turkish Stream while Turkey prefers to take a sedate pace to thoroughly evaluate the situation.

Aside from both sides' approaches, it is clear there will be economic and political difficulties in the near future for the Turkish Stream. Beyond the exogenous risks, Gazprom's intention to expand the Nord Stream's capacity calls into question the future of the Turkish Stream.

When taking account Russia's economic situation and Gazprom's lack of finance for the project, there are some points which need to be clarified by Russian authorities as to how Russia will finance the project especially after Gazprom aims to expand the Nord Stream. Nevertheless, despite this lack of clarity, it is not easy for Russia and Gazprom to cancel the Turkish Stream. Should Gazprom take such a step, the company's international reputation and reliability would seriously be wounded.

Therefore, although Russia is intent in realizing the project, Russia's rush for the deal can be interpreted as support for Greece against Brussels' new economic measures while offering little help to Athens to remain in the Eurozone.

naturalgaseurope.com

More:

GAS PIPELINE GAMES

GAZPROM: NORD STREAM - 2

EU GAS STRATEGY

RUSSIA'S GAS ADVANTAGE

RUSSIAN GAS FOR EUROPE

Tags: GAS, RUSSIA, TURKEY, GREECE, STREAM, PIPELINE

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RUSSIAN - TURKISH STREAM
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