Turkish Stream May Strengthen Turkey's Hand with Suppliers
As the South Stream Pipeline Project was shelved by Russia, President Vladimir Putin opened a new chapter to cement its position as the main supplier of natural gas for the European Union. The Turkish Stream Pipeline Project, which will ship natural gas to Turkey's western border through an offshore pipeline under the Black Sea, has the gained attention of both the EU as well as in Turkey or Greece.
Natural Gas Europe spoke with Michael Moynihan of Wood Mackenzie about the natural gas projects in the Caspian, Turkey and Russia. Mr Moynihan is Principal Analyst for the Russia and Caspian Upstream Research. He joined Wood Mackenzie in 2008, having spent 11 years at BP in variety of commercial roles.
"Turkish Stream and TANAP are not competitors, we can be in both projects," said Turkish Energy Minister Taner Yildiz recently. What is your position on TANAP and Turkish Stream with regards to competition between to projects?
Michael Moynihan (MM): In the short term, the pipelines aren't in open competition. Turkish Stream is designed to redirect existing contracts in the western part of Turkey with its initial volumes. TANAP will deliver gas to western Turkey but also, and more importantly, to Italy, Greece and Bulgaria. Competition will grow, however, as the capacity of both pipelines increases. The real battle will lie in which pipeline can overcome regulatory hurdles to satisfy growth in both the Turkish and European markets at a price acceptable to consumers.
Can TANAP satisfy Europe's energy supply needs as it diversifies away from Russia?
MM: Absolutely, but volumes will be limited in the short term. TANAP has political and commercial support from Azerbaijan, Turkey and the EU. The pipeline is supplied by a country other than Russia, namely Azerbaijan, and provides an opportunity to diversify gas supplies to Europe in the longer term, and ultimately increase the volume of supply from non-Russian sources.
What's your take on Turkish Stream? Is it purely a political project or are there economic reasons that underpin the pipeline? Moscow already stated that the project could be completed late 2016 to deliver gas to Turkey. How realistic is this time-frame?
MM: Turkish Stream, like South Stream, is a political pipeline for the most part. It satisfies the political desire of Russia to bypass Ukraine, and will increase Russia's diversity of supply routes to existing markets. The pipeline will strengthen the political relationship between Russia and Turkey. Commercial considerations do come into play in the Turkish Stream pipeline. The pipeline further cements commercial relations between the two countries. It makes commercial sense for Russia to utilise pipe it has started to build onshore Russia and ordered for the offshore Black Sea leg.
The cost of this is higher than using existing routes to the Turkish market across transit countries, and clearly Turkish consumers will not accept higher prices to recompense this investment. Indeed, Turkey could be a winner on the commercial side. It now has two competing sources of supply, with the option of growth in capacity available on both. This should help in any price negotiations Turkey has with suppliers.
The construction of the first two strings with a total capacity of 31.5 bcm could begin shortly. It is entirely feasible Russian gas to supply the Turkish market via Turkish Stream by early 2017. The commercial rationale, in addition to the regulatory hurdles that need to be overcome with accessing EU markets, is less compelling for expanding Turkish Stream capacity to 63 bcm.
What's your opinion on the creation of the EU Energy Union? Will the EU manage its energy security challenges?
MM: The creation of the Energy Union reflects a growing trend within the EU to speak with one voice on energy matters. The challenge it will face is coordinating the energy policies of individual member states and managing their sometimes long-held energy relationships with Russia to ensure supply diversification continues.
ON THE YAMAL PROJECT
Total CEO Patrick Pouyanne gave an interview to the WSJ late March regarding the Yamal LNG project in Russian Arctic. He outlined intentions to finance the project via Chinese banks (for $10 billion). As the West tightens its grip on Russia with extended sanctions, can Total realize the Yamal project in this difficult environment?
MM: The Yamal LNG project can be realised, even in this difficult environment. Technical and commercial challenges still need to be overcome. Total, however, will not be acting alone in progressing the project. The company has a 20% stake, along with NOVATEK at 60% and CNPC with the remaining 20%. The Russian government has also stepped in with financial support from the National Welfare Fund. Chinese financial support will be key. The transfer of LNG technology to Russia is not blocked by sanctions at present, whereas the pace of shale oil and Arctic offshore developments has slowed considerably because of the effect of sanctions.
Murat Tinas