New Russian Pipeline Plans a Win for Turkey

Russia's announcement this week that it would be abandoning the construction of the South Stream pipeline through countries in South-eastern and Central Europe, but building an alternative pipeline through Turkey is great news for that country, according to Dr. Mehmet Efe Biresselioglu, Head of Sustainable Energy Division and Associate Professor of Energy Security and Geopolitics at Turkey's Izmir University of Economics.

He explains, “Turkey's fulfilling its desire of being a transit country, together with the Trans Anatolian Pipeline project, and will receive additional natural gas from this pipeline, so Turkey will have a chance to become a hub and so it seems like a win for Turkey.”

And while Monday afternoon's announcement may appear to be a defeat for Russia, Dr. Biresselioglu explains that the new project with Turkey will still use elements being constructed for South Stream, carry 63 BCM/annum of gas to the Greek border, with 14 BCM going to Turkey, whose growing economy needs the supply.

The project, he says, bears economic benefits for both sides, especially in the context of increased trade between Turkey and Russia in the wake of Western economic sanctions.

By choosing Turkey for the project, Russia's move, he says, has more to do with “security of demand” than security of supply. He explains that Turkey enjoys gas price discounts of 6% and that could increase to 15% via the country's eventual status as a transit state.

Meanwhile, as for relations between Russia and Turkey, András Deák, Senior Research Fellow at the Hungarian Academy of Sciences' Institute of World Economics, describes them as complex; their gas relations, he adds, involve a lot of bargaining. 

Instead of being in competition with Southern Corridor projects like the Trans Anatolian Pipeline TANAP (which will traverse Turkey) or the Trans Adriatic Pipeline (TAP), he contends the new Turkish-Russian pipeline could work off of the synergies of being in the same neighborhood: potentially transporting Russian gas further afield to other European markets. That could be likely, he says, as much of the Southern Corridor capacity may be underutilized.

He offers, “This would be very strange, because the European Commission gave the TAP pipeline an exemption, because they said it provided diversification. If Russian gas comes through an exempted pipeline that's going to be very funny for everyone.”

Also, the optionality provided by TAP, explains Mr. Deák, is also good for Turkey: “They need the optionality if the Turks don't want to pay the Russian's price for the gas, which can go to Europe where it will fetch a normal market price.”

As for how the new Russian pipeline might alter Turkey's close relations with its energy partner Azerbaijan, Dr. Biresselioglu notes that the capacity will be more than twice that of TANAP.

“The question is, will it benefit European energy security? But we don't know that because the European economy hasn't fully recovered yet, and we don't know if it will return to pre crisis gas consumption on the industrial side.”

If, indeed, Europe's gas demand stays low, then things could become competitive with the Southern Corridor, because there will be more gas than needed, he says.

Meanwhile, Dr. Biresselioglu contends that Turkey's participation in the project will act as a balancing point in the relationship triangle between itself, Russia and the EU.

Mr. Deák opines that, by abandoning the South Stream project, Russia is placing more of the burden for energy security in Central and South-east Europe on European shoulders.

Of the Russian side, he explains, “They're saying 'okay, we won't help in the Ukrainian gas situation any more – it is your responsibility. Please finance Ukraine, fill the gaps in the budget, keep it above water, but if they steal a cubic meter of gas from the pipeline we will stop supplying.”

And, he says, being hit by Western sanctions Gazprom likely doesn't have the money to move forward on South Stream.

“Gazprom and other state-owned enterprises cannot finance it, because of the sanctions – they can't access additional volumes of dollars and euros, and if you look at how much money they have to pay back it's quite a substantial sum: one third of the Russian GDP to pay back in the next 5-6 years. And if you can't finance this, that's quite a big burden,” remarks Mr. Deák.

This, he says, may now be the political and military aspects of the Ukraine crisis infecting Europe's energy relations.

As regards how prepared Central Europe is to receive gas deliveries with Gazprom seeking the transit avoidance of Ukraine, and without South Stream coming to the rescue, if Russia is delivering less gas to the region, Mr. Deák says security of supply will diminish and gas deliveries will be more expensive via interconnectors, or especially if those dependent on Russian sources have to rely on LNG shipments.

However, for some countries in the Balkans, a pipeline through Turkey is not bad news. “Gas through Turkey offers light at the end of the tunnel for Bulgaria and Romania,” he explains, “because they can be supplied easily.”

-Drew Leifheit