5 Views on Russia-Turkey Ties

Rising tensions between Ankara and Moscow have focused attention on bilateral energy issues, notably the future of Turkish Stream and possible alternative gas supplies to Turkey. Against this backdrop, Natural Gas Europe asked five experts the same questions to understand their view on the current situation.

What consequences do you think there will be from the current tensions between Turkey and Russia?

Sergey Oleksiyenko, Senior Adviser to CEO, Naftogaz of Ukraine


The recent tensions are not as surprising as the preceding rapprochement. Turkey is a major regional player. It pursues a pragmatic and reasonable policy towards its neighbors. The country has never supported Russia’s regional conflicts in the North Caucasus, Azerbaijan, militarisation of Armenia, Georgia, military annexation of the Crimea, political back-staging in Bulgaria and Greece, and military intervention in the Ukrainian East. Russia’s military intervention in Syria is yet another step that ignores Turkey’s vital political and economic regional interests. It is not surprising that Turkey is now pursuing a more assertive policy.

Volkan Özdemir, Director, Energy Markets and Policies Institute (EPPEN)

 
Escalation of tension between Turkey and Russia after the shooting down of a Russian jet seems to be worsened and will have negative effects on Turkish-Russian energy relations.
 
Russian exports ($15 billion) to Turkey will be severely affected. Russia currently accounts for 30% of Turkish coal and 15% of Turkish oil & oil products imports. Those are not indispensable for the Turkish energy mix and could easily be substituted.
 
The situation is more complicated regarding natural gas. This is not only because the share of Russian gas in Turkish total consumption is slightly more than 50% but also because of some economic and technical difficulties. Keeping in mind that Russia is the largest supplier of natural gas to Turkey and Turkey is the second biggest customer of Gazprom, it is hard to assume that there will be a total gas cut amid Turkish-Russian geopolitical tensions. However, this does not guarantee the unlikelihood of some temporary cuts from the Russian side under technical excuses in winter season as a political blackmail. 
 
Under such a scenario, it is clear that Turkey might be in trouble to balance its gas need basically because of the technical limitations but if a serious problem related to Russian gas flow occurs, this will only accelerate the import diversification plans of Turkey. And starting from 2018, with TANAP, Iraqi Kurdish gas and more LNG imports, Russia will lose huge market share in Turkey.
 

Gal Luft, Co-Director, Institute for the Analysis of Global Security (IAGS)


I still think that there is good chance the current crisis will wane so we need to give it more time before we make determinations. The reason is that the two countries are heavily dependent on each other. Turkey gets 60% of its gas from Russia and is dependent on Russian funding for its nuclear facility. Russia depends on Turkey as the largest consumer of its gas. With so much at stake, the two countries simply cannot afford to let the recent tension over Syria derail their economies and energy security. 

Tatiana Romanova, Associate Professor, St. Petersburg State University 

Firstly, we see practically an absence of any political dialogue. Chances for a confrontation on the ground are very palpable. Secondly most economic contacts are stopped (including the work of the inter-ministerial commission). Thirdly, there is an active information campaign on both sides, anti-Turkish leadership on the Russian side and anti-Russian leadership on the other side.

It also affects innocent people, especially in Russia. We will see, as a result, a worsening of the overall climate of the relations between Turkey and Russia and serious economic losses on both sides. Big energy projects (like the nuclear power station or Turkish Stream) are not under the Russian sanctions. At the same time it is clear that the climate is in no way good for them to be implemented in a medium-term perspective.

Do you think these tensions mean the end of Turkish Stream?

Oleksiyenko, Naftogaz


The project was a political bluff from the very start and was not justified economically.
Turkey took the opportunity to explore options and potential benefits without committing to the project. Turkish Stream did not serve the purpose of diversifying supply sources but could have potentially improved security of Russian gas shipments during the winter season. However, there are other options to help Turkey improve security of supply, in particular, in the Istanbul area.

Özdemir, EPPEN

I think the Turkish Stream project, which was very controversial from the beginning, is definitely over now because of ongoing geopolitical tensions. Russia's long-term strategy of promoting this project to use Turkish territory just as a corridor (not a hub) in order to avoid Ukraine transit and skip EU regulations is rejected and thwarted by Ankara. Turkey has been well aware of the real Russian intentions from the beginning and that's why it's not eager to realise Turkish Stream.

Romanova, St. Petersburg State University

For now yes. Again, for both Russia and Turkey, stakes are too high in Syria and, therefore, I do not see how the Turkish Stream can be realised in these circumstances. Add to this that EU consumers are not ready to commit themselves to buying gas this way or to develop the necessary infrastructure there or to grant an exemption from the third liberalisation package for this transport route in the EU's territory.

Finally, Russia is short of resources to construct pipelines just for the sake of pipelines at present (the way it previously did to create jobs or additional channels of wealth redistribution through mega-projects of this kind). So, yes, I do not see how the Turkish Stream project can be implemented in the near future. Some 16 bcm [billion cubic metres of gas] were destined for Turkey itself in the Turkish Steam project. I believe, however, that Turkey will not increase its dependence on Russia in the near future. We see that Turkey has engaged in an active search of alternative suppliers. In any case, if it is only for consumption in Turkey, adding the capacities [necessary] in Blue Stream would make more sense than constructing the Turkish Stream.

Jack Sharples, Professor at the Department of Political Science and Sociology, European University at St. Petersburg

Certainly in the short term, the diplomatic tensions between Russia and Turkey mean that Turkish Stream is not realistic. 

What do you think Russia will do next in terms of promoting its gas exports?

Oleksiyenko, Naftogaz

Russia’s actions are not as important as the ability of other countries to defend themselves against Russia abusing its dominant position.

Luft, IAGS


Sure enough, Russia will continue to seek diversified relations with its neighbours and former Soviet republics in order not to be dependent on the current set of conduit. While Turkish Stream may not be viable under the current climate, Russia will focused mainly on forming its position in the Middle East--possibly getting closer to Iran, with which it shares common interests in Syria. But its main focus will be on the Nord Stream-2 pipeline. These 55 bcm a year injections of Russian gas into Europe will not only provide Russia the security of demand it needs but also deliver a punch in the face to Ukraine. 

Romanova, St. Petersburg State University 


Export where? To the EU? Several things. Firstly, more flexibility with prices (indexation to spot markets, reduction of take-or-pay obligations, discounts will be maintained and enhanced). Secondly, Russia will bet on the Nord Stream-2 pipeline and, when the time is ripe, possibly on the reconstruction of the Ukrainian system. Russia will also watch with interest how the conflict between Italy and Germany regarding gas import vs. sanctions will develop. Finally, we will probably see more discussions on liberalisation of gas export inside Russia because of the interest of Rosneft and the unfavourable situation in the traditional for Rosneft oil markets.

Russian plans to develop LNG capacities will be postponed (due to the unfavourable price dynamics and limits in the access of Russian companies to western capital and technologies). At the same time efforts to enhance the presence in the Asian markets will be maintained. 

Sharples, European University at St. Petersburg 


In terms of what the two sides will do next, obviously Gazprom has Nord Stream-2 in Europe and its plans for pipeline exports to China, although both of these projects face significant challenges. For Nord Stream, the challenges are regulatory, in terms of connecting Nord Stream to the onshore European pipeline network. In the East, the decline of international oil prices has significantly reduced the short-term profitability of Gazprom's contract with CNPC. Given the scale of the investment involved, a prolonged period of low prices could prove a major headache for Gazprom, whilst simultaneously increasing the competitiveness of alternative LNG supplies to China.

What do you think Turkey will do next in order to promote its gas imports?

Oleksiyenko, Naftogaz


The cancellation of Turkish Stream is not the most prominent outcome of the current situation. Turkey filed an international arbitration claim demanding to review the cost of Gazprom’s past gas supplies as well as the pricing formula. Secondly, there is a totally new impetus to the Turkey-EU energy dialogue. If Turkey adopts the EU approach towards the energy markets in the region, Russia will face a very different marketplace based on the rules which can no longer be abused or ignored. Turkey is likely to base its policy on further diversification of supply sources, fair market terms of trade with all neighbours and continued development of the domestic infrastructure. In bilateral energy projects jeopardised by the recent tensions, Ukraine is ready to substitute Russia with matching technology and skills.

Özdemir, EPPEN


The main consequence of this tension between two sides is that Turkey, by turning its back to Russia, now focuses more on to create a more liberal, liquid and competitive gas market and to re-integrate it into the European one from which it has been decoupled since 2008. Therefore, I can conclude that a new age is beginning: The EU, especially Germany, Ukraine and Turkey are again getting closer and in the long run this will cause serious damage to now isolated Russia.

Luft, IAGS

Turkey for its part may have to rethink its self-imposed ban on LNG traffic through the Bosphorus, allowing itself as well as the other Black Sea countries to enjoy cheap LNG imports. It might also become more engaged in the East Mediterranean gas play. 

Romanova, St. Petersburg State University 

Well, there are two alternatives for Turkey. One is Iranian gas, another one is gas from Qatar. Both are costly, although for different reasons (in the Iranian case the infrastructure is too old; in the case of Qatar at present the talk is about LNG; but long-term prospects might involve pipeline gas). Both sources are also linked to the conflict in Syria (the Iranian position there is different from the Turkish one, whereas a Turkish-Qatar alliance for the sake of ground transportation will require a radical change in Syria). This brings us back to the issue of political and military confrontation in the area.

Sharples, European University at St. Petersburg

Even now the Turkish government is talking about reducing its dependency on gas imports from Russia. From Gazprom's perspective this is unfortunate, because the Turkish gas market is growing, while the European market is largely stagnant as declining demand is roughly balancing a steady decline in European gas production.

Sergio Matalucci is an Associate Partner at Natural Gas Europe. He holds a BSc and MSc in Economics and Econometrics from Bocconi University, and a MA in Journalism from Aarhus University and City University London. He worked as a journalist in Italy, Denmark, the United Kingdom, and Belgium. Follow him on Twitter: @SergioMatalucci

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