Putin Surprises All as South Stream Fades Away
"Chess is the most intellectual sport in the world."
That statement was made this past June by President Vladimir Putin to executives of the Russian Chess Federation.
Putin, often pictured in various physical pursuits, may not have been well matched in chess to those in his audience, but he does know how to create a diversion with a keen strategy.
In a state visit to Turkey's capital city of Ankara, Putin took both a large step forward in building an energy partnership with Turkey and to changing the European energy landscape at large.
In a press briefing with Turkish counterpart President Recep Tayyip Erdogan, the Russian President appeared to banish the South Stream pipeline project to join the ranks of other unrealized infrastructure projects.
Putin said "South Stream Project could not continue in this environment," pointing to a reluctant attitude from Bulgaria.
Bulgaria had taken a decision in June to freeze the building of the pipeline, following a European Commission threat of infringement procedures. The Bulgarian tenders for building the pipeline did not fulfill European Union criteria and the project itself was not in line with the EU’s Third Energy Package stipulating third-party access.
The October 5th Bulgarian election saw the formation a new coalition government led by GERB’s Boyko Borisov, not favorably disposed toward the gas pipeline that was supposed to circumvent Ukraine and deliver Russian gas to Italy and Central Europe.
"If Europe doesn't want it implemented, it won't be implemented," Putin commented, stating that the European Union, which sanctioned Russia trade relations after annexation of Crimea, had encouraged Bulgaria to block South Stream.
Many of the governments in the region have been put under pressure both from Gazprom and from the European Commission: the Russian gas giant was pressuring governments to build the pipeline, while the European Commission tried to convince them to block the project.
"Don't you understand that it is ridiculous for us to put hundreds of millions of dollars into a project to go through all the Black Sea and then come to the surface before the Bulgarian shore?" the Russian President continued.
"We will orientate our energy resources to other regions of the world and Europe will not receive those volumes (that it had) from Russia. But that is the choice of our European friends," Putin said.
NEW PIPELINE TO TURKEY
"We decided to construct a new gas transfer system to meet Turkey's needs and to create a hub for natural gas supplies for Southern European consumers through Turkish territories," Putin said in the press briefing with Erdogan.
OAO Gazprom's CEO Alexei Miller later filled in the details announcing that the Russia's state controlled gas exporter had signed a memorandum on building a new pipeline under the Black Sea, which would be capable of pumping about 63 BCM per year to Turkey, the same capacity as the South Stream.
Miller also said that the pipeline will start from Russkaya Compressor Station same as the South Stream Pipeline.
In addition, Russia will decrease natural gas prices for Turkey from 2015. According to Putin's remarks, Russia will discount 6% natural gas prices, which may increase further in the near future. Turkey is Gazprom's second-biggest customer after Germany.
Russia also agreed to expand the Blue Stream Pipeline, which will be expanded to carry 19 BCM from its current 16 BCM per year. Russia sends gas to Turkey via two routes. In addition to the direct route across the Black Sea, Russia is also sending up to 14 Bcm/year of gas through the Transbalkan pipeline via Ukraine. These deliveries potentially face disruption due to the conflict in east Ukraine.
"Putin's move of abandoning the South Stream and creating a new route for a natural gas pipeline is a move of a grand-master," said Arif Akturk, an energy expert specializing in natural gas. Akturk, who is also general manager of NaturGas Turkey, said that the move will strengthen Russia's hand to compete against TANAP, which will ship Azeri gas to Turkey's western border.
"Turkey needs to use this opportunity wisely to become an energy hub in the region. We need to create a transparent, standardized natural gas system with ENTSOG (the European Network of Transmission System Operators for Gas) standards. Turkey's state owned gas pipeline company Botas needs to be a member of ENTSOG, which may be a first step to become a real hub," said Akturk.
TRADE AND OTHER ENERGY RELATIONS
Russia and Turkey are trying to extend their trade relations. The two countries want to triple their bilateral trade volume of $32.7 billion to $100 billion in 2023, the centennial of the Republic of Turkey. Currently, Russia is Turkey's second largest trading partner.
Turkey's Environment Ministry announced it approved an environmental assessment report for the country's planned first nuclear plant, which will be Russian built, taking the project one step closer to reality. The government has said the Akkuyu plant will be worth some $22 billion in investments.
In October, Turkey's Energy Minister Taner Yildiz said that review of the assessment report was expected to be complete in Novembe, and once a construction licence was issued some construction would start in April 2015. The company expected to commission the first unit in 2021.