A Turkish View: Eurasian Stream for a Eurasian Gas Hub
Natural Gas Europe had the pleasure to discuss the future of the Turk (Turkish) Stream project with Dr Volkan Özdemir, Chairman of EPPEN (Ankara based Institute for Energy Markets and Policies).
NGE: Do you personally believe in the Turk Stream project? What is the geopolitical value for Turkey?
VÖ: Let’s start with the name of the project. I am refraining to call this project Turk Stream as it is not officially declared and I do not know why media prefer to call it this way. I think it is misleading perception because Turkish BOTAŞ has not got any stake in the 910 km sub-sea pat of the pipeline, Turkish involvement will be limited only in 200 km length of the continental part. If there is a need for naming, then I think it should be the “Eurasian Stream” since it will end in Turkish-EU border and Turkey-Russia as two Eurasian powers will found partnership.
Regarding your question, of course I do believe in the realization of this project that has to replace South Stream. It was economically irrational for Russia to continue the South Stream project because of its high cost (about $35billion) in a time of declining oil prices, sanctions and construction of Power of Siberia pipeline. I think that Russian side should have cancelled the project and rather focused on exporting gas through Turkey mainly for economic reasons. So, the cancellation of South Stream was not a surprise for me and 3rd Energy Package of EU is not more than an excuse in that sense. I do believe in realization of this new gas pipeline but the capacity of 63 bcm declared by Alexei Miller is not needed. Taking into consideration the Turkish national demand (1st line 15,75 bcm to replace Turkish imports from West Line) and realities of the South-Eastern European market (2nd line with the same capacity), half of these volumes would be sufficient. Anyway, the plan is economically reasonable.
As for the geopolitical value, Turkey’s geopolitical position will upgrade because the country no more will become an end user of Russian gas. As you know, both from the Black Sea (Blue Stream) and from the West Line (Ukraine-Moldova, Romania, Bulgaria transit) Turkey is currently an end consumer for Russian gas. This project will turn Turkey into an intermediate user as Turkish territory will be used to export additional volumes to European gas market. It makes geopolitical position of Turkey stronger and will inevitably make Russia and Turkey closer to each other in a balanced way.
NGE: According to the official Turkish energy policy, diversifying energy resources is one of its main priorities. Will Turkey manage to do achieve this in having such close ties with Russia?
VÖ: I do not see any problem for Turkish energy policy to diversify resources from Russia. Currently Turkey gets about 60% of its gas from Gazprom. Certainly, it is also interested in other suppliers and there are agreements with Azerbaijan (additional 6 bcm from Shah Deniz 2 field) and Northern Iraq. Moreover, now Turkey is underutilizing its LNG capacity. I think because of declining LNG prices in the markets, subsidies in domestic market will no more prevent Turkish private energy companies to import more and more spot LNG. As you know, new supply wave is coming in LNG market and as a result prices are decreasing, so Turkey could be able to diversify its resources from. I want to remind the fact that, gas from ‘Eurasian Stream’ is planned to replace already existing gas imports through the West Line and it will not increase Turkish dependence on Russian gas.
NGE: You mentioned gas from Azerbaijan. Do you foresee the competition between TANAP and Eurasian Stream?
VO: It is a complicated question. As you know, 6 bcm gas from TANAP is allocated for Turkish domestic market and additional 10 bcm will be pumped to connect to Trans Adriatic pipeline (TAP) in the European market. So the gas from TANAP is already contracted. Nevertheless, the Russian strategy is to price Russian gas according to the other possible sources including Azeri gas by establishing a physical gas hub in Turkish-Greek border. It is quite interesting and important. I think the main aim for Russia is to develop a counterstrategy for the evolving European gas business model. For Russia, European market is still important but Gazprom will focus on selling its gas at the border and won’t engage in downstream activities in Europe. It means that Moscow is going to compete and price its gas relatively to other possible sources from Turkish territory: TANAP and possibly in the future Northern Iraq and even East-Med gas.
NGE: Where is this new Eurasian gas hub going to be situated? As I understand, one option is a physical hub in Turkey but A. Miller mentioned only transit through the country. Another option is a virtual hub in Greece, however there is the issue of the regulations of the Third Energy Package.
VO: This is the most important subject of negotiations and it is unclear now. Russian side seems to be more interested in using Turkey as a transit country and establish a physical gas hub on the Turkish-Greek border. This approach is not very satisfying for Turkish demands. I would recommend a virtual natural gas hub to be established in Turkey, not a physical one. Trade model in the European gas market is changing and spot prices in the proliferated gas hubs are prevailing over classical long-term contracts with oil indexation. Turkey should adopt itself into this change and benefit from the restructuring. I support the idea of Turkey to establish its natural gas hub in the country what I call “Eurasian gas hub”. Turkey could offer Russia to become partner in this virtual gas hub. In such case not only Russian but also Azeri, Iraqi and gas from other suppliers will be traded and linked to financial markets in Turkey. So it is a good business opportunity for Russia as well. On the other hand, Russian proposal to establish a physical point on the Greek border could make Turkey only a transit country and Greece a gas hub instead. That would never be in Turkish interests. Currently, Greek side seems to be better prepared for positioning itself as gas hub. Greece-Bulgarian interconnector will be completed by 2017 and all gas coming via Turkey, whether from Russia, Caspian or Middle East, is planned to be redistributed from Greece. More concretely, Turkey has already and not correctly opted to be a transit country or energy corridor for TANAP project by giving SOCAR majority stake in the pipeline. At the end of the day, this might be case with Russia as well. Here negotiations are important and I believe that Turkey should insist on establishing virtual gas hub in the country and offer Russians to become partner in this prospect Eurasian Gas Hub instead of a physical point. Then if the European customers are interested, gas will be available in the Western part of Turkey from the Greek or Bulgarian border. Shortly, this is an idea of Eurasian Stream for Eurasian Gas Hub and only if this idea is realized, we can speak about a multidimensional and strategic cooperation between Russia and Turkey.
NGE: How can this Eurasian Stream work if the EU do not cooperate and just refuse to build pipelines?
VÖ: There is no need to develop new pipeline projects. Since Turkey is out of the EU legislation, then European buyers would get gas from Turkish border through three different pipelines: First of all, there is TAP project. For the first 10 bcm capacity exemption from EU TPA regulations has been granted but the planned extension of 10 bcm is open to TPA and might be used. Secondly, there is Turkey-Greece natural gas pipeline and almost there is 6 bcm of spare capacity. Now it is underutilized so European partners could be interested in buying gas from that point of delivery as well. Besides, there is currently operating gas pipeline between Turkey and Bulgaria with the capacity of 14 bcm. With a modest investment, reverse flow could be provided and this pipeline could become available for gas supplies from Turkey to Europe. And that is why I think that half of the declared capacity- 31,5 bcm – of new gas pipeline between Russia and Turkey will be sufficient both for Turkish and South East European Gas Markets.
Marina Zvonareva is a Natural Gas Europe analyst focused on Russia’s international energy relations. Follow her on Twitter: @ZvonarevaMar1na