Tuesday

25th Sep 2018

Analysis

Can Russia's new Turkish gas project work?

  • Turkey is playing the long game - not antagonising either Moscow or Brussels (Photo: south-stream-offshore.com)

Russia has found at least one supporter in the EU for a new natural gas pipeline project dubbed Turkish Stream.

Hungarian prime minister Viktor Orban is open to the idea of constructing the necessary infrastructure for the project, which is to replace the failed South Stream pipeline that would have brought gas from Russia to the EU via Bulgaria.

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Orban made his position clear last month during a visit by Russian president Vladimir Putin to Budapest.

Putin's Hungary visit came a month after Russian state-owned energy company Gazprom's head Alexei Miller surprised EU energy commissioner Maros Sefcovic with the announcement that if the EU wants to continue receiving the 63 billion cubic metres of gas that is currently flowing through Ukraine, it had to “immediately” start building to link-up with Turkish Stream, at the Greek-Turkish border.

“It would be a good investment for Hungary if it makes sure that Turkish gas goes through Greece, Macedonia, and Serbia to Hungary”, Orban said.

But how likely is it that Turkish Stream will succeed as a replacement of the Ukrainian gas route?

Drawing a virtual pipeline, from its planned entry point on the Turkish coast of the Black Sea, one can imagine it going through Greece, Macedonia, Serbia, and Hungary, and then onwards to Austria.

Politically, that would make sense.

Recent elections in Greece brought to power a Moscow-friendly government. Alexis Tsipras, in a highly symbolic move, met the Russian ambassador on his first day as prime minister of Greece.

Non-EU members Macedonia and Serbia are also Russian-friendly.

But economically?

Two analysts who spoke to this website at an event organised by the European Policy Centre on Tuesday (3 March), were sceptical.

'Massive investment'

“I haven't made any calculations, so whatever I say would be a wild estimation, but there are going to be huge costs”, said Mehmet Ogutcu, chairman of an energy advisory group and former Turkish diplomat.

Dimitar Bechev, from the London School of Economics, was also unable to give a specific figure, but spoke of a “massive investment”.

“You're looking at at least half a decade of developing infrastructure”, he said.

European energy companies currently have contracts with Gazprom saying that gas should be delivered to the German border town Waidhaus and Austrian border town Baumgarten - delivery points that date back to the days of the Iron Curtain.

“The big energy companies in the EU would have to agree to get gas delivered to the Turkish-Greek border (instead of to Waidhaus or Baumgarten). It's not a given that they will, unless there is a big price discount”, said Bechev.

But Putin has indicated that work on the pipeline will begin anyway.

“We will build a gas supply network [to Turkey] whatever the case and are ready to develop it as needed for gas to come via Turkey to the European Union too”, he said in Hungary.

But Turkish demand could not fully replace the 63 billion cubic metres of gas that Gazprom announced would be diverged from Ukraine, noted analyst Ogutcu.

“The real market is not Turkey. Turkey will go for only 15.75 bcm”, he said. "The rest will have to go to Europe."

Pragmatic Turks

But what if Gazprom fails to persuade European companies to link up? What does that mean for Turkey?

“Turkey says: it's not my problem. If they [Gazprom] want to build it, it's their risk, it's their money, it's their gas”, said Ogutcu, adding that the Turkish government is taking a “pragmatic” and “smart” approach.

“It doesn't antagonise Brussels, ... it doesn't antagonise Moscow”, said Ogutcu.

Commissioner Sefcovic is planning to visit Ankara to discuss “EU-Turkish energy relations, which include infrastructure”, a spokesperson said, although a date has not yet been set.

Sefcovic is likely to discuss not only Turkish Stream, but also progress on the Southern Gas Corridor, a rival pipelines project aimed at transporting natural gas from the Caspian Sea and the Middle East to Europe, to decrease the EU's dependence on Russia.

The European Commission recently reaffirmed its commitment to that project in a strategy paper on the EU's energy policy.

The Trans-Anatolian Natural Gas Pipeline (TANAP) is part of the Southern Gas Corridor project, meaning Russia will try to finish Turkish Stream before TANAP, Ogutcu said, probably around 2019 to 2020.

“But Turkey doesn't want to undercut the Southern Gas Corridor, because Turkey is a shareholder in [Azeri gas field] Shah Deniz 2 and in TANAP. There's no reason why they should spoil this.”

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