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Russia Takes Major Leap in European Gas War by Completion of Turk Stream Pipeline

By Vanand Meliksetian

Oil Price, Al-Jazeerah, CCUN, November 18, 2018 

 
The first string of Turk Stream, the subsea pipeline supplying Russian gas to Turkey  
 
 

On November 19th, President Putin will stand shoulder to shoulder with President Erdogan during a ceremony to celebrate the completion of the first string of Turk Stream. The subsea gas pipeline will transfer 15.75 bcm directly from mainland Russia to Turkey. The capacity will double after the second string is completed. The pipeline will be operational at the end of 2019. Despite several setbacks, mutual interests concerning security and trade have ensured the strengthening of cooperation between Russia and Turkey in the face of opposition from the West. The first string of Turk Stream, which is almost completed, is important for bilateral relations. The second string, however, will service the European market and is a sign of Gazprom’s successful strategy in the face of opposition from the EU and several European countries.

(Click to enlarge)

Rising tensions between Russia and the West after the crisis in Ukraine and the annexation of Crimea made Moscow reconsider its massive South Stream project. The pipeline would circumvent Ukraine and transport 63 bcm of natural gas to Europe via Bulgaria. The unbundling legislation and strong opposition from both Brussels and several European countries made Gazprom ditch South Stream and opt for a smaller albeit equally important Turk Stream. The strategy has worked as European companies are scrambling to participate in the project.

(Click to enlarge)

South Stream’s backyard

Pricing disputes between Russia’s Gazprom and Ukraine’s Naftohaz Ukrayiny in the 2000s created a need on the Russian side to decrease transit dependency. After Nord Stream’s success, South Stream would have connected consumers in southeast Europe directly with Russia’s vast gas resources. Critics point out that state-controlled Gazprom intends to increase pressure on Ukraine by depriving it of billions of dollars in transit fees and weakening its negotiating position. The latter would be achieved by reducing the country’s transit importance. Moscow, however, insists that the projects aren’t a malign plan vis-à-vis Ukraine, but have the goal of improving energy security in the region.

While both the first and second string reduce transit through Ukraine, the latter is more important for political and symbolic reasons. Gazprom has yet to decide which direction the second string of Turk Stream will be heading: north into South Stream’s backyard or west into Greece and finally Italy. Bulgaria has already increased the capacity of the Trans-Balkan pipeline to 15.75 bcm in a bid to receive the entire volume of the second string. Despite Sofia not being the strongest candidate, it makes sense from a strategic point of view.

Whether it is for political reasons Moscow intends to increase pressure on Ukraine or the improving of energy security in the region, the goal decides the means. In this case, Turk Stream should be substituting natural gas coming from Ukraine in order adhere to Gazprom’s goal. The prime reason of the western route through Greece is the larger market of Italy, while southeast Europe would still receive its gas from Ukraine.

Political principles vs. economic goals

Moscow maintains close diplomatic relations with both Greece and Italy. Rome’s incumbent Prime Minister Conte recently visited Moscow in a show of support where he hinted that the European sanctions on Russia are counterproductive. He didn't provide an answer on whether Italy will veto the half-yearly extension of EU sanctions due this December. It is, however, reasonable to assume that natural gas was on the agenda. Whether the choice will be made for Greece and Italy is not yet clear.

Related: Natural Gas Markets Remain Ultra Tight

The existing interconnector between Turkey and Greece is currently operating at a low 6 bcm capacity while 10 is the max. So, there is the spare capacity to use without additional investments. Gazprom is also looking into the frozen plans for the Interconnector Turkey-Greece-Italy or Poseidon pipeline which was shelved after it lost to the Trans-Adriatic Pipeline or TAP.

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From an economic point of view, it makes sense to facilitate the larger and more wealthy market of southern Europe. However, high costs of constructing a subsea pipeline and competition from TAP make it less plausible. TAP is in a far more advanced stadium with construction plans ready and financing secured. Furthermore, the consortium in charge of the pipeline has another trump card Gazprom can’t surpass: backing from the EU.

Gazprom’s success

Although Turk Stream’s capacity is half compared to South Stream’s, the pipeline has the potential to significantly impact European markets. Despite efforts by Brussels to halt Russian projects in Europe, Moscow seems assured that it will succeed: Nord Stream 2 is already under construction, Turk Stream’s first string is nearly completed, and the second one will follow soon. What is striking in the case of the second string, is the scrambling by Greek, Bulgarian, and Italian companies and politicians to receive natural gas from the Turk Stream pipeline. With every passing day it becomes ever more likely that these pipelines will be completed.

https://oilprice.com/Energy/Energy-General/Russia-Takes-Major-Leap-In-European-Gas-War.html

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