Why the Turk Stream Pipeline is not
the Best Option Neither for Russia nor for Turkey
It is very easy to understand that for Russia the Turk Stream is an inferior project when compared to the South Stream. That is of course when examining the pipelines from a geopolitical and not from and economic point of view. The South Stream would cost more, but it would bypass Turkey, which is Russia's regional rival. The South Stream would cross the Black Sea and exit in Bulgaria, a country that has good relations with Russia, and a country that cannot challenge Russia in the way Turkey can. Therefore the Turk Stream is at most a second best solution for Russia.
It is true that the Turk Stream costs less, and in economic terms it is a superior solution for Russia. However it is much better for Russia to sell her natural gas directly to Europe without any Turkish interference, and without having to pay Turkey transit fees and offering her large price discounts. According to the aforementioned Reuters article Russia agreed to a 6% discount on gas prices but Turkey wanted a 15% discount. The truth is that Russia needs Turkey, and Turkey is fully aware of that.
But the Turkish Stream is not the best option for Turkey either. In the same way that Russia does not want to increase her dependence on Turkey, Turkey does not want to increase her dependence on Russia. According to Turkey's Foreign Minister, the TANAP project is much more important for Turkey than the Turkish Stream, as you can read at the following article of Hyrriyet, one of the largest Turkish newspapers, titled 'Why TANAP is more important than the Turkish Stream', December 2014.
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According to Hurriyet it is difficult for both the Turk Stream (red line) and TANAP (purple line) to be constructed, because they aim at the same markets.
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Turkish Foreign Minister Mevlüt Çavuşoğlu had to clearly underline that Turkey‘s priority was the TANAP project."We know how important [TANAP] is for Turkey, Georgia and Europe, particularly southeastern Europe. Along with the TAP [Trans Adriatic Pipeline], the TANAP is a project that could carry natural gas to different European countries. We should all exert efforts for the completion of this project, regardless of the decrease in oil and gas prices,' he stressed.
Çavuşoğlu‘s statement is particularly important because he admitted that TANAP‘s objective is no different from the Turkish Stream. Both will supply natural gas to European markets. However, given the decrease in energy demands in European markets, it will be hard to have two pipelines operating at the same time.
http://www.hurriyetdailynews.com/why-tanap-is-more-important-than- the-turkish-stream.aspx?PageID=238&NID=75574&NewsCatID=429
I believe that Hurriyet is right when it says that it is very difficult for both the TANAP and the Turk Stream to be constructed, because there is not enough demand to absorb their huge construction costs and make both pipelines viable. Therefore the Turkish Stream and the Trans-Anatolian (TANAP) pipelines are in a sense competing pipelines. The pipeline that will reach Europe first will absorb a large part of the available demand and will make the construction of the other pipeline very difficult. Therefore it is not unrealistic to assume that in the end Turkey might have to decide which pipeline she prefers.
Which of the two pipelines best serves the Turkish interests? Is it the Turk Stream or the TANAP? The answer is obvious and it is the TANAP. With TANAP Turkey will depend on Azerbaijan, Northern Iraq (Iraqi Kurdistan), Georgia, and Turkmenistan, which are all very weak countries when compared to Turkey. With the Turk Stream Turkey will increase her dependence on Russia, which is Turkey's main regional rival for the last centuries.
At the following article, titled 'Gazprom's Dwindling Clout', February 2015, the New York Times wonder why on earth would Turkey want to increase her dependence on Russia with the construction of the Turk Stream? The article mentions that there has not been a final agreement between Russia and Turkey for the Turk Stream, and that Turkey is more interested in receiving price discounts for the natural gas that she is already importing from Russia, than on the actual construction of the Turk Stream.
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In some ways the Turk Stream project is even more problematic than South Stream. The Russian proposal envisages avoiding European legal entanglements by having Gazprom customers take delivery at that European border. But that hope could easily backfire. Once Russian gas enters Europe, it could be routed anywhere. A major storage point, particularly in summer, would be the vast facilities in western Ukraine. Turk Stream could further diminish Gazprom‘s influence by providing another store of natural gas immune to a Russian cut-off.
It is also uncertain how eager Ankara is to support Turk Stream. The country already receives 60 percent of its natural gas from Russia. Why would Turkey want to make itself more dependent on Gazprom when all of Europe is seeking less dependence? Despite an agreement to conduct a preliminary feasibility study, there is still no actual contract between the two countries‘ state-controlled energy companies to build Turk Stream. So far, Ankara seems more focused on obtaining extra discounts for the Russian gas it already imports through the Blue Stream pipeline. Chances of financing from Turkey are just as slim as they are from the West.
http://www.nytimes.com/2015/02/12/opinion/gazproms-dwindling-clout.html?_r=0
It must be mentioned that even though the agreement between Erdogan and Putin for the Turk Stream on December 2014 was not a binding one, it was agreed that the 6% discounts on gas prices would start running from January 2015. That means Turkey will receive the discounts for the natural gas she is already importing without having to wait for the construction of the Turk Stream. Turkey did not even have to sign a final agreement for the Turk Stream to receive the discounts.
From all the above it is clear that the South Stream was a much better solution for Russia, when compared to the Turk Stream, because it would bypass Turkey. Similarly it is clear that the TANAP is a much better solution for Turkey, when compared to the Turk Stream, because it reduces Turkey's dependence on Russia, and it increases Turkey's geopolitical might.
Besides, countries that sell natural gas and oil earn a lot of money, and they have stronger armies. Why on earth would Turkey want Russia to build an even stronger army when the two countries have been fighting for centuries? It is true that if unlimited quantities of natural gas could be sold through Turkey, Turkey would welcome the Russian natural gas, because the Russian sales would also generate commissions for Turkey. However this does not seem to be the case.
As the Hurriyet article was saying these two are competing pipelines, and in the end Turkey might have to choose one or the either. Once TANAP is built, and its normal operation is guaranteed, it is a sure thing that Turkey would welcome the Turk Stream as well. Therefore the point is not that Turkey does not want the Turk Stream. The point is that Turkey would not allow the Turk Stream to jeopardize the TANAP project. However what Putin really wants is to jeopardize TANAP. At least that's what he has been trying to do so far.
I must also say a few words about the Trans-Adriatic Pipeline (TAP), because it is closely related to the Trans-Anatolian Pipeline (TANAP). The Trans-Adriatic Pipeline will be a separate pipeline, but in a sense it will be an extension of TANAP. The plan is that TANAP will send natural gas from Azerbaijan, Turkmenistan and Northern Iraq to Greece and Bulgaria, and TAP will take natural gas from Greece and send it to Italy and Southern Europe, as you can see at the following map from a London School of Economics article, titled 'Who are the winners and losers from the cancellation of the South Stream pipeline'.
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http://blogs.lse.ac.uk/europpblog/2014/12/18/who-are-the-winners-and- losers-from-the-cancellation-of-the-southstream-pipeline/
Of course it is possible that at a later point another leg will be constructed, which will send the natural gas of the Caspian Sea and the Middle East to Central and Eastern Europe through Bulgaria. Moreover the Ionian Adriatic Pipeline (IAP), see yellow line at the following map, will connect Albania and Croatia. Therefore the South Caucasus Pipeline (SCP), the Trans-Anatolian Pipeline (TANAP), the Trans-Adriatic Pipeline (TAP) and the Ionian Adriatic Pipeline (IAP) are parts of the same project i.e. the Southern Energy Corridor and the ambition to provide Europe with an alternative to the Russian gas.
Picture 46
Before moving on to the next chapter, I want to mention a few very interesting articles for what I have said so far.
1) At the following Foreign Policy article, titled 'The Tsar Meets the Sultan', December 2014, you can read that Russia offered Turkey a 6% discount on natural gas prices, starting from January 2015, with the possibility of even higher discounts if Russia and Turkey strengthen their cooperation on the energy sector, and if they go ahead with the construction of the nuclear plant of Akkuyu in Turkey, which would cost 20 billion dollars, and which would be constructed by Russia.
The article mentions the close cooperation between the two countries in the energy sector, but also their disagreements over Syria. The article concludes that Turkey benefits a lot from her cooperation with Russia in the energy sector, but Erdogan is not naïve to believe that Russia can ever become a strategic partner for Turkey. According to Foreign Policy it is very convenient for both Russia and Turkey to put pressure on the European Union, but it would also be very disappointing for both Turkey and Russia if the European Union ever decided to go ahead with the East Med pipeline (Israel-Cyprus-Greece).
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Erdogan is not naive; he must realize that his alliance with Russia is not a strategic partnership, but a pragmatic one. But while Turkey may enjoy short-term benefits with this new agreement, he has to ask how it will affect the country‘s long-term interests. Developing strong relations with Putin may make life more difficult for the EU and the United States, but neither Ankara nor Moscow would be thrilled if Europe pushes for alternative underwater pipelines, such as one that would connect Italy- Greece-Cyprus-Israel.
http://foreignpolicy.com/2014/12/04/the-tsar-meets-the-sultan-turkey-russia/
2) Please note that opening ceremony of the nuclear power of Akkuyu took place in April 2015, as you can read at the following Caspian Energy article, titled 'Turkish nuclear plant to be completed on time', April 2015.
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Minister Yildiz will attend a groundbreaking ceremony for the ports of the nuclear plant construction site on Tuesday.
http://www.caspianenergy.net/en/energy/21851-turkish-nuclear-plant-to- be-completed-on-time
3) At the following Natural Gas Europe article, titled 'Russia's South Stream Decision Changes Regional Dynamics', December 2014, you can read that it is very difficult for Russia to build the Turk Stream, when she has opened so many projects, like the construction of the Power of Siberia pipeline, which will connect Russia and China. According to Natural Gas Europe, Russia has already spent 4.5 billion dollars for South Stream, in tubes that have already been delivered at the Black Sea coasts. However these tubes could be used for the construction of the Turk Stream, if at some point the project comes to life.
The article mentions that the replacement of the South Stream with the Turk Stream does not solve Russia's problems with the European Energy Regulations. Note that European anti-monopolistic regulations do not allow producers of natural gas to own the pipeline networks that distribute this natural gas. An exception was granted to Russia for the Nord Stream pipeline, in order for the Europeans to overcome the problem of the crises in Russian-Ukrainian relations, but after Russia's intervention in Ukraine the EU toughened up its stance, and did not exclude the South Stream from European regulations.
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The second constraint was the rising cost of the pipeline. Gazprom projected a $10 billion price tag in 2007, but projected costs grew to $30 billion in 2014 and likely would have risen further. In mid-November, ENI CEO Claudio Descalzi warned that ENI would leave the project if prices continued to rise. Gazprom is relatively healthy financially, unlike its oil company sister, Rosneft. However, with many large and costly projects lined up for the next few years, including the Yamal natural gas project and the Power of Siberia pipeline to China, Gazprom most likely would not be able to foot most of the bill for South Stream without financial assistance from the Kremlin. And with Russia in a sharp economic decline and oil prices falling, the Kremlin has refrained from handing out large sums of money like it has in the past.
Gazprom has already spent $4.5 billion on South Stream, mostly on 300,000 tons of underwater trunk pipelines that have been delivered to the Black Sea coastline. However, these pipes could still be of use in the construction of Russia's new proposed pipeline to Turkey. According to Gazprom chief Alexei Miller, the alternative pipeline could have a capacity of 63 bcm, of which Turkey could purchase 14 bcm of natural gas and transit the rest to southeastern Europe to the same countries that would have received natural gas from South Stream. In short, the change in the pipeline projects is merely one of route; the outcome would be nearly the same. However, the way that natural gas would be transported is in question, since any new pipeline infrastructure reaching into Europe would be subject to the same EU regulations that haunted South Stream.
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Russia's decision to abandon South Stream also damages Moscow's political ties with some of its European partners in the project. Countries such as Hungary and Serbia spent a great deal of political capital in defying the European Union to support the pipeline's construction. Now some of these same countries are saying they will have to look to the European Union to help secure energy supplies.
http://www.naturalgaseurope.com/russia-south-stream-decision-changes-regional- dynamics?utm_source=Natural+Gas+Europe+Newsletter&utm_campaign=e2ce3f7a f8-RSS_EMAIL_CAMPAIGN&utm_medium=email&utm_term=0_c95c702d4c- e2ce3f7af8-303885749
4) At the following article of the Turkish Weekly, titled 'Trans Anatolian Gas Pipeline indispensable: Turkish FM', January 2015, you can read that the Turkish Foreign Minister said that the TANAP pipeline is of strategic importance for Turkey, and that it will be ready in the next 3 years.
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The Trans Anatolian Natural Gas Pipeline is an indispensable project for Turkey that will be completed within three years, Turkish foreign minister said Thursday. Addressing a press conference after the trilateral meeting of foreign ministers of Turkey, Azerbaijan and Turkmenistan in Ashgabat, Mevlut Cavusoglu said, 'TANAP is an indispensable project for us. We plan to finish this project in three years.' The project will originate at the Georgia-Turkey border, pass through Anatolia, and extend around 1,242.7 miles (2,000 kilometers) to reach Greece. It will cost $11 billion and carry 16 billion cubic meters of natural gas per year when it is completed in 2018. The capacity will increase to 23 billion cubic meters by 2023 and it is anticipated to be 31 billion cubic meters by 2026.
http://www.turkishweekly.net/news/179488/trans-anatolian-gas-pipeline- indispensable-turkish-fm.html
5) At the following article of Today's Zaman, titled 'Game on for 'Turkish Stream', January 2015, you can read that Russia is trying to 'sell' the Turk Stream as a major blow to the European Union, while in reality Putin is trying not to be left with egg on his face. The article says that when the Turkish Prime Minister Davutoglu was asked about the Turk Stream, he replied that Turkey does not want to become what Ukraine was for Russia. What Davutoglu means is that TANAP is more important than the Turk Stream for Turkey. According to Today's Zaman the European Union does not take Putin's threat seriously, because they believe it is very difficult for Russia to construct the Turk Stream, not only because of Russia's economic condition, but also because Turkey would not give up on TANAP and the Southern Energy Corridor.
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While Moscow has tried to sell the cancellation of South Stream as a major blow to Europe, it would rather seem the other way around, and if Turkey does not buy into Moscow's plan it will leave Russia with egg on its face. This of course puts Turkey in a very good position in terms of negotiating a sweet deal if it so wishes. Turkey is playing its cards very close to its chest. When I asked Prime Minister Ahmet Davutoğlu about the issue during his recent visit to Brussels he gave a vague reply"- that Turkey is energy hungry and open for new projects with Russia; although Turkey does not see itself as an alternative to Ukraine it is concerned about the Russia- Ukraine crisis, as it risks impacting gas supplies. He added that Turkey receives 20 percent of its Russian gas via Ukraine.
Turkey and Russia are engaged in gas negotiations. Ankara will play hardball with a strong hand, so the Russians are unlikely to get a quick deal unless they are ready to give major sweeteners to Turkey. Presently 60 percent of Turkey's gas comes from Russia, and Ankara pays one of the highest prices. It's not surprising that at the top of the bargaining list is a much cheaper price. The 6 percent reduction offered by Russia has so far been rejected.
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EU decision-makers are not taking Turkish Steam seriously. They see it as a Russian red herring; a desperate attempt to get the EU to reconsider its conditions for South Stream as well as its stance vis-a-vis Ukraine and the sanctions placed on Russia. The fact that the Russian economy is in such a fragile state would make the financing of this project very improbable. Furthermore, while Russia is trying to take advantage of the deterioration of relations between Turkey and the EU, there is a belief that Turkey would never sell out, as it would remove the strategic role Turkey is playing in strengthening EU energy security via the Southern Corridor that Turkey is just "playing" in order to get something sweet from the EU on other issues of importance. However, while nothing has yet been signed, history has shown that we should never underestimate President Vladimir Putin, who is ready to go to any length to achieve his objectives.
http://www.todayszaman.com/columnist/amanda-paul/game-on-for-turkish- stream_370649.html
6) At the following Natural Gas Europe article, titled 'Reaching the EU Gas Entry Point: Race for Hitting Greece Border Speeds Up', February 2015, you can read that there are many discussions about the Turk Stream, which hopes to reach the Turkish-Greek borders before TANAP, but the main shareholders of TANAP will hold a ground breaking ceremony on March 2015, which will mark the official start of the project. The article also mentions that there are many doubts about the Turk Stream, because an official agreement has not yet been signed between Russia and Turkey, and because the Turk Stream would jeopardise the construction of TANAP, and therefore Turkey's ambition of becoming an independent energy hub.
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All these recent developments around new Russian proposed pipeline set uncertainties and rise question in Baku.
The Azeri government officials never said openly that they had seen competition and any danger for TANAP from new Russian plans and generally attempt to avoid any comment on the matter.
However a stream of comments and analysis in pro-government media supporting TANAP raising questions around Russia‘s new plans are a sign of the anxiety of official Baku. Gazprom ‗s aim to reach the Greek border with its proposed pipeline before TANAP add even more concerns.
SOCAR sources who did not wish to be named said that TANAP plans remain unchanged and"everything is going on under the planned schedule".
In March SOCAR and Botas plan to hold TANAP‘s ground breaking ceremony, which will give an official start of the construction of the line with the initial capacity of 16 billion cubic meters of gas a year.
In April, the partners will move on into actual construction targeting to completion by late 2018 to be ready to deliver first gas from Shah Deniz-2 to Turkey. The $10-11 billion TANAP will link up with Trans-Adriatic Pipeline (TAP) on the Turkish-Greek border and pump natural gas to Europe in 2020.
Meanwhile there are many doubts about Gazprom‘s announced schedule as well as overall viability of Russia‘s latest gas pipeline initiative coupled with its proposed natural gas trading hub on the Turkey-Greek border, the sources said. There are no final intergovernmental and commercial agreements for Turkish Stream yet signed to make real first gas delivery by the end of next year. Promises to complete all four planned strings of Turkish Stream by 2019 aiming to reroute all gas export currently going through Ukraine via new direction, appear unreasonable according to the local analysts in Baku commenting to Natural Gas Europe.
From Russia‘s perspective,Turkish Stream is of course a rival project to the Southern Corridor, aiming to gain control over natural gas flows from Turkey into the EU, and therefore undermining the strategic rationale of the Southern Corridor, commented Matthew Bryza, former US ambassador to Azerbaijan, Director of the International Centre for Defense Studies in Tallinn, to Natural Gas Europe. For Turkey however, Turkish Stream could impact Turkey‘s strategic significance by undercutting the Southern Corridor, especially by providing Russia greater control over Turkey‘s own independence as a potential gas trading hub. Bryza also questioned Russia‘s capability in current circumstances to implement Turkish Stream."President Putin knows this, and is bluffing", he said adding that even if Turkish Stream were to succeed, it would be unable to stop the Southern Corridor from moving forward, given the latter‘s considerable political and commercial momentum.
http://www.naturalgaseurope.com/turkish-stream-tanap-gas-race-for-greek-border
7) At the following Natural Gas Europe article, titled 'TANAP Secures First Step With Groundbreaking Ceremony', March 2015, you can read that the TANAP project started in 2015.
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The Trans-Anatolian Natural Gas Pipeline Project ( TANAP) has become a beacon light in both the Caspian region and Eastern Europe's energy sectors.
The 1.850 km long, key unit in the Southern Gas Corridor, which will enable a decrease in the European Union's dependence of Russian natural gas, will ship 16 billion cubic meters (BCM) of natural gas per year from Azerbaijan's Shah Deniz field to Turkey's western border.
The groundbreaking ceremony took place in Kars, Turkey. In attendance was Turkish President Recep Tayyip Erdogan, Azeri President Ilham Aliyev and Georgian President Giorgi Margvelashvili.
http://www.naturalgaseurope.com/tanap-pipeline-groundbreaking-ceremony-kars- turkey- 22781?utm_source=Natural+Gas+Europe+Newsletter&utm_campaign=deb0cc05ad- RSS_EMAIL_CAMPAIGN&utm_medium=email&utm_term=0_c95c702d4c- deb0cc05ad-307785513
8) At the following article of Hurriyet, titled 'Calling Putin's energy bluff', January 2015, you can read that what the Russians are trying to say to the EU with the announcement of the Turk Stream, is that Russia will no longer sell natural gas to Europe through Ukraine, and the Europeans will have to import the Russian natural gas through Turkey and the Turk Stream. According to Hurriyet this a bluff because Russia is heavily dependent on Europe for her natural gas sales, and in the near future it is impossible for Russia to find a customer to replace Europe, because it will take many years before Russia and China are satisfactorily connected. Hurriyet also mentions that the EU would not accept to buy the Russian natural gas from the Turk Stream because something like that would jeopardise the Southern Energy Corridor i.e. TANAP, TAP etc. The article concludes that what Russia is trying to do is to put pressure on the Europeans in order to share the cost of the South Stream.
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New European energy commissioner Maros Sefcovic was treated to a blunt and rude welcoming in Moscow. No more gas through Ukraine for Europe, he was told by 96 Gazprom boss Alexey Miller. Is the Russian energy capo serious? After all, Russia‘s President, Mr. Vladimir Putin, not so long ago introduced the idea of a Russo-Turkish