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| Politics/Energy can make strange bedfellows |
For Ankara, the project is a symbol of
Turkey’s independent decisionmaking and of the country’s significance in
the wider region. Seen from Ankara, Turkish Stream serves a political
purpose. It celebrates the blossoming friendship between Turkey and Russia
and confirms Ankara’s ambition to be part of the solution to major
international issues—in this case, securing the gas needs for a large
part of the EU.
However, Turkish Stream will also increase Ankara’s dependence on Moscow for its energy needs.
The project’s second meaning is that Turkey is contributing to an essential element of Russia’s multi-pronged, long-term strategy of remaining Europe’s major gas supplier, while creating a “third gas corridor” in addition to the Ukrainian and Baltic Sea supply routes. This strategy is unfolding on several fronts: in Ukraine; in the Baltic Sea; and through future extensions of Turkish Stream to southern and central Europe (toward Bulgaria, Serbia, Hungary, Slovakia, and to Greece and Italy.)
It is also worth noting that Turkish Stream is not part of the EU’s Energy Union plans since it does not contribute to diversification of supplies. In fact, it will rather reinforce Russia’s market predominance in both Turkey and the EU.
In Ukraine, the multi-pipeline network channeling Russian gas to Western Europe will remain a vital link.
But reducing its use could inflict massive losses in terms of transit
costs for authorities in Kiev, which is part of Russia’s strategy in
Ukraine.
Much will depend on negotiations for the
extension of the Russia-Ukraine commercial agreement, which will end in
2019. To help alleviate Kiev’s concerns, Germany has made the
continuation of transit via Ukraine an ingredient of a final agreement
on Nord Stream 2, the latter being the subject of controversies within the EU.
The Russian strategy is in no way limited
to selling Russian gas on the European continent. It extends much
further afield in the wider Eastern Mediterranean region.
Egypt is a case in point.
Following the massive discoveries in the so-called Zohr field to the north and east of the Nile River delta, Russia bought a 30 percent stake
from the Italian energy group ENI in 2016 with the consent of the
Italian government, which Moscow has had a long and close relationship
with. The official reason for the sale was the need for ENI to spread
the risk of its Egyptian operation.
Similarly, offshore gas discoveries in
Lebanese waters have attracted Russian interest— although drilling off
Lebanon is largely dominated by France’s TOTAL and Italy’s ENI, who have
a 40 percent share each. Russia’s NOVATEK has bought a 20 percent stake.
Russia has also made moves to control both the oil and gas sector in Syria,
despite the ongoing war. The actual effect of these recent maneuvers
will very much depend on the final political arrangement expected to end
the almost eight-year-old civil war. Many of Syria’s oil and gas fields
are located north and east of the Euphrates River, currently outside
the control of regime forces. In addition, for reasons linked to the
ongoing naval military activities, no offshore exploration has yet taken
place in Syrian waters.
In Iraq, Russia is involved in pipeline deals in the Kurdistan region
through a number of oil and gas companies, although the actual exports
would have to take place through Turkish territory or possibly even
through Syria in the distant future.
Such an ambitious Russia strategy is justified by Europe’s gas market fundamentals.
A stronger demand for gas in Europe is good for Russia. According to Oxford Energy,
gas demand in Europe (Turkey and non-EU Eastern Europe included, except
Serbia) has started rising again for three consecutive years—in 2015,
2016, and 2017—to reach a level of 548 billion cubic meters (bcm), due
to continued economic recovery, the impacts of climate change, and the
increased use of gas by the power sector. The trend seems to be
continuing in 2018.
According to the Finnish Institute for International Affairs,
Russia took advantage of several factors: economic recovery and
decreasing gas production in the EU, lower Russian selling prices, and
the current limited availability of non-Russian liquefied natural gas
(LNG) on the European market.
In addition, preexisting disputes between the EU and Russia (including an antitrust investigation against Gazprom, and a Russian complaint at the WTO) have been resolved, signaling that commercial interests on both sides have prevailed, despite a less-than-optimal political climate.
In such an environment, Russia is in a strong position to keep dominating gas supplies to the EU,
which amounted to 40 percent of extra-EU imports in 2016—although
new developments could upset the current situation, such as a rapid
development of LNG exports to Europe from other sources.
LNG imports amounted to only 14 percent of total extra-EU gas imports in 2017, with the main supplies coming from Qatar (41 percent), Nigeria (19 percent), and Algeria (17 percent).
LNG imports amounted to only 14 percent of total extra-EU gas imports in 2017, with the main supplies coming from Qatar (41 percent), Nigeria (19 percent), and Algeria (17 percent).
In this wider context, and seen from Brussels, Turkish Stream—with
a final projected capacity to deliver 31.5 bcm/y, of which 15.75 bcm/y
would go to Europe —is a relatively small component of the wider gas
supply chain to the EU. In fact, it would represent just over 6 percent
of the EU’s imports at 2017 levels.
Yet, seen from Moscow, the pipeline is
potentially a significant addition to Russia’s capabilities to export
gas to Europe (Turkey included). Assuming that Turkish Stream’s second
phase will be completed and operational, it would represent between 16
and 19 percent of Russian sales to the EU and Turkey (at 2017 levels and
all other factors remaining unchanged).
In that sense, the ceremony on November 19
in Istanbul was more than just another photo opportunity. It was a
symbol of the success of Russia’s objectives in the wider Western
European area, with Turkey’s help.
Together with Russia’s S-400 missile
deal with Turkey, it was a symbol of how efficiently Moscow has been
using Ankara’s relative diplomatic isolation to its advantage. For
Ankara, this was another way of telling the world: Turkey matters.
