The Turkish Stream: Where to go from here?

The Turkish Stream: Where to go from here?

18:51 29 January in ARTICLES, In English, PUBLICATIONS

29012014

Hürriyet Daily News | January 29/2015

By Mehmet Öğütçü – Danila Bochkarev | 

The landmark agreement on the Turkish Stream reached on Jan. 27 shows Moscow’s determination to avoid Ukrainian transit at all costs and start its implementation without delay.

If all goes well, natural gas currently flowing from Russia to the EU via Ukraine will in the future only be delivered via Turkey through the Turkish Stream. This decision followed an announcement of an important change in Gazprom’s business model in Europe – the company is no longer eager to access downstream, plans to sell its gas at the EU’s border and repatriated its head trading office from London to Saint Petersburg.

European energy market liberalization has removed the right of gas producers to own gas transport and distribution infrastructure, making it increasingly difficult for Gazprom to sustain its preferred model. With the Turkish Stream, the “energy game” has changed – now it is up to Europe to make important investment commitments.

EU energy companies will need to invest in a new infrastructure by 2019 to bring gas from the hub on the Turkish-Greek border to their home markets. For Brussels, there is also a political concern that gas flows would be controlled by Russia and Turkey – neither of which are viewed as favorable toward Europe at this moment.

Unsurprisingly, during his recent visit to Moscow, EU Energy Commissioner Maros Sefcovic called on “Moscow to look at this option again and come up with a viable economic solution that is also acceptable to European partners.”

Such concern is not limited only to Brussels. There are also concerns among other competing gas pipeline projects, either in the implementation phase or planned, targeting Turkish and high-value European markets that they might be crowded out by such a large-scale project. Turks have made it clear that they have no intention to undercut the Southern Gas Corridor, in which they have a vital stake.

On the contrary, the project received strong support from movers and shakers inAnkara and Moscow. In Turkey, despite some opposition due to the already excessive dependence on Russian energy, it is viewed also as a unique opportunity for Ankara, which goes beyond a purely commercial rationale.

This move brings Turkey a step closer to its dream – becoming the key regional energy hub. It will also help Turkey to significantly boost its geostrategic importance. In turn, Moscow, which is going through a rough time of sanctions and low oil prices, hopes to consolidate its foothold in Turkey and work with a difficult, but trusted, predictable country for selling its gas.

But the Turkish Stream does not exist in a vacuum. Creating a gas hub on the Greek-Turkish border and the necessary transportation infrastructure from there to the delivery point concerns the EU. It is not possible for Ankara and Moscow to send 50 billion cubic meters of gas without the endorsement of Brussels and the EU’s patron countries.

Europe seems to be rather skeptical and is not shy from expressing its displeasure. The abundance of gas supply, including flexible LNG shipments, makes Brussels reluctant to commit itself to this new project. Added to this are sanctions against Russia and geopolitical frictions in Europe’s neighborhood.

Of course, Ankara and Moscow can go ahead and create a reality on the ground to take care of their own interests. Yet, if we get rushed into a hasty decision without the EU on board, we may run the risk of making an error that will be difficult to redress in the future. The Turkish Stream can offer a great deal of advantages and opportunities to Russia, Turkey and the EU only if it is well planned, a balance of interests have been achieved, price flexibility is provided and vested regional interests of both countries including other competing pipeline projects are taken into account in the long-term planning.

In light of such divergent views and the recent Ankara-Moscow decision to step up the process by signing an Intergovernmental Agreement in the second quarter of this year for gas delivery in December 2016, there is a pressing need to launch a depoliticized, mutually beneficial and forward-looking Turkish-Russian-EU dialogue on gas supplies and future European and global energy security architecture.