Turkey-Russia Rapprochement and Prospects for ‘Turkish Stream’On June 27, 2016, Russian President Vladimir Putin received a letter from his Turkish counterpart Recep Tayyip Erdoğan, expressing Turkey’s willingness to restore ties with Russia. Immediately, Gazprom spokesperson Sergey Kupriyanov announced his company’s openness to dialogue with Ankara on the construction of the “Turkish Stream” natural gas pipeline. Turkish Prime Minister Binali Yıldırım also expressed Ankara’s support for the project. Russian Deputy Prime Minister Arkady Dvorkovich said that Turkey confirmed its willingness to resume dialogue with Russia on the construction of Turkish Stream. According to Gazprom’s Deputy CEO Alexander Medvedev, the establishment of a working group on project implementation was agreed and the intergovernmental agreement can be signed when Putin and Erdoğan meet in St. Petersburg later this August.

The construction of Turkish Stream under the Black Sea to the Turkey-Greece border was announced during Putin’s visit to Turkey in 2014 and endorsed by a Memorandum of Understanding (MoU) between Turkey’s BOTAŞ and Russia`s Gazprom. However, the two sides failed to sign an intergovernmental agreement. No permission was granted for offshore construction in Turkey’s waters—only for engineering and surveying.

Although Gazprom had earlier agreed to a 10.25 percent price discount for BOTAŞ, that agreement was not fulfilled. Therefore, BOTAŞ brought a suit against Gazprom at the International Arbitration Court. Russia wanted to link the “price discount” with “pipeline implementation” (as a prerequisite to Turkish Stream), but Turkey wanted to treat both separately. In September 2015, Gazprom announced it agreed with the Turkish partners that they would only be working on the first line (between Russia and Turkey) of Turkish Stream, reducing the pipeline’s total capacity from 63 billion cubic meters (bcm) per year down to 32 bcm. After the November 24 “jet incident”, Russia’s Energy Minister Alexander Novak announced the suspension of further negotiations over Turkish Stream.

The ambiguity over Turkish Stream notwithstanding, Russia’s Gazprom, Italy`s Edison and Greece’s DEPA signed an MoU in February on natural gas deliveries across the Black Sea from Russia via third countries to Greece and from Greece to Italy by using the Interconnector Turkey–Greece–Italy (ITGI). On February 29, Gazprom’s CEO Alexei Miller spoke with President Putin about the prospects of utilizing the “Poseidon” project (a proposed offshore leg of ITGI under the Ionian Sea), which was previously designed to transport Azerbaijani gas from Greece to Italy.

The plan is to connect the ITGI and Turkish Stream pipelines at the Turkish-Greek border. However, it is still not clear via what route Russian gas will actually reach Greece. Nevertheless, the Poseidon pipeline has already been included in the European Union’s list of “Projects of Common Interest” (PCI—which eases financing, planning, and so on). The project has received all the necessary authorizations for construction and operation as well as a 25-year exemption on third-party access to the pipeline.

Apart from ITGI, the proposed “Tesla” pipeline, which was also included on the EU’s PCI list in 2016, can be an extension of Turkish Stream to reach Austria from Greece via Hungary, Serbia and Macedonia (almost the same route as Russia’s aborted South Stream gas pipeline proposal). In 2015, Hungary, Serbia, Macedonia and Greece discussed the possibility of signing an MoU for the construction of Tesla. Turkey’s Daily Sabah reported then that the EU had expressed its full support for “three energy projects that are of critical importance for Turkish Stream.

Nevertheless, the United States’ stance on this issue has been much tougher. In May 2015, the US State Department’s special energy representative, Amos Hochstein, during a visit to Athens, declared that “Turkish Stream doesn’t exist. Let’s put that to the side and focus on what’s important—the [Trans-Adriatic Pipeline—TAP] we already agreed to”. TAP is the final leg of the Southern Gas Corridor (SGC), which will deliver Azerbaijani natural gas via the South Caucasus, Turkey and the Balkans to European markets, entirely bypassing Russia. At the February 2016 meeting of the SGC Advisory Council (in Baku), Hochstein said that “South Stream, Turk[ish] Stream, Nord Stream [Two] are simply restatements of political projects with questionable economic value”.

Meanwhile, financial hurdles continue to drag down the prospects for Turkish Stream. Gazprom was notably exposed to serious financial losses as a result of South Stream’s suspension in December 2014. The price tag for Turkish Stream’s planned four lines is supposed to be €11.4 billion ($12.8 billion, or half the cost of South Stream), however, these costs may overrun, given fluctuating oil prices. Since most Russian revenues come from energy exports, falling oil prices have heavily affected the country’s economy. Moreover, Gazprom has been focused most heavily on the doubling of the Nord Stream gas pipeline under the Baltic Sea (Nord Stream Two), which means that Turkish Stream is unlikely to come on-stream anytime soon, and Ukraine will remain a major transit country for Russian gas to Europe.

Yet, the state of emergency declared following the latest coup attempt in Turkey could enable the government in Ankara to legislate without going through the parliament. In other words, the intergovernmental agreement on Turkish Stream (earlier delayed in the Turkish Parliament) might now be pushed forward for signing.

By pressing ahead with Turkish Stream, Gazprom seeks to build the pipeline and deliver more gas to Europe before the SGC is complete or Iranian and Turkmenistani gas can make it to European markets (most likely via the SGC, once it is working). The throughput capacity of ITGI (which was shelved in favor of TAP in 2012) is supposed to be boosted from an initial 12 bcm per year up to 20 bcm per year—equal to the maximum (Stage II) capacity of the competing TAP project. Nonetheless, Azerbaijan’s state energy company SOCAR’s vice president, Elshad Nasirov, does not consider Turkish Stream to be a rival to the SGC. In fact, he has voiced the possibility of using Turkish Stream’s proposed extension pipelines to channel increasing gas production from Azerbaijan’s newest gas fields.

 

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