Russian gas giant Gazprom has invested billions in extending and diversifying its pipeline infrastructure to Europe through Turk Stream and Nord Stream 2. Both projects are part of Moscow’s vision to circumvent Ukraine and deprive the country of its strategic value as a transit country for its gas. Nord Stream 2 has been the focus of attention of critics while Turk Stream has gone relatively unnoticed. Both pipelines are scheduled for completion this year. In Turk Stream's case, the entry point of the pipeline into Europe has not yet been announced.
The project consists out of two pipes, each with a total capacity of 31.5 bcm. One string is marked for the domestic Turkish market, while the second string is intended for the European market. Gazprom has several options regarding the entry point into Europe: west into Greece and Italy or north into Bulgaria and towards Baumgarten Austria. Gazprom, intentionally, has created a veil of uncertainty to maximize its financial gains and achieve Moscow’s political goals. Recent developments and Russia’s long-term strategic goals imply an announcement in favour of South Stream Lite (the northern option).
From an economic point of view, Turk Stream is not the most logical option to get Russian gas into Europe due to existing infrastructure in Ukraine. Some countries, however, will benefit from the project. Direct access to Russian gas by Turkey, for example, will reduce costs due to the absence of transit fees which instead will be paid by other countries, down the road. Related: Does Saudi Arabia Really Have As Much Oil As Analysts Think?
Gazprom, as a state-controlled company, needs to take into account the Kremlin’s strategic goals. The 2014 revolution in Ukraine created an unprecedented crisis between Russia and its one-time ally. Therefore, Turk Stream’s primary goal is to deprive Ukraine of its strategic value and much-needed revenue from transit fees. It is projected that the country could lose up to 3 percent of its GDP when transit through Ukraine decreases from 90 bcm/year to approximately 10-15 bcm/year due to Nord Stream 2 and Turk Stream.
The church and state
Politics will be the primary factor in Gazprom’s final decision regarding Turk Stream, and the political crisis between Ukraine and Russia has blown over from the physical realm, into the spiritual one. Historically, the Orthodox Church in Ukraine has been under the authority of the Russian Orthodox Church in Moscow. The Church in Ukraine, however, has declared its independence due to the political crisis between the countries which has been formalized by Ecumenical Patriarch Bartholomew, the head of the global Orthodox Church.
The Russian Orthodox Church, in turn, cut off ties with the Fener Greek Patriarchate of which Bartholomew is the highest cleric. While Greece and Russia still maintain close political relations and Athens has offered to extend Turk Stream into its territory, the religious conflict could have serious political ramifications. Volkan Özdemir, head of the Ankara-based Institute for Energy Markets and Policies (EPPEN), said in an interview that "Russians in response to this are focusing on the Bulgarian option, and not on Greece. Therefore, in this sense, I think that the Russians will make a political preference." Related: Bank Of America: Oil ‘Anchored’ Until 2024
Bulgaria’s green light
Due to South Stream's cancellation, Bulgaria missed out on a significant economic opportunity. Turk Stream, however, offers a window of opportunity to obtain a strategic and financial advantage vis-à-vis its current position. Bulgaria is not biding its time and waiting for Gazprom to make an announcement. Instead, Sofia has doubled down on its effort to construct the extension of Turk Stream and receive Russian gas for its domestic market and beyond.
Bulgartransgaz announced the successful completion of the economic test for expanding Bulgaria’s gas transit network from Turkey to Serbia. This means that the capacity of the future pipeline has been booked for 20 years. Following the positive results, the national transmission company has taken the final investment decision for the €1.4 billion project.
Gazprom’s apparent decision
Despite Gazprom’s attempt to maintain a veil of uncertainty, all factors seem to point towards the north and Bulgaria. The Turk Stream project is meant to circumvent Ukraine. Furthermore, Gazprom has long-term delivery contracts with customers in southeast Europe. To preserve the security of supply and deprive Ukraine of its strategic value, Turk Stream needs to be extended into Bulgaria and towards Austria. Therefore, it seems highly likely that Gazprom will soon announce its decision for the preferred northern extension.
By Vanand Meliksetian for Oilprice.com
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Vanand Meliksetian is an energy and utilities consultant who has worked with several major international energy companies. He has an LL.M. from VU Amsterdam University… More