What is the Turkish Stream and Why Does it Matter?
Turkish Stream, as a labyrinth of energy pipelines heading west, joined the ranks of key priorities over the past months. Previously, the rationale for setting up new pipelines to carry Russian gas to Europe was meant to cover the projected increase in gas demand over future decades. This proved to be a wild assumption and the much anticipated lurch in gas demand in Europe did not materialise—the economic justification for further pipelines is moot. But, there was another reason as well: to forge direct gas links between Russia and Europe and side-line Ukraine through which transit was deeply problematic (in the 2000s) due to aged infrastructure and raw corruption. It is this second reason that drove Gazprom (after the 2006 gas crisis) to join ENI in building the South Stream pipeline to bring Russian gas under the Black Sea to Bulgaria and pipe it from there to the Balkans and Central Europe. According to Proedrou (2012), writing in EU Energy Security in the Gas Sector: Evolving Dynamics, Policy Dilemmas and Prospects, pp. 81-85), it was also a factor in Gazprom’s announcement to double the pipeline capacity (from 30 to 63bcm) after the 2009 gas fall-out.
As it turned out, South Stream was blocked by regulatory obstacles from the EU’s Third Energy Package. Under that legislation, a gas company is forbidden to simultaneously supply gas and operate the network it is transmitted through. Dubbed the Gazprom clause, this provision makes doing traditional business very difficult for Gazprom, which is loath to let other operators manage its pipelines. At the same time, a third party access clause say that no company may build a pipeline that only carries its own gas. Half the capacity must be earmarked for other suppliers to transmit their gas, so that market forces and competition can operate and flourish—as Dieter Helm posited (2014) in his work on ‘The European Framework for Energy and Climate Policies,’ (pp. 29-35). In this context, and amid political friction over Ukraine, Gazprom announced (December 2014) that it was no longer pursuing South Stream.
Immediately, the company declared its plans to build the Turkish Stream pipeline under the Black Sea and up to the Turkish-Greek border with the same annual capacity as South Stream—63bcm. This move will allow Gazprom to avoid the EU downstream market and its regulations, bypass Ukraine and create an alternative route to ship its gas to the lucrative European market. Nevertheless, it is worth raising some concerns about how vital and meaningful this project is.
First, investing in new pipelines when infrastructure capacity exists only adds costs which the supplier or final consumers – or both – will have to bear. Both Russia and Gazprom have, recently, faced dire financial situations as a result of Western sanctions. Europeans, ruined by the never-ending economic crisis, are also badly placed and unwilling to purchase gas at higher prices. The economic logic of the project is doubtful.
Politically, Turkish Stream will transform Turkey – which also provides transit for Azerbaijan’s gas – into a powerful gas hub. If around half of Russia’s gas supply to Europe traverses Turkey, then dependence on Turkey will replace dependence on Ukraine. This seems far worse than the current situation if we consider that Turkey aspires to regional hegemony, is a more significant, active and ambitious power. Moreover, Turkey’s tense relations with its neighbours involved in the project, makes it tough for Russia, and especially for European states like Greece and Bulgaria, to trust in long-term cooperation with Turkey. These reasons may make Gazprom rethink the scale of the project and the Europeans signal less willingness to contract Russian gas via this route. This could lead to the curtailment of the proposed pipeline capacity. In that case, the costs of construction relative to anticipated profits would still skyrocket while Turkish Stream would merely be a small project, unable to serve as an answer to South Stream. We can find analogies here with Nabucco’s eventual abandonment in favour of the smaller TAP pipeline.
Why all the fuss, then, about Turkish Stream? The answer must be traced back to political messaging rather than any energy security goals. As we have seen, this security will be jeopardised for Russia if a significant portion of its gas depends on Turkish transit; the same is true for Greece and Bulgaria if they can only get Russian gas through Turkey. In that scenario, Russia’s strategy of doing away with transit dependence will go awry. For Greece and Bulgaria, which get most of their gas from Russia, the supply risks are amplified since they would be left relying on Turkish, rather than Ukrainian, transit.
Gazprom is under increasing pressure from its internal competitors, Novatek and Rosneft, who are vying for an upgraded role and share of the Russian gas export strategy. At the same time, Greece is facing a dramatic financial drought and wants to monetise these projects instantly. Though it has failed to get pre-payment for the project, by playing the Russian card at a time of tension with its European partners, it can send a powerful signal (albeit one of doubtful practical value) about its potential political and financial options.
Unless we see another twist in the larger market parameters and energy security factors, Turkish Stream’s construction looks quite uncertain. The plan is mired in political messaging and does not match up to sound energy security analysis.