Turk Stream: “The Realm of If, If, If...”

In a breakout session at the European Gas Conference in Vienna, Austria, John Roberts, Energy Security Specialist, Methinks Ltd., pledged to give the facts on "Turk Stream," the project announced in Ankara on 1 December by the presidents of Turkey and Russia, in 5 minutes or less. “It should be possible, because we don't know that much,” he quipped.

However, Mr. Roberts, along with the Oxford Institute for Energy Studies' (OIES) Jonathan Stern and a host of leaders of Europe's natural gas industry, did manage to grapple with the topic and associated issues within a number of scenarios.

Among the “known knowns” is that President Putin announced that South Stream was dead and that a similar sized project would be diverted to Turkey, said John Roberts; the first pipeline was scheduled to be laid this year; the Turk Stream project will assume existing contracts for South Stream; and that landfall will be European territory – Thrace in Turkey, “which essentially means that three-fourths of the existing route for South Stream can be reused or rerouted for Turkey.”

The first string of the pipeline project, he said, will be a replacement for the Western Balkan side, designed to serve Istanbul.

“One can logically deduce from that, that in practice wherever it makes landfall on the Turkish coast, it will have a quick and short, simple connection to the Turkish section of the West Balkan line,” Mr. Roberts surmised.

Still, details on Turk Stream's second string are not clear, according to him, although contracts have been signed for the supply of and laying of the pipes last year. He offered, “Because Turkish and Russian officials have stressed that the pipeline system is to go to the Greek border, and the onshore pipeline across Thrace would be a joint venture between Gazprom and Botas, there will be a 200km or so pipeline built at some point into Greece.”

The second string, he explained, will likely be split between a supplier that can be put in to EU markets and an element used for an expanded Turkish market. “About 10 BCM is likely to go to Europe if they were able to book space on the Trans Adriatic Pipeline (TAP) – we now enter the realm of the theoretical.”

Mr. Roberts noted that the first two strings make maximum use of contracts already signed by Gazprom; meanwhile South Stream Transport has been transformed into a Gazprom-only company, which will be responsible for the construction of the offshore sections, but will also inherit the contracts signed by South Stream Transport.

Turk Stream is supposed to deliver 63 BCM/annum of natural gas, 50 BCM of which would be delivered to the Greek border. Of this, he commented: “I see no reason why the Russians need to take any firm decision on that for the next 2-4 years – there's no immediate hurry.”

Thus far, he reported, Gazprom has signalled no intention of using the Trans Anatolian Pipeline (TANAP), which will traverse Turkey as part of the Southern Corridor project.

Mr. Roberts handed over to Jonathan Stern, who offered: “Our hypothesis is, if the aim of these lines is to reduce the amount of gas flow going through Ukraine as quickly as possible, then the first line would supply Istanbul and the second would reverse flow the Trans Balkan line and supply all of the South-east European markets, which would allow for some expansion of demand in Turkey or South-east Europe.”

According to John Roberts, a two-line system has a great advantage. “It saves face for the Russians and it leaves open the idea of a 63 BCM line at some indefinable time in the future; I'm sure we'll see the constant reference to 63 BCM and very little detail about how those second two strings might be developed,” he opined.

Jonathan Stern outlined the perspective of the OIES' recently released publication on the subject: “We think this is a much better idea for the Russians – a much better project than South Stream.

“Even before Ukraine, South Stream was looking very complicated as regards EU regulation – not impossible, as there could have been a compromise, but very complicated."

The Russians' switching of the route, he said, had resulted in two consequences. “You eliminate the discussion of EU regulations for at least the first line, and for the second is, if you reverse the Trans Balkan line, how does that work with EU regulations?”

A member of the Gas Advisory Council, Professor Stern offered what he thought was the Russian take on moving from South Stream to Turk Stream, that they would have supplied absolutely secure supplies to the European Union, but “you didn't want it; now you see how you figure this out."

Participants in the discussion also grappled with where Turkey stood in the new gas relationship, with mention being made of a 6% gas discount but that the price review was ongoing.

As to whether Gazprom might book capacity on TAP, John Roberts contended it is “perfectly doable.”

“We don't know, but if they choose the TAP hypothesis, then that 10 BCM they could book well in advance of anything the Azerbaijanis could book, given that they want to use that 10 BCM for what the call their next wave of gas projects, but these haven't yet been started,” he explained.

“Russia's use of TAP would serve to block a considerable potential export for Azerbaijan, and by limiting that export, or confining it to the Turkish market that was alreaeady in the position to receive a lot more gas from Russia previously means that the economics of TANAP will get worse than they already are, because it will continue to only carry the 10 BCM of gas for Shah Deniz II, 6 BCM of which is for Turkey."

He also pointed out that with the Shah Deniz I contracts coming up for expiration in 2020, if TANAP does not get another wave of Azerbaijani gas then the pipeline will only be half full.

The group noted that Gazprom's gas will be readily available when TAP construction begins at the beginning of 2020.

“Gazprom has the flexibility to commit to a substantial volume of gas if it so chooses as of that day,” explained Mr. Roberts, “so therefore it makes it more likely that, were an auction to be held, Gazprom would be in a strong position to secure an outcome…"

“In the early years,” piped in Jonathan Stern.

-Drew Leifheit