Turkey Attempts to Secure Russian Energy
The threat of a Russian natural gas cutoff to Ukraine has lit a fire under Turkey, one of Moscow's biggest energy clients. Roughly 60 percent of Turkey's natural gas supply comes from Russia through two primary routes, and 12.5 percent of that supply could be at risk if Russia punishes Ukraine and its downstream customers. Rather than pushing Turkey into a desperate and urgent search for alternatives to Russian energy, the events in Ukraine are forcing Turkey to consider ways to solidify its energy relationship with Russia.
Turkey was among the 18 countries Russian President Vladimir Putin addressed April 10 in a now infamous letter to Europe. In that correspondence, Putin laid out a lengthy and sober explanation of the $2.2 billion in debt Ukraine owes Russia and highlighted the main consequence of Ukraine's refusal to pay Russia for its natural gas supply: Russian state firm Gazprom would have to resort to the "extreme measure" of reducing natural gas flows to Ukraine. As Putin explained, such a move would then raise the risk that Ukraine would siphon off the natural gas for itself and thus deprive customers further downstream, including Turkey.
Turkey's core economic hub in the Marmara region receives roughly 12.5 percent of its natural gas from a pipeline that runs from Russia through Ukraine and the Balkans to reach Turkey. The rest of Russia's natural gas supply to Turkey travels through the Blue Stream pipeline, which runs under the Black Sea. Turkey has long been uncomfortable with having to depend so heavily on Russia for its energy supply in such a volatile region. Turkey remembers well the energy disruptions that resulted from Russia's invasion of Georgia in 2008, when Azerbaijan lost its transit route through the Caucasus to reach Turkey. Turkey was also affected by Russia's natural gas cutoffs to Ukraine in 2006 and 2009.
With Turkey now facing yet another potential energy disruption over a conflict between Russia and its neighbors, one might assume that energy-hungry Turkey would start pursuing alternative energy options to secure its energy supply. But for now, Turkey seems to have come to terms with the enormous challenges attached to its diversification options. Rather than identify Russia as the problem, Ankara is depicting the Europeans as the big thorn in its energy security plans while taking the opportunity to cozy up to Russia.
Turkey has thus come out with two proposals, both of which entail avoiding the Europeans and dealing with Russia directly.
The first proposal is for Russia to increase energy shipments through the Blue Stream pipeline, which runs directly to Turkey. Russia could increase shipments from 13.6 billion cubic meters to the pipeline's maximum capacity of 16 billion cubic meters. In addition, Russia and Turkey could choose to dust off plans to build a line paralleling Blue Stream.
The second Turkish proposal is for Russia to re-route the 2,400-kilometer (about 1,500-mile) South Stream pipeline so that it makes landfall on Turkish soil in the Thrace region instead of on Bulgarian soil. South Stream would allow Russia to transport up to 63 billion cubic meters of natural gas to Europe without having to traverse Ukraine. The planned route would start in Russia (where construction has already begun), run through Turkish waters in the Black Sea, make a land connection in Bulgaria and then split northward to supply Central Europe and southward toward the Mediterranean through Greece and Italy. This is first and foremost a Russian-European pipeline designed to circumvent Ukraine. This is not a pipeline designed to feed Turkey. From Russia's perspective, Turkey's energy needs can be taken care of through Blue Stream and any subsequent expansions to that line.
But Turkey is now trying to alter the logic of South Steam altogether, first by attempting to convince Russia that the Europeans are only going to create problems over South Stream with the Ukraine conflict in play. Instead of facing more delays from EU bureaucrats on this project, Turkey is proposing that Russia direct ample amounts of natural gas to Turkey, which will gladly consume it while Russia and the Europeans hash out their differences. Once the European-Russian conflict blows over, interconnectors from Turkey could then be built to extend into Europe. That way, the Turkish logic goes, Turkey secures more Russian natural gas without having to worry about European disputes while positioning itself as a powerful transit state.
Such a proposal would not sit well with the Europeans waiting to receive this natural gas. The South Stream consortium has already said it would not tolerate higher costs and further delays entailed in a re-routing. Bulgaria has already begun creating legal loopholes to try to bypass potential interference from Brussels and ensure that the project continues as planned. Russia will also likely prioritize keeping the current route through Bulgaria to maintain its leverage with Europe and isolate Ukraine's dependence on Moscow. At the same time, Russia will be very interested in securing more market share for its energy in Turkey through an expansion of Blue Stream. Alexander Medvedev, the deputy head of Gazprom, will be in Ankara on April 21 to discuss these plans.
Turkey's non-Russian energy options will meanwhile remain weighed down by a number of political, logistical and financial challenges. So far, Ankara seems unwilling to incur the costs of unilaterally importing a few hundred thousand barrels per day of Kurdish oil from Iraq against the wishes of Baghdad, Tehran and Washington. Israel's attempts to link Turkey into its eastern Mediterranean energy network still depend on Turkey and Cyprus reaching a peace deal. An increase in Iranian energy flows through Turkey is still years out as Tehran tries to rehabilitate itself.
Azerbaijan already is planning for 6 billion cubic meters of natural gas from its Shah Deniz II offshore fields to reach Turkey within the next three to four years (and has 10 billion cubic meters contracted for Europe), but any significant increase in energy flows through the Caucasus route would depend largely on Azerbaijan being able to unlock the politically and technically contentious Trans-Caspian route to channel supplies from Turkmenistan, Uzbekistan, Kazakhstan and potentially Iran against Russia's will. Other domestic considerations, such as attracting investment to boost coal production and build more expensive liquefied natural gas import terminals and re-gasification facilities, will also come into play. But they depend on investors being comfortable enough with Turkey's political mood swings to put money into large projects with long payback periods.
Russia remains Turkey's primary energy patron. And it appears for now that both Ankara and Moscow will work to keep that relationship intact.
Natural Gas Europe is pleased to provide this article in cooperation with Stratfor, a Natural Gas Europe Knowledge Partner. For more visit http://www.stratfor.com/ Follow Stratfor: @stratfor on Twitter | Stratfor on Facebook