Turkey, Russia Toy with Turkish Stream Revival

Russia is moving fast to revive its Turkish Stream project to deliver gas to Turkey and southern Europe via the Black Sea once it ceases to use Ukraine as a transit route. Russian officials say they have already begun talks but so far these appear to be strictly preliminary, with Moscow very much waiting to see just how interested Ankara might be in reviving the project.

Although Turkey, at the end of June, made the initial move to secure a rapprochement with Russia in the wake of strained relations following the shooting down of a Russian warplane by Turkish fighters last November, the centrality of Turkish Stream in this process appears to be very much a Russian initiative.

On June 27, immediately after Russia announced that the Turkish president, Recep Tayyip Erdogan, had sent a letter to the president of Russia Vladimir Putin in which he apologised for the downing of the aircraft, the Tass news agency quoted Gazprom's official spokesman, Sergey Kupriyanov, as saying: "Gazprom is and has always been open for dialogue on Turkish Stream."

Two days later, Russia Today quoted Gazprom's deputy head of finance Igor Shatalov as saying: "The Turkish Stream project has been meticulously worked out. The cost of the four lines was estimated approximately at €11.4bn... The level of readiness to attract project financing is very high."

Turkey still seemed to be taking a cautious attitude at this stage. But on July 15, a few hours before the coup attempt that shook the country, Russia's Sputnik News reported that Turkey's prime minister Binali Yilderim had told journalists: "It is important for Russia and Turkey to restore and implement Turkish Stream pipeline and Akkuyu NPP (nuclear power plant) construction projects as well as to focus efforts on attracting greater numbers of Russian tourists to our resorts and of our citizens to Russia."

In the last few days, judging by Russian media reports, Moscow has stepped up a gear.

On July 26, Sputnik News, citing Russia's deputy energy minister, Yuri Sentyurin, said that Russian and Turkish officials had discussed prospects for Turkish Stream project. They had not reached a decision but further talks would be held in the near future.

The same agency also that day carried a report from Ankara that quoted Turkey's deputy prime minister Mehmet Simsek as saying: "We are open to dialogue. From the viewpoint of Turkey's gas energy needs we are in principle open to the construction of the first leg of Turkish Stream." The report also quoted Turkey's economic affairs minister Nihat Zeybekci as saying a political decision had been reached between Moscow and Ankara to implement Turkish Stream. But it gave no further details on this apparent agreement.

Moreover, when Kremlin spokesman Dmitry Peskov was asked about Turkish Stream July 27, he responded cautiously. "Work is underway in different areas... and you know that alternative routes are worked on and being discussed with our European partners," Sputnik News quoted Peskov as saying.  

The significance of the Russian reports is that while Turkey certainly needs to find alternative sources of gas supply as and when Russia should terminate its transit through Ukraine – by which it routinely delivers around 14 bn m³/yr to Turkey and the Balkans – it is Russia that has already invested billions of dollars to develop the infrastructure for pipeline exports to Europe via southern Russia and a Black Sea crossing.

Black Sea (image credit: Wikipedia)

Most of the money has gone on what Russia calls the Southern Corridor Project, an 2,506-km twin-line system that connects Russia's transmission system to an export terminal at Anapa on the Black Sea Coast. Work on this project began in 2011. At one stage it was expected to cost around $22.5bn but with the rouble's devaluation this was cut to around $15bn.

Gazprom has also paid out extensively for the cost of physical pipe to be used in laying a pipeline under the Black Sea. It signed contracts in January 2014 for €1bn worth of actual pipe, to be used in laying the first string of a subsea pipeline, and then in March 2014, it signed contracts for a further €0.8bn for pipe to be used in the second string. It also signed a €2bn contract with Italy's Saipem to lay the first string and a subsequent contract – estimated at €1.2-1.5bn – with the Swiss Allseas to lay the second string. Most, if not all, of this pipe has now been delivered and is resting on the dockside at the Bulgarian port of Varna.

At the time, these contracts were intended to implement Gazprom's South Stream project, which was originally intended to carry as much as 63bn m³/yr of gas to southern and eastern Europe and via the central European hub at Baumgarten in Austria, and/or a connection at Tarvisio in northeastern Italy, to customers in Italy, France and Germany as well.

But when South Stream fell foul of EU regulations, with Brussels arguing that Gazprom's package of onshore lines from a landing point at Bourgas in Bulgaria to Baumgarten/Tarvisio did not conform to EU regulations, Russia abandoned this approach. Instead it opted to build Turkish Stream, an decision announced – somewhat unexpectedly – by Putin during a visit to Ankara on December 1, 2014.

But the development of Turkish Stream proved just as problematic. First, Gazprom was still in the middle of disputes with Turkish gas purchasers over the price of current gas supplies. This was still not resolved by mid-2015, when pipelaying on Turkish Stream was due to start.

With the downing of the Sukhoi-24 bomber last November, relations became particularly icy, and there was no significant positive discussion of Turkish Stream until the rapprochement started. But it is quite clear that it is Russia that has so far taken the lead in raising the matter, and that Ankara will now be trying to work out how best it can gain from a revival of the project.

The most pertinent comment to date is from Gazprom's deputy chairman Alexander Medvedev, who was quoted by Sputnik news as saying July 26: "We have already stated that the ball is in Turkey's court."

John Roberts