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Moscow’s “new-old” energy failure

31 July 2015 [14:31] - TODAY.AZ

/By AzerNews/

By Gulgiz Dadashova

Russia has long sought to realize pipeline projects to the West, bypassing Ukraine, but has failed yet again.

Moscow’s surprising decision in December 2014 to suspend the South Stream gas pipeline that was to link Russia to Southeastern Europe, and replace it with a new project dubbed “Turkish Stream,” has collapsed due to stalled negotiations and scrapped deals.

Russian giant Gazprom's negotiations with the Turkish gas company Botas have not yet yielded a final deal due to a lack of consensus on key agreements in granting Ankara a discount on Russian gas, Reuters has reported on July 30 citing sources among Turkey’s top officials.

The main reason for freezing the Turkish Stream is Russia’s shifting stance on Turkey, which has prompted Ankara to refuse to provide a transit route for the Russian gas.

In February, Turkish Energy Minister Taner Yildiz said that Turkey received a 10.25% discount for 28-30 bcm of the Russian gas. An official document guaranteeing the discount, however, has not yet been signed.

Sources in Turkey’s official circles told Reuters that there was another obstacle to signing an agreement on the construction of the pipeline. Russia insisted on the construction of four pipelines with a total capacity of 63 bcm a year, while Turkey agreed only to the construction of just one of the four pipelines, which Turkey, itself, needed.

No matter what hopes and goals Gazprom had, Ankara froze the Turkish Stream project.

Moscow also seems to accept this as Russian Energy Minister Aleksandr Novak recently admitted that the construction of the Turkish Stream may be rescheduled.

Russia’s Gazprom is yet to start laying pipes beneath the Black Sea for the first line of the Turkish Stream pipeline, which was expected to start operations by 2017 and bring 15.75 billion cubic metres (bcm) to Turkey annually.

“If construction does not start, it is obvious that the schedule is moving,” Novak was quoted as saying.

Why did the Turkish Stream project fail?

Gazprom has been pledging for years to begin construction of a gas pipeline bypassing Ukraine, even welding the first seam of the South Stream in 2012. After European Union resistance killed South Stream in 2014, Gazprom struggled to find another means to carry out its plan of bypassing Ukraine for its gas exports to Europe by 2019.

However, Europe was no longer a friendly market for Gazprom for political and regulatory reasons. Gazprom was struggling with the European Commission, which accused it of overcharging clients in Eastern Europe where Gazprom is the monopoly gas supplier.

Also, another very important issue was the ongoing political crisis between the West and Russia over Ukraine. The EU’s energy dependence on Russia has increased mistrust and contributed to conflicts between them.

Turkey’s energy relationship with Russia was more complicated, as its increasing dependence on Russian gas was narrowing the country’s space to maneuver. The project was in open contradiction with Turkey’s efforts to diversify its energy sources by placing emphasis on Iraqi and Caspian gas reserves. Turkey’s proceeding with the Russian project would alarm the countries aiming to join the already commenced TANAP (Trans-Anatolian Pipeline Project).

Additionally, the cost of the Turkish Stream would have been around $50-$60 billion, a hefty price considering the economic crisis that the countries involved currently face.

Southern Gas Corridor is an uncontested supplier

With a heavy political burden, the Turkish Stream has lost to the economically sound Southern Gas Corridor, which is successfully in construction.

Contrary to the Turkish Stream, the SGC could satisfy Brussels’s zeal for diversifying its energy supplies.

The Southern Gas Corridor – a key project of Azerbaijan’s energy diversification policy – seems to maintain the status of the only westward route for exporting hydrocarbons from the Caspian with the prospect of covering other “blue energy” sources.

The pipeline will cover projected demand as European gas imports are expected to rise from 64 percent now to above 80 percent of total demand in the coming decades. The volumes of gas corresponding to the full current capacity of the Trans-Adriatic Pipeline, a Southern Gas Corridor project, have already been sold for the next twenty-five years.

The Southern Gas Corridor has the potential to meet up to 20 percent of the EU’s gas needs in the future, with potential supplies from the Caspian Region, the Middle East, and the Eastern Mediterranean in the longer term. The total proven and probable gas reserves in the Caspian Sea exceed 8 trillion cubic meters, according to EIA estimations.

The 3,500-kilometer Southern Gas Corridor, initially launched as part of the South Caucasus Pipeline Expansion, will connect the Sangachal terminal with eastern Turkey through Georgia. It will link up with the SOCAR-led TANAP to be connected with a third pipeline, TAP, on the Turkish-Greek border.


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