Turkey and Russia have made major strides in implementing the Turkish Stream (TurkStream) pipeline, which will transport Russian gas to European markets through Turkey. On February 21, 2017, Russian energy giant Gazprom signed an agreement with the Swiss Allseas Group on the implementation of a second string of the pipeline. In recent months, Ankara and Moscow have received approvals from their respective legislative and executive bodies to proceed with the project in the wake of eased tensions between the two, after normalizing economic relations in October 2016.
In reality, the TurkStream project represents a major aspect of the strategic cooperation between the two countries, and it continues to represent one of the incentives behind their rapprochement. The two countries’ shared interest in the project can be attributed to several factors. For Turkey, the project will secure supply to meet domestic energy demand. The pipeline also provides Turkey with a significant strategic advantage in the global energy transportation sector.
For Russia, the project is considered a major venture designed to market its natural gas to Europe as a replacement for other gas transportation options that are less feasible economically and imply significant geopolitical risks. Although both parties are determined to implement the project, there are significant hurdles, namely a lack of European guarantees for marketing TurkStream gas.
Notable Progress
On February 21, 2017, Gazprom signed a second contract with Allseas Group to build the second string of TurkStream pipeline’s offshore section that will carry Russian gas to Europe through Turkey. According to an earlier agreement signed in December 2016, the Swiss group will also build the first 970-kilometers of the pipeline planned across the Black Sea.
After Russia reinstated economic relations with Turkey in October 2016, the two countries took serious steps towards implementing the TurkStream project. In the same month, the Turkish and Russian governments signed an agreement to build a pipeline to transport gas from Russia to Turkey via the Black Sea, with a planned capacity of 31.5 billion cubic meters per annum.
In light of joint determination to implement the project, on February 7, 2017, Russian President Vladimir Putin signed a law to ratify the agreement after the Council of the Russian Parliament issued its own ratification in January 2017. Prior to that in December 2016, the Turkish Parliament also approved the agreement.
Motivational Factors
Various factors may contribute to rapid completion of the TurkStream project, most notably:
1. Making Turkey a center for energy: In addition to the fact that Turkey’s Bosporus Strait is a major corridor for oil transportation, seeing as 2.9 million barrels of oil are carried daily from the Caspian Sea to Europe, Turkey hopes for a number of oil and gas pipelines to pass through its territory in order to strengthen its position as a center for global energy transportation.
The Turkish Ministry of Foreign Affairs expects the country to construct more than eight energy pipelines by 2025. TurkStream is one of the most important major projects for Turkey in their attempts to become a regional and global energy hub.
2. Reliable partner: The implementation of the TurkStream project is a suitable alternative to a previous project, the South Stream pipeline, which was abandoned by Gazprom in December 2014 against the backdrop of the European Commission’s unwillingness to implement the project following the outbreak of the Ukrainian crisis in 2014. The pipeline would have passed through the Black Sea to southern Europe via Bulgaria at a cost of $40bn.
On the other hand, the framework of rapprochement between Turkey and Russia appears strong on various levels including the political, security, and economic fronts despite the tensions that took place between the two in November 2015 after Turkish forces downed a Russian fighter jet on the Turkish-Syrian border. It is likely that Turkey would be unwilling to disrupt trade agreements with Russia, not only in light of their renewed relationship, but also due to the impact of Russian sanctions imposed on Turkey previously.
3. Fighting off competition: Several countries of the Middle East and the Balkans have established plans similar to those of Turkey and Russia with regards to exporting natural gas to European markets through Turkey. For several years, Iran has tried to export natural gas to the European market, and the possibility of realizing this goal improved after the economic sanctions imposed on Iran were lifted in January 2016. According to Iran’s plans, the country aims to export 35 billion cubic meters of gas annually from the South Pars field to Europe through Turkey. Relatedly, the Trans-Anatolian Natural Gas Pipeline project was launched in 2014 to transport natural gas from Azerbaijan to Europe through Turkey and Georgia. The pipeline will begin supplying gas in 2018 at a rate of 16 billion cubic meters per annum. This figure is expected to increase to 31 billion cubic meters by 2026.
Potential Challenges
Despite progress, there are several potential challenges, which may prove to be difficult obstacles to the success of the TurkStream project.
1. Limited guarantees: Although Russia is a key supplier of energy to Europe at the moment, they may find it difficult to export natural gas to markets in Southeast Europe due to the lack of agreements to sell gas from the TurkStream pipeline to European countries at this point. On February 9, 2017, Alexander Botsan-Kharchenko, head of the Fourth European Department of the Russian Foreign Ministry said, “We have the Turkish stream pipeline, which has already received all necessary permits and is being constructed. But this part concerns only the supply to Turkey itself. The other one may be used for a reliable and demanded supply of gas to Southern Europe.”
The statement came in conjunction with several European states moving to reduce their reliance on Gazprom for the supply of natural gas. This is in addition to the increases tensions between Russia and the European Union due to the 2014 Ukrainian crisis.
2. Funding opportunities: In addition to the aforementioned isssue, Gazprom may experience potential difficulties in financing the pipeline, which is currently running at a total cost of nearly $12 billion, despite the agreement that both Turkey and Russia would share construction costs for the two lines. Since September 2014, the European Union has imposed a number of sanctions on Russian companies, including Gazprom.
These sanctions include restrictions against the company obtaining new technology and funding opportunities from American and European markets, as well as prohibiting cooperation with the company in the fields of exploration and drilling in many areas around the world. Despite the financial assistance provided by the Russian government to the company, these sanctions will have a negative impact on production and financing capabilities in the medium and long terms.
3. Low demand: Estimates indicate that demand for natural gas in European countries will grow at a slow pace. According to a study, conducted by the Oxford Institute for Energy Studies, published in 2014, it is possible that demand for natural gas will grow from 564 billion cubic meters in 2010 to 594 billion cubic meters in 2020, and eventually 618 billion cubic meters in 2030 with a total increase of only about 54 billion cubic meters over two decades (for 35 European countries). This is a limited increase that has been reduced greatly due to an upswing in production by major natural gas suppliers to Europe, thus intensifying the competition to market Russian natural gas in Europe.
Overall, it can be said that the success of the TurkStream pipeline will remain dependent on many factors, the most important of which being geopolitical and rooted in Russia’s ability to end the present stalemate and ease its strained relations with Europe.
