Natural Gas Europe
May 04, 2015
By Dr. Ariel Cohen

Earlier this month, Russian President Vladimir Putin promised Greek Prime Minister Alexis Tsipras that Greece would get “hundreds of millions of Euros every year” for bringing Russian gas into the EU.  Gazprom’s goal is to establish a new entry point to Europe bypassing the traditional route through Ukraine.  Panagiotis Lafazanis, the Greek energy minister, announced last week that Athens may repay the advance provided by Moscow once the “Turkish Stream” extension becomes operational in 2019.  

Based on a statement by Alexey Miller, Gazprom’s CEO, the Greek portion of the pipeline project is expected to cost approximately €2 billion. During Tsipras’s visit to Moscow, the two countries agreed to create a working group, which will draw up “road map” for energy cooperation between Moscow and Athens.

The 50 bcm pipeline could help the dire economic situation in Greece, but it has yet to be approved by the EU. It is likely to face significant political and regulatory difficulties in Brussels, which has become increasingly combative vis-à-vis Gazprom. On Wednesday, April 22, Anna-Kaisa Itkonen, the spokesperson on energy matters for the European Commission said: “we are ready to offer our assessment on any such agreement, any such deal, and its implications, when we have something to base our assessment on.” There is little doubt that the EU will apply its anti-monopoly laws and unbundling regulations of the Third Energy Package strictly, as it did against South Stream.

Moscow is desperate to advance its Turkey Stream project, which is planned to replace the ill-fatedSouth Stream project, “killed” by Putin in December of 2014. On April 7, 2015, the foreign ministers of Greece, Hungary, Serbia, Macedonia, and Turkey came together to express their support for the Turkish Stream. The ministers signed a declaration confirming “support to create a commercially viable option of route and source diversification for delivering natural gas from the Republic of Turkey through the territories of our countries to the countries of Central and South Eastern Europe.”

It is clear that Russia is wooing these current and potential EU members in an effort to secure an alternative route for its gas. Moscow is also courting allies, including Greece, Hungary and the Czech Republic, before the sanctions extension vote scheduled for the fall of 2015.  

Russia is itself to blame for the current difficulties in protecting its gas market share in Europe. Before the annexation of Crimea and the war in Eastern Ukraine, the smart money was on South Stream – including this author. However, with tensions high, the future of Turkey Stream is in question.

EU’s recent antitrust charges against Gazprom, accusing the Russian gas giant of abusing its dominant market position in Europe, are likely to escalate tensions between Moscow and Brussels. “All companies that operate in the European market – no matter if they are European or not – have to play by our EU rules,” said Margrethe Vestager, the Competition Commissioner, who is playing a key role in bending Gazprom – and Russia – to Brussel’s regulatory and political will. 

The Southern Gas Corridor – the system of pipelines running from the Caspian region through Turkey to Southern Europe – is one of the most complex amd strategic elements to ensure Europe’s energy supply for decades to come. 

The implementation of this initiative will significantly affect the political climate in Eurasia. Turkey is a winner: it would serve as a transit country while satisfying domestic demand and gaining significant political good will with the EU. 

Maros Sefcovic, EC’s Vice-President for Energy Union just last week said, “The European Union will increase support to Turkey in realization of the project for building the Trans Anatolian Natural Gas Pipeline (TANAP).”  The EU realizes that TANAP/TAP plans to involve several potential suppliers from Europe’s neighborhood, therefore increasing the energy security and delivery dependability.  

The projected capacity of the entire corridor is 16 expandable to 30 bcm per year. However, other sources of gas for TANAP could potentially be countries like Turkmenistan, Northern Iraq (Kurdistan) and eventually Iran. The maximum existing gas export capacity from Turkmenistan is now close to100 bcm per year, most of which goes to China

The foreign ministers of Turkey, Turkmenistan and Azerbaijan met in Ashgabat in January 2015, and invited Turkmenistan to join the TANAP project. The Turkish President, Recep Tayyip Erdogan, noted that the three countries share a same vision of transporting Turkmenistan’s natural gas to Europe through Turkey. Turkmenistan holds the world’s fourth-largest reserves of natural gas

It seems like the proud owner of the second largest gas reserves, Iran, also wants to get in on the TANAP/TAP actions. Earlier this month, the Turkish Energy Minister TanerYıldızsaid, “It will be possible for Iran to take a stake in the TANAP project as long as certain commercial conditions are fulfilled.” 

Nevertheless, the Russian opposition to the Trans-Caspian Pipeline is strong. Putin and Erdoğan became so close, that Putin chose Turkey to replace the politically troubled South Stream. 

Erdoğan is in a difficult position, as Turkey is forced to decide between its major energy and trade partner Russia and its long time ally Azerbaijan.  The opaque relationship between Erdogan and Putin goes beyond the field of energy, as Turkish construction firms make billions of dollars in Russian projects, and millions of Russian tourists vacation in Turkey – no visas needed. Ankara did the minimum to protect the Crimean Tatars, whose ancerstors used to be Ottoman citizens and are Turkic Sunnis, unlike the Shia, mostly secular Azeris.

Even though adding Russian gas transit routes and becoming a regional energy hub may be attractive for Turkey with a domestic consumption  of  about 50 bcm annually and growing, many gas executives ask whether Turkish Stream and TANAP can coexist. 

Several energy experts have expressed concern over economic and political risks at stake. Yet, for the TAP/TANAP consortium members, Turkey Stream should not immeditatly affect project implementation in any way. The EU leadership is frustrated with the Greek government trying to dance on all weddings, and with the pro-Moscow factions in Serbia, Bulgaria, and Hungary.  

The EU political and law enforcement institutions are on track to decrease Russian lobbying capacity in Southern Europe in order to establish solid cooperation framework among the member states.  

Building Turkish Stream, a new route for Russian gas to reach the EU, does not by any means decrease European energy dependence on the Kremlin.  The EU is therefore likely to support projects that allow its members to kick the Gazprom habit, including TAP/TANAP. 

Ariel Cohen, PhD, is Senior Fellow at the Atlantic Council, Principal, International Market Analysis Ltd, a political risk advisory, and Director, Center for Energy, Natural Resources and Geopolitics at the Institute for the Analysis of Global Security (www.arielcohen.com)