The Turkish Air Force’s attack on a Russian aircraft flying over Syria has jeopardized development prospects for Russia-Turkey cooperation in the gas sector.
At the same time, Ankara's role in fueling the conflict in the Middle East and the campaign against terrorist groups suggests that it is hardly possible to create a safe and secure route for gas supplies to Europe through Turkey. This means that the gas aspect of the EU's energy security can only be strengthened by the pipeline projects bypassing it. There is only one such project — the second leg of Nord Stream — designed to cover the added demand for imported natural gas in Europe and at the same time to avoid the political risks that other routes involve.
The question of how to supply gas to European consumers in the long run is quite pressing. Transit is an additional risk and a problem regularly encountered by suppliers. We know this firsthand in Russia. Throughout post-Soviet history, most of the controversy and open conflicts in the sphere of gas exports were due to transit, such as gas traffic through Ukraine and Belarus. With Belarus, the issue was eventually resolved through diplomatic and economic means, while Ukrainian transit presents a constant gas supply shortage risk in Europe, which harms Russian suppliers’ profits and reputation.
After the fall of the Soviet Union, Ukraine inherited the transit network, which exported over 90 percent of Russian gas to Europe and Turkey. This led to constant abuse of its monopoly position in the transport sector, such as price manipulation and siphoning off gas. The story reached its peak when supplies halted in mid-winter 2009 and half of Europe suffered from gas shortage for three weeks (some countries, such as Bulgaria and Slovakia, were actually freezing), and Gazprom incurred a direct loss of $2.2 billion alongside irreparable damage to its reputation as a reliable supplier.
Infographics: Russian Natural Gas for Europe and Turkey
Under pressure from its European partners as well, Ukraine was compelled to sign strict long-term gas supply and transit contracts, although everyone seemed to understand that without investing in new infrastructure Ukraine’s monopoly position would always be a sword of Damocles hanging over the security of supplies. It was then that the first project to directly supply gas from Russia to Europe – Nord Stream – was supported at the political level. Ukraine transfers about 40 percent of Russian gas to Europe and 46 percent to Turkey. Germany, the Czech Republic, and even Slovakia, Austria and the western Balkans can be provided with gas regardless of the situation in Ukraine. However, the southeastern region of Europe — Bulgaria, Greece, Hungary, Italy and the north of Turkey – are still dependent on Ukrainian transit.
To avoid political surprises, especially after Ukraine’s gas transit contract expires on December 31, 2019, Russia proposed another gas transport project to its partners — South Stream — which would deliver gas directly to the EU. Yet, after Bulgaria, under political pressure from the United States, refused to issue the requisite construction permit that would have brought it several billion euros in investment and hundreds of millions of euros a year in transit fees, Moscow was forced to redirect the pipeline toward Turkey. This was convenient because Turkey also receives 20-25 percent of its gas imports through Ukraine. So Turkey proposed organizing the transit of the remaining gas volumes to the EU border, in this case, to Greece.
The project that President Recep Tayyip Erdogan dubbed Turkish Stream would have immediately turned the country into a major transit hub to Europe, something Ankara sought for a long time with little success. Even though the Southern Gas Corridor, a project to deliver gas from the Caspian region and the Middle East to the EU, has been active for a dozen or more years and is an infrastructure priority for the European Commission, the official start of the TANAP gas pipeline (in Turkey) and TAP (in Greece and Albania) pipeline’s construction was not until 2014. Only around 10 billion cubic meters of Azerbaijani gas from the Shah Deniz Stage 2 project were planned for European exports. While our estimates suggest the project will achieve design capacity by 2022, the National Energy Security Fund’s projections are closer to 2025.
For now, only rampant optimists would view Turkey as a secure hub for gas from the blazing Iraq, Iraqi Kurdistan or Iran – a country with which Ankara has as many geopolitical differences as with Moscow. This means that Europe should not get its hopes up about significantly expanding South Stream with other sources.
We could return to talking about South Stream. A country that would certainly be incredibly pleased by the idea is Bulgaria, which gave it up as a bad job. But this would require greater political sacrifice from Brussels and the EU’s financial support for infrastructure development in those countries. All of this would take much more time than the tacit approval of expanding the Baltic Pipe – a European gas transport project that has already earned a reputation for being very efficient and reliable.
The Pan-European group of shareholders that controls Nord Stream-2 (which, in addition to Gazprom, includes Germany’s E.ON and BASF, France’s Engie, the Anglo-Dutch corporation Shell and Austria's OMV) should guarantee its stable financing, which means the project has everything going for it: a team that has successfully implemented the first project; large gas reserves; and over 40 years of Russia-Europe cooperation in the gas sector. That is all you need to forget your transit problems like a nightmare.