Russia and "Turkish Stream": Uncertain Prospects

Turkish Stream is a 63 bcm pipeline project consisting of four parallel pipelines on the offshore section, but Turkish permission for the engineering surveys in the Turkish Exclusive Economic Zone and within Turkey’s territorial waters has only been granted for the first line of the project.

An interview with Gurkan Kumbaroglu, Professor of Industrial Engineering at Boğaziçi University in Istanbul, Turkey, Founding Director and Chairman of the Board of the Energy Policy Research Center at Boğaziçi University.

Russian and foreign media have recently published a set of articles claiming that the scope of the Turkish Stream is likely to be scaled down and the deadline of its realization is to be postponed. At what stage of realization is the project at the moment? What problems does Gazprom face when constructing the pipeline?

Turkish Stream is a 63 bcm pipeline project consisting of four parallel pipelines on the offshore section, but Turkish permission for the engineering surveys in the Turkish Exclusive Economic Zone and within Turkey’s territorial waters has only been granted for the first line of the project. Turkey’s current position on the Turkish Stream project is hard to understand as all the necessary and unconditional permissions that allow the building and operating of the South Stream project via Turkey’s exclusive economic zone in the Black Sea had been granted by the same government four years ago. In my opinion, it would be a great loss for Turkey if the project gets scaled down and the deadline of its realization gets postponed. I consider the current political uncertainty in Turkey as Gazprom’s major problem to bring the project forward. Since the AKP Party lost their majority in the last elections, it does not have the power to establish the new government and there is uncertainty about Turkey’s political future. Either a coalition will be formed until August 24 or there will be another set of quick elections. With Turkey’s government in a state of limbo it is very difficult to bring the project forward. But the Turkish Stream project is of primary importance for Turkey and it should be possible to progress as a State policy independent of political uncertainty.

What is the cause of the sudden termination of a contract between Gazprom and Italy's Saipem right after the Italian company's pipe-laying ship had dropped the anchor at Port Anapa, taking into account that Russia will have to pay a vast sum for downtime of the pipe-layers?

According to Gazprom’s statement, the contract was terminated because the two companies had been unable to reach an agreement on many practical and commercial questions to do with the execution of the Turkish Stream project. It appears to me as if the delay of the Turkish Stream project has been a driver as the cancellation follows the passing of a June 29 negotiating deadline in talks over natural gas discounts between Turkey and Gazprom. It looks like there is an indirect linkage of natural gas discount negotiations to the Turkish Stream project permission, although these are independent issues. Gazprom had planned to begin construction on the first phase of the pipeline with Saipem and cancellation of the contract indicates that there are some serious issues to be solved. It looks like the top-down approach does not work very well in solving the problems related to the Turkish Stream project and I think that a bottom-up approach may be more successful. Dialogue between key players from business and government is necessary to advance the discussion and debate, elaborate on the project and find ways to overcome them.

How interested are EU states in realizing the Turkish Stream? What volumes of gas supply do European consumers expect to get through the Turkish Stream and what volumes can Russia offer? What support does EU give to the project? Are there any naysayers to its realization amongst European states?

Various independent projections indicate that European gas demand will continue to grow rapidly over the next decade implying some 50 bcm additional demand in the next 5-6 years. This is equal to the gas volume that European customers should get through the Turkish Stream project to substitute gas delivery via Ukraine. Russia declared that it would stop using Ukrainian pipelines so that Europe might be left without Russian gas going through Ukraine by 2019, i.e. some 70-80 bcm reduction in supply. The implications of this scenario may be rather dramatic for Europe if not substituted through the Turkish Stream project. As such it should be in the interest of the EU to support the Turkish Stream project. There is no support from the EU, but there are also no naysayers. Whatsoever, various European countries and companies are aware of the importance of the Turkish Stream project and would like to be involved in the project, especially in Eastern Europe where the continuation of the Turkish Stream would go through. I’m coming to the same conclusion that I had for the case of Turkey with respect to bringing the project forward: a bottom-up approach may be more successful in bringing the project forward. Therefore, I’ll be starting a series of conferences aiming to bridge communications and bring about positive discussion and dialogue.

Some experts believe that the main cause of delays in the realization of the Turkish Stream is discords between Russia and Turkey over gas prices. Why did Russia and Turkey fail to reach a deal on the construction of the pipeline? What demands does Turkey bring forth? What concessions is Russia ready or not ready to make?

Turkey’s pipeline gas imports are coming from Russia, Azerbaijan and Iran. Currently, Turkey buys the cheapest gas from Azerbaijan and the most expensive gas from Iran. We’re talking about negotiation on current gas prices, not prices of gas that will be carried through Turkish Stream pipes. Hence, in my opinion, gas price negotiation should be a different topic in itself not affecting the Turkish Stream project. It would really be a pity if the project gets scaled down or delayed because of negotiations on gas prices. The Turkish Stream project is a win-win opportunity for both Russia and Turkey.

At a recent meeting of Alexey Miller, Gazprom CEO, and Sigmar Gabriel, Vice Chancellor of Germany, Minister for Economic Affairs and Energy, in Berlin, the sides announced realization of Nord Stream II. Can expansion of Nord Stream compensate the setbacks in the realization of the Turkish Stream?

It has been eight months since Russian President Vladimir Putin has announced the cancellation of the South Stream project and its substitution by the Turkish Stream project. A great opportunity for Turkey, which should have been followed up immediately as a State priority and not get stuck in regular bureaucracy. It’s a pity that there is still no intergovernmental agreement on the Turkish Stream project. Accordingly, Gazprom’s new initiative with Germany may well be related to problems in the construction of the Turkish Stream. Expansion of Nord Stream from 55 bcm to 110 bcm would cover Europe’s additional demand over the next couple of years, but not substitute gas delivery via Ukraine, which is going to stop. Hence, I consider both projects as viable.

Do delays in the construction of the Turkish Stream mean that gas transit to Europe through Ukraine will be extended?

At the Valdai Berlin conference earlier this year, Gazprom’s CEO Alexey Miller has declared that Russia would stop delivering gas to Europe through Ukraine when the current contract expires in 2019. Russia has a very open and clear standpoint on this issue. As long as delays in the construction of the Turkish Stream project are not caused by Russia, I don’t think that gas transit to Europe through Ukraine would be extended.

Views expressed are of individual Members and Contributors, rather than the Club's, unless explicitly stated otherwise.