After kissing and making up from a downed Sukhoi fighter jet over Syria, Russia and Turkey are back to being business partners again. Gazprom and Botas Petroleum agreed on Oct. 10 to push ahead with the so-called Turkish Stream pipeline. This is going to hurt a few countries.
Turkey’s President Recep Tayyip Erdogan, right and Russian President Vladimir Putin, left, look at each other during a news conference following their meeting in Istanbul, Monday, Oct. 10, 2016. Putin and Erdogan voiced support for the construction of a gas pipeline from Russia to Turkey, called Turkish Stream, a project that was suspended amid tensions between the two countries. The pipeline would carry Russian natural gas to Turkey and onto European Union countries. (AP Photo/Emrah Gurel)
On the stock side of the equation, it’s impossible to say whether the pipeline is good for Gazprom’s share price, because the stock hasn’t been over $5 since April.
The deal is good for Turkey. It is not so good for Ukraine and Bulgaria, who will lose out now that the South Stream pipeline is no longer needed. Bulgaria was going to collect transit revenues from that deal.
“Turkish Stream hurts Ukraine because it deprives them of the trans-Balkan route that supplied Turkey via Ukraine, Moldova, Romania and Bulgaria. So it also deprives Bulgaria, Moldova and Romania of transit fees. Bulgaria is even more unhappy than the others of course since South Stream is dead,” says Sijbren de Jong, an energy sector strategist at the Center for Strategic Studies in The Hague.
The Turkish Stream pipeline was designed by Gazprom as an alternative route into southern Europe instead of through Ukraine. It was to planned to have a total capacity of 63 billion cubic meters (bcm), consisting of four parallel pipelines each with a capacity of 15.75 bcm. Last October, Gazprom said it would cut the capacity by around 25%, citing its planned Nord Stream II pipeline. But that pipeline has now been dealt a mighty blow by a Poland anti-trust ruling. Gazprom claims it will go it alone now that its main European partners, including Shell, are out for now.
Turkey was the second card up Gazprom’s sleeve.
It’s unlikely to be a full house, however.
The third and fourth line of the Turkish Stream are “hopelessly unrealistic,” writes de Jong in an op-ed published on Monday by the Royal United Services Institute in the U.K. The reason: there not enough demand for gas in the region to support the construction of all those pipelines.
This month’s agreement means the two sides are now committed to the construction of two pipelines. One would serve the Turkish domestic market, and the other would extend into southeastern Europe, replacing the old South Stream proposal with the Italian oil major Eni. Details of any pricing agreement remain elusive.
Turkish Stream doesn’t only irk Ukraine, and take away potential revenues from Bulgaria. It also may outsmart Iran and other gas producers further south.
“Russia knows it needs to use the surplus from the second pipeline to pre-empt future deliveries from Azerbaijan, and maybe even Turkmenistan and Iran,” de Jong says.
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