TurkStream Converts to South Stream Lite

TurkStream (Russian: Турецкий поток; former name: Turkish Stream) is a natural gas pipeline running from Russia to Turkey. Russia–Turkey intergovernmental agreement for TurkStream was signed in October 2016. Construction started in May 2017 and gas from the two-line pipeline began to flow to Turkey in November 2019 and further to Bulgaria on 1. January, 2020. Bulgaria and Serbia have made new investments and renewed their pipeline networks to utilize Russian gas coming through TurkStream. Now already six countries – Bulgaria, Greece, North Macedonia, Romania, Serbia, Bosnia and Herzegovina – in addition to Turkey use TurkStream in their gas imports and Hungary will join the club as early as this autumn. Thus, the Russian South Stream gas pipeline project, which was halted by the EU in 2014, seems to be coming true with TurkStream’s follow-up projects.

 

Nord Stream 2 is more related to conflict between the US and Germany as it is about Russian gas coming to Europe, during President Trump’s term in office, relations between Washington and Berlin deteriorated:  Instead of importing energy from Russia,  US would much preferred  that Germany imported from the US.  As US made efforts to stop Nord Stream 2, the TurkStream – with extensions in Balkans – attracted hardly any attention from US Congress or those within the EU.

Compared with the controversial Nord Stream 2 from Russia to Germany, Gazprom’s TurkStream natural gas pipeline to Turkey and Southeast Europe has drawn less opposition.  TurkStream avoided the fate of Nord Stream 2 probably  because it was completed one month before the U.S. sanctions against both pipelines came into effect.

TurkStream starts from Russkaya compressor station near Anapa in Russia’s Krasnodar Region, crossing the Black Sea to the receiving terminal at Kıyıköy.  TurkStream  has two lines with a total capacity of 31.5 billion m3/a (1.11 trillion cu ft/a) of natural gas. The first line supplies Turkey and the second line transport natural gas further to South East and Central Europe. The costs of the pipeline are estimated to be  €11.4 billion. 

 

TurkStream 2 (South Stream Lite)

Gazprom began shipping gas via TurkStream to Bulgaria on 1. January, 2020, replacing supplies via the Trans-Balkan pipeline through Ukraine and Romania.

Now one year later Gazprom has begun supplying gas to Serbia, as well as to Bosnia and Herzegovina, via a new route across Turkey and Bulgaria. Gas from Russia is transmitted by the TurkStream offshore gas pipeline and further across Turkey. It is then brought via Bulgaria’s national gas transmission system to Serbia, where it is distributed among consumers in Serbia and in Bosnia and Herzegovina. Deliveries along this route were made possible through the expansion of existing gas transmission capacities and commissioning of new ones by Bulgartransgaz EAD in Bulgaria and GASTRANS d.o.o. Novi Sad in Serbia.

The new Russian pipeline through the Black Sea to western Turkey was inaugurated on  8. January 2020 in Istanbul, in the presence of Turkish President Recep Tayyip Erdoğan, Russian President Vladimir Putin, Serbian President Aleksandar Vučić, and Bulgarian Prime Minister Boyko Borisov. Credit: kremlin.ru

 

According to data from S&P Global Platts Analytics, in 2019, Bulgaria received 2.4 billion cubic meters of Russian gas via the Ukraine-Moldova-Romania Trans-Balkan route and transited 4 billion cubic meters more onto Turkey. A year later the volume received via that route fell to almost zero, with TurkStream instead supplying the Bulgarian market. Greece’s take of TurkStream gas in 2020 was up 18% on the 2.41 billion cubic meters of Russian gas it bought the year before delivered by the Trans-Balkan line, while North Macedonia’s imports were also up from the 0.3 billion cubic meters purchased in 2019, S&P Global Platts said on February 8th 2021.

On the 1st of January 2021, Serbia’s President Aleksandar Vučić opened the Serbian section of the European leg of the Turkish Stream in the town of Gospodjinci near Novy Sad. The pipe is 403 km long and its capacity will be almost 14 bcm a year.  Serbia now receives most of its gas via the onshore extension of TurkStream at the newly created Kireevo/Zaychar interconnection point on the border with Bulgaria. In January, supplies into Serbia via TurkStream averaged 8 million cu m/d, with flows through the traditional entry point via Hungary down to just 1.5 million cu m/d. Previously, Serbia imported around 10 million cu m/d of Russian gas via Ukraine and Hungary.

As Bulgaria is an EU member, unlike Serbia,  Sofia completed its gas investments (TurkStream 2)  quietly. In Bulgaria the main contractor was a Saudi company Arkad, which is run by Russians who bought pipes produced in Russia from Russian companies.

 

TurkStream nominally becomes “Balkan Stream” when it enters Bulgarian / EU territory, from where it is off to Serbia and Hungary. Map: Bulgaria Analytica

Forwards to EU markets 

In 2019, Turkey received an average of 11 million cu m/d of Russian gas via the Trans-Balkan pipeline — or a total of 4 Bcm, according to data from S&P Global Platts Analytics. But from the start of 2020, all Russian gas flows to Turkey are carried either by the existing 16 Bcm/year Blue Stream line under the Black Sea or the 15.75 Bcm/year Turkish string of TurkStream.

TurkStream reliably transports Russian gas across the Black Sea to consumers in Turkey and already six European countries: Bulgaria, Greece, North Macedonia, Romania, Serbia, Bosnia and Herzegovina.  It managed to bypass Ukraine as a transit state: the Trans-Balkan pipeline from Ukraine to Moldova and Romania has effectively become redundant and will be used in reverse for Russian gas deliveries from TurkStream to the Balkans.  And in addition Hungary  would like to import up to 6 Bcm/year of gas via TurkStream and its associated onshore infrastructure once a new link up on the border with Serbia is complete, expected in October 2021.

The further extension of the pipeline in South-East and Central European countries are responsibilities of involved countries. For the gas transport both—existing infrastructure and construction of new pipelines—will be used. For Gazprom the preferable option is to export gas from the second line to Bulgaria, Serbia, Hungary, Slovakia, and Austria.  For example there is a follow-on project called as  the Tesla pipeline, to run from Greece to North Macedonia, Serbia and Hungary, ending at the Baumgarten gas hub in Austria. 

An older map showing both Nord Stream and the former South Stream gas transit pipeline project, gives Moscow’s basic idea to go around both Belarus and Ukraine. TurkStream 2 could be described as South Stream Lite. Map: Gazprom

Bottom line

During 2014 Ukraine crisis, gas supplies from Russia lifted again energy issues to the top of the European agenda and led to the creation of the EU Energy Union.  As EU developed its energy security strategy, Russia also developed its own strategy, primarily aimed at maintaining its share in the European gas market in the future. In addition Russia has been diverting all its gas transit to Europe away from Ukraine by 2020.

In mid-term – next two decades – EU gas consumption will rise as EU tries to get rid of coal powered and nuclear plants.  New sources of gas will came, such as liquified natural gas (LNG) and the Southern Gas Corridor pipeline so Russias’s market share will probably drop;  however as need for gas in Europe will rise so the volume of gas from Russia will be the same or rise also. For example Southern Gas Corridor, bringing Azeri gas to southern Europe, has an annual capacity of 18 bcm with half that taken by Turkey and less than 10 bcm available for Europe. In January alone, Gazprom exported 19.4 bcm to Europe, so the extra gas exported in January is almost equal to the annual capacity of the Southern Gas Corridor pipeline.  The fact is that Russia has the world’s biggest gas resources and is next door and also that Russia never tried to use gas as a threat – even at the height of the Cold war.  For Russia, selling gas to as many customers as possible is both good politics and good economics.

With TurkStream Gazprom skilfully bypassed the EU third energy package, and even better the EU states actually paid for it. Gazprom can now use the most important border points of Bulgarian transit pipelines, without having to pay billions of euros for their construction and without owning the pipes, as Gazprom did not formally engage in the construction of the Turkish Stream’s extensions (South Stream Lite) in Europe. Bulgaria and Serbia made the investments themselves as an expansion of their internal transit network and not publicly as a transit gas pipeline.

TurkStream has now changed the direction in which the Russian gas reaches southeast Europe, and with TurkStream’s onshore expansion, the picture is shifting once again how the Russian gas goes to EU’s market.

Sources i.a: NewEurope , S&PGlobal , 

 

Turkish, Greek And Tesla Streams Re-routing Energy Supply In Eastern Europe

Russia cancelled its South Stream gas pipeline project in December 2014 replacing it with new Turkish Stream pipeline. The follow-up of this Russian-Turkish project is re-routing the energy supply in whole Eastern Europe with Greek and Tesla [Balkan] Stream gas pipelines.

The head of Russian gas producer Gazprom stated on 7^th May 2015 that the firm had decided to start building the Turkish Stream pipeline and that preparations to build the undersea stretch of the pipeline were under way. During a meeting between Gazprom’s Alexei Miller and Turkish Minister of Energy Taner Yildiz, the parties sent a resounding message to gas markets: the Turkish Stream will be brought on stream in 19 months. Natural Gas Europe reports: “We had very efficient and crucial talks today. It was agreed to bring onstream Turkish Stream and to start gas supplies in December 2016. Gazprom, while implementing its portion of work under the Turkish Stream project, will follow the agreements reached today,” Miller said in a note released on 7^th May 2015. 

“Gazprom has moved to the construction stage of the sea part of the Turkish Stream pipeline,” Gazprom chief executive Alexei Miller said in an interview with a Russian television. The Russian firm may be reviving the infrastructure that it built for the South Stream. South Stream gas pipeline construction in shallow waters will begin in first 10 days of June 2015. The pipes originally bought for South Stream will be used for the Turkish Stream. For laying the pipes in the bottom of Black Sea, Russia rented two pipe-laying vessels from Italian Saipem company in last fall. Following the cancellation of the South Stream pipeline project in late 2014, Gazprom has paid €25 million monthly to Saipem without any usage of the vessels – Castoro Sei and Saipem 7000.

Recently there has been some tensions between Russia and Turkey. Russia’s President Putin participated to the ceremony in Yerevan to commemorate the Armenian victims of the 1915 events, and Turkish leaders have made some critical comments over situation of tatars in Crimea. However now it seems that the Turkish and Russian delegations have renewed their commitment to increase energy ties. (More e.g in NaturalGasEurope ) .

While South Stream Pipeline project was replaced with Turkish Stream and planning is going on to continue project with Greece and Tesla Streams some serious threats still remain that could endanger the projects. These mostly have to deal a reoccurrence of instability in Macedonia [look my article Terrorism in Macedonia Wasn’t An Isolated Act! ]

Gas to Europe

There are three main sources of supply of pipeline gas to Europe. They are Russia, Norway and North Africa. Norway probably will keep or even reduce the volumes. Besides, North Africa provides gas only to Italy and Spain and its volumes have significantly reduced in recent years.

During last years LNG (liquid natural gas) has came more to European gas markets. There is now more LNG gas terminals in Europe and some new terminals will came in 2015 e.g in Poland and Lithuania so in principle it is possible to import LNG from US. However Europe has decreased its LNG imports due its high price; and as Asian LNG import prices as well demand are much more higher than those in Europe it seems that LNG is not real alternative to Russian gas. LNG suppliers have redirected the volumes of liquefied natural gas to other premium markets and Europe can only be guided by those surpluses when they are not in demand in Asia.

The construction of the Trans Anatolian Pipeline, which will connect the South Caucasus Pipeline to the Turkish-Greek border is already initiated and the construction of the Trans Adriatic Pipeline, bringing gas to the Italian market, will follow. These investments will secure some 10 billion cubic metres of gas a year from Azerbaijan by 2019 to the European market.

The Russian gas to Europe has now three main energy high ways: 1^st The Nord Stream via Baltic Sea, 2^nd Jamal, four pipelines through Belarus and 3^rd Transgas or pipelines through Ukraine. More than 86 billion cubic meters (bcm) of the gas exported to Europe by Gazprom passed through Ukraine’s pipeline network in 2013 – about half of the total. There is also some economic reason to re-route Russian gas via Turkish Stream instead of Ukraine as modernising Ukraine’s gas transport system is estimated to cost 19.5 billion dollars.

After building the first Turkish Stream line, the existing Bulgaria Turkey line will be empty, however it can be used for reverse flow to Bulgaria. (Source: NewEurope )

Re-routing energy supply in Eastern Europe

Turkish Stream will redesign completely the energy supply route in Turkey and Eastern Europe. Gas that is currently transported via the Trans-Balkan Pipeline through Ukraine to Romania, Bulgaria and Turkey will be re-routed so that Turkey will become the first and not the last recipient of gas in the supply chain. One new aspect are gas interconnectors between Central and East European countries. These interconnectors allow a much better crisis supply of gas, together with new reverse-flow capacities.

Gazprom has already told Europe that it plans to cease using its current export route through Ukraine in 2019 and shift those natural gas supplies to the Turkish Stream pipeline. As Russia now begins construction on the first of Turkish Stream’s four parallel pipelines, each with a capacity of about 16 billion cubic meters. Gazprom can use this first pipeline to supply Turkish natural gas market. Three other pipelines can be implemented when EU and especially Central and East European countries decide to build infrastructure to deliver gas from Turkey to European markets currently transported by the Trans-Balkan pipeline (TBP) to Turkey via Ukraine, Moldova, Romania and Bulgaria. The expiration of a transit agreement on Russian gas supply through Ukraine in 2019 along with the completion of Turkish Stream mean that TBP will likely be suspended. This in itself would be beneficial to Turkey as its security of supply would no longer be vulnerable to Russia’s political stand-offs with Ukraine or other eastern European countries along the route.

On 7th April 2015 representatives of five countries – Hungary, Serbia, Macedonia, Greece and Turkey – met in Budapest, announcing the formation of a working group to facilitate natural gas deliveries – specifically infrastructure development – to their markets from gas emanating from Turkey including possible participation in the Turkish Stream pipeline. The group has pledged to meet again in July and hopes to involve Albania and Bosnia & Herzegovina.

As for whether Gazprom can finance its three major pipeline projects the company has a strong balance sheet, relatively low level of net debt and robust cash flow. Considering it has spent $20 billion on transport over the last few years, the spending required on Turk Stream, Power of Siberia and Altai averages about $10 billion/year.

Greece

One of the main factors in Moscow’s shift from South Stream to Turkish Stream was the EU’s Third Energy Package (TEP). Under these rules, a single company cannot own the pipeline through which it also supplies gas. Neither Russia nor Turkey is an EU member, and so neither are bound by the TEP, which makes the construction of Turkish Stream much easier. However, the construction of Turkish Stream is not the only issue at stake. The pipeline will have to stop at the Turkey- Greece border because of the TEP rules, given that Greece is an EU member state.

In order to transport its gas to Greece and onwards, Gazprom needs to use existing interconnectors – either TAP or Interconnector-Turkey-Greece-Italy, including the DESFA-operated Greek National Gas Transmission System (NGTS). Turkish Stream will traverse the Greek territory as ‘Greek Stream’ and then it will spread itself into two routes. Turkish Stream will traverse the Greek territory as ‘Greek Stream’ and then it will spread itself into two routes. A main line towards the North via FYROM and Serbia and one towards Italy, merging itself with the Italy-Greece Interconnector (ITGI) which originally was to transfer Azeri sourced gas from Western Greece to Southern Italy via the Adriatic Sea. It is of interest to note that ITGI is already eligible under the EU’s Projects of Common Interest (PCI) and it is already owned by 50% by the Italian Company Edison which is a subsidiary of the French EDF.

That detail is of great importance regarding the EU Commission’s clauses of the Third Energy Package that will prohibit an involvement of Gazprom in that sector. Thus Greek Stream is envisaged as a 50-50 project between the Greek DEPA (and DESFA) and Gazprom and the remainder would be a DEPA and Edison partnership. It is supposed that the Italian market would also be used as a stage point for the introduction of some quantities of Russian gas into France as well. (Source and more in Natural Gas Europe )

Trans Adriatic Pipeline and the Turkish Stream pipeline will not be competitive, as each of them will have an own role to play. TAP cannot satisfy the huge demands in natural gas of the European states and peoples and that the project would not be an alternative to the Turkish Stream.

The Greek extension of a pipeline to pump Russian natural gas through Turkey to consumers in southern Europe could cost about 2 billion euros and its construction will create about 20 000 working places. An agreement on the construction of the Greek extension of a proposed pipeline to pump Russian natural gas through Turkey to consumers in southern Europe could be signed at the St. Petersburg Economic Forum on 18-20 June 2015.

 

Tesla Stream

Turkish Stream is replacing the previous South Stream project which Moscow ditched due to EU (and Bulgarian) resistance to unblock construction. The “Tesla Stream” is an offshoot of “Turkish Stream”. The concept is to connect ‘Turkish Stream’, the Russian pipeline to Turkey’s Eastern Thrace region, to a new hub on the Turkish-Greek border. Tesla pipeline would move gas further across the territory of Greece to the former Yugoslavian Republic of Macedonia (FYROM), Serbia, Hungary, reaching the Baumgarten gas hub in Vienna, Austria. So compared to South Stream Turkish and Tesla Streams are detouring through Greece and Macedonia to compensate for the exclusion of Bulgaria.

The foreign ministers of Greece, Macedonia, Serbia and Hungary met 7^th Apr. 2015 in Budapest to explore their potential participation in Russian plans for the new Turkish Stream pipeline. In the joint declaration on strengthening cooperation in the energy sphere which was signed at the end of the meeting, the parties “expressed their support for the idea of creating commercially viable routes and sources by supplying natural gas from Turkey to countries in Central and South-Eastern Europe via the territory of the member countries”. It was also emphasised that the pipeline would be fully covered by EU regulations. After this positive response Russia’s President Putin and Greek Prime Minister Alexis Tsipras have discussed the construction of the so-called Greek Stream pipeline across Greek territory. ‘Russia confirmed its readiness to consider the issue of funding the public and private Greek companies that would be involved in the project’ reads a note published on the Kremlin’s website, referring to the gas transportation system on the Greek territory. 

Geopolitical aspect

Russia, Turkey and the West all share one rival in the Balkans: political instability. Located at the confluence of three historic empires, the strip of land between the Mediterranean and the Black Sea has long been the focus of competition among global powers. Now it is just one arena in the standoff between Russia and the West. The United States and the European Union have been involved in the internal politics of the Balkans since NATO committed troops in the aftermath of the Bosnian war and the conflict in Kosovo in the 1990s.

Recently with the help of the local revolutionaries and ethnic terrorists, the West was trying to destabilize Macedonia (FYROM) in order to overthrow the democratically elected government and to withdraw the country from the Tesla Stream. (More background in my article Terrorism in Macedonia Wasn’t An Isolated Act! and  Oil Geopolitics: The South Stream Pipeline Has Been Replaced by “The Balkan Stream”  by Andrew Korybko). Also US has already contacted Greece and expressed the negative stance of Washington regarding the Turkish Stream in general.

The bottom line from my perspective is that Turkish Stream will deliver 14 billion cubic metres per year to the Turkish market and there is a good change that another 49 billion cubic metres Russian gas per year will flow to Europe – partly for fulfilling the contracts already signed – via a new hub on the Turkish-Greek border and through Greece and Tesla Streams.

In my opinion it is also noteworthy that Turkish Stream and the creation of a gas hub on the Greek Turkish border, coupled with the planned TAP and TANAP pipelines, give Greece and Turkey more reason to enhance cooperation on energy matters as all these lines are generating remarkable transfer fees for both countries. Similarly also from its side Tesla Stream will create significant transfer fees for Macedonia (FYROM), Serbia, Hungary and Austria in addition to their energy security.

Related article: Is South Stream Pipeline Transforming Itself To “Turk Stream”?

Balkans and Geography of Turkish Stream

 

Strategic Culture FoundationONLINE JOURNAL 21.03.2015 | 00:00 Pyotr ISKENDEROV Strategic-Culture.org

Russia’s Stroytransgaz has announced that it will build a gas pipeline across (FYR) Macedonia, which could eventually be used as part of a route to supply Europe with Russian gas via Turkey. Macedonia will have its own source of energy. Today the country has energy dependence indicator of 47, 9 percent – the second largest after Croatia (52%). The importance of the pipeline going across Macedonia is immense. It will become the key component of all-Balkans energy system linked to the Russia-Turkey joint Turkish Stream project on the construction of gas route leading to Central and South Europe.

According to Stroytransgaz, the 96.6 km (60 miles) Negotino-Klecovce gas pipeline will cross Macedonia from near the Greek border in the south up to the vicinity of the Serbian border in the north. Stroytransgaz will build 61 km of the link by June 2016.

At the moment, Macedonia receives gas from Russia via Bulgaria and Romania as part of the transit through Ukraine (pipe string N8). The existing pipeline has a capacity of 800 million cubic meters a year – not enough to satisfy the needs of the Balkans. The pipeline may be out of operation as early as 2019 when Russia plans to stop using this route, or, even earlier, in case of Ukraine’s further disintegration.

Gasprom and its Turkish partners want to finish the construction as early as they can. Gazprom’s CEO Aleksey Miller said, «Our priorities – to study the route’s options in Turkey, to define the location of the landfall facilities, gas delivery points for Turkish consumers and border crossings between Turkey and Greece».

There is an intriguing collision here. Nature and geography are the factors to facilitate Macedonia’s becoming the key transit country in the Balkans. There is an alternative route going through Bulgaria and Serbia. But Moscow does not see Bulgaria as a partner to trust. Serbia imports all the gas it consumes. Russia accounts for 95% of its supplies. Belgrade faces political problems. It has to prove itself as a reliable partner to become part of the emerging energy system in the Balkans.

Turkish Stream has the same capacity as South Stream. It can carry up to 63 billion cubic metres (bcm) of gas annually to Europe with 16 billion remaining in Turkey and 47 billion going farther to the Balkans. It’s enough to satisfy all the requirements. The main obstacle is the gap between the Serbia’s ruling elite on the one hand, and the interests of Serbian people on the other.

No matter Western and many Serbian media outlets have launched an anti-Russian and anti-Gasprom campaign, there is a growing understanding in Serbian society of the reasons South Stream was cancelled. According to a poll conducted in late 2014-early 2015, 39, 8% of Serbs believe the United States is behind the cancellation of South Stream while 20,2% put the blame of the European Union. Only 6, 5% believe that it was Russia’s fault. 2, 4% of respondents think that Bulgaria was responsible because it’s not fully independent while taking decisions on energy and other issues.

Bulgaria mainly, and to lesser extent Serbia, failed to act on their own being too much subject to foreign influence. Today Turkey imports around 70% of oil and gas it needs, its consumer demand is to increase 40% by 2020. Turkey wants to become a key energy hub. It takes part in talks on all the projects under consideration related to new routes going to Europe, no matter some of them are subject to competition. The availability of resources defines energy geopolitics. It makes the Russia’s position be on solid footing.

Of course, Macedonia presents some risks due to internal political instability and the emergence of Albanian factor. The West’s intention to frustrate the Russia’s plans is obvious. There are grounds to believe that the recent round of political confrontation in Skopie was incited by the West. The events have all the making of «color revolution» inspired from outside. But one way or another, Serbia, Bulgaria and Macedonia have to think about their energy needs. Common reason makes them realize that close cooperation with Russia meets their interests. All planned and existing energy routes go to the region from the East, not from the West. Liquefied gas tankers from Qatar or Algeria don’t drop anchors Belgrade, Sophia or Skopie.

 

 

Is South Stream Pipeline Transforming Itself To “Turk Stream”?

“We believe that in the current conditions Russia cannot continue with the realisation of this project [South Stream].” (Vladimir Putin)

Russia’s $40 billion South Stream gas pipeline project came to reach a standstill on Monday 1^st Dec 2014 when, as the WSJ reports, Russian President Vladimir Putin said: “We couldn’t get necessary permissions from Bulgaria, so we cannot continue with the project. We can’t make all the investment just to be stopped at the Bulgarian border.”

The main reasons for halting the South Stream are plunging energy prices, stalling European demand, interpretation of the European Commission that all bilateral agreements (IGAs) for the construction of South Stream are all in breach of EU law and mostly the political standoff between the European Union and Moscow over the crisis in Ukraine.

The announcement on scrapping South Stream came during a visit by Russian President Vladimir Putin and Gazprom chief executive, Alexei Miller, to Turkey, during which Putin proposed building it to Turkey instead, offering its gas at a discount.

South Stream

South Stream is a Russian sponsored natural gas pipeline. As planned, the pipeline would run under the Black Sea to Bulgaria, and continue through Serbia with two branches to Bosnia and Herzegovina and to Croatia. From Serbia the pipelines crosses Hungary and Slovenia before reaching Italy. Its planned capacity is 63 billion cubic metres per year (bcm/y).

The key partner for Russia’s Gazprom in the South Stream project is Italy’s largest energy company, ENI.

Russia signed intergovernmental agreements with:

• Bulgaria – January 18, 2008;
• Serbia – January 25, 2008;
• Hungary – February 28, 2008;
• Greece – April 29, 2008;
• Slovenia – November 14, 2009;
• Croatia – March 2, 2010;
• Austria – April 24, 2010.

The construction of South Stream started on December 7, 2012 is scheduled to be completed by 2015. The offshore section of the pipeline, which will run in part along the seabed and reach the maximum depth of 2,200 m, will be 931 km long. Each of the four parallel strings of the pipeline will consist of 75,000 pipes, each 12 m long, 81 cm in diameter, 39 mm thick and weighing 9 tonnes.

South Stream and partners

Last December (2013), the European Commission said that all bilateral agreements (IGAs) for the construction of South Stream are all in breach of EU law and need to be renegotiated from scratch (Source: Euractiv ).

“Field status” as solution

The European Commission threatened to launch legal action on grounds that South Stream violates EU anti-monopoly laws, with Bulgaria halting construction in August 2014. There are two main requirements for the eligibility of major new gas infrastructure projects like South Stream to be developed in the EU in compliance with the European Commission Directive 2009/73/EC concerning common rules for the internal market in natural gas. The first one relates to the unbundling between the suppliers and the owners of infrastructure, while the second one relates to the granting of third party access to the transmission and distribution systems. This is a formality – the real cause to block South Stream from EU side is of course political confrontation due Ukraine.

Bulgaria and Russia have been discussing the possibility of reclassifying the Bulgarian section of the South Stream gas pipeline into a field pipe to exempt it from EU restrictions. Indeed “the field status” could solve all the problems on restrictions related to the EU third energy package.

In the case of the South Stream Russia’s Gazprom cannot be engaged in production, transportation, and sales of natural gas at the same time. But the pipes carrying gas from EU’s sea shelf fields have a special field status, which exempts them from the restrictions of the legislation.Under EU legislation, pipelines carrying gas from the sea shelf wells of EU countries, particularly Germany, France and Belgium, have a ‘field pipeline’ status that exempts them from the requirement for mandatory granting of access of third parties to the pipeline.Austria’s OMV, Gazprom’s partner in the Austrian section of South Stream, produces gas on the Bulgarian Black Sea shelf, and a pipeline built by OMV to carry gas from the shelf can be later included in the project by reassignment of rights. (Source and more at Novinite: Bulgaria, Russia Discuss Exempting South Stream from EU Restrictions )

Consequences

The main loser of possible cancellation of South Stream project will be Bulgaria. The direct budget revenues that Bulgaria would have had from [gas] transit were at least €400 million a year. The share in the country’s €40 billion GDP to come from South Stream was expected to be 1.5 percent, according to Bulgarian Economic Ministry. Direct investment was supposed to be around €3 billion creating around 2,500 new jobs. The Northern parts of the country, through which the main pipeline route would be laid, were expected to have significantly improved social infrastructure and become more attractive to investment.

Besides Bulgaria also Serbia, Austria and Italy would have made big time revenue, and employed lots of people in need of jobs, by being links in the South Stream chain. Now they will have to pay the Turk Stream toll booth to secure their energy needs.

“For Serbia it [South Stream] has been the cornerstone of our industrial strategy for the next 10 years so the situation is worrying us,” Vuk Jeremic, former foreign minister of Serbia, told New Europe on the sidelines of the Athens Forum 2014 on September 15. “Right now the bets are off. But I’m hopeful that there will be progress in the future. But it would have to be part of a wider development of normalisation of relations between Russia and the West which currently does not seem to be in the making,” he said. Reminding that Gazprom is one of the biggest foreign investors in Serbia, Jeremic stressed that such a project would be of immense importance for his country’s economy so there are reasons for Belgrade to be worried.”

In addition with Turk Stream a reality, Ukraine has lost its strategic energy significance. The project operator South Stream Transport estimates that European companies will lose at least 2.5 billion euros because of the abandoned project. Japanese companies who were participating in the project will lose some 320 million euros – a Japanese consortium made up of Marubeni-Itochu and Sumitomo had received a pipe supply order worth that amount. (Source: Russia Beyond the Headlines )

If Gazprom decides to choose Turkey and Greece for the South Stream route, the pipeline project would largely resemble the TANAP-TAP project to bring Azeri gas to Italy through the territories of the same countries. The Trans-Anatolian gas pipeline (TANAP) is a proposed natural gas pipeline from Azerbaijan running through Turkey. The approximately 870 km long TAP pipeline connects with TANAP, and will cross Greece and Albania before reaching Italy through an offshore section. It is to be built by a consortium led by BP, Norway’s Statoil and Azerbaijan’s SOCAR. TAP is in an advanced stage of preparation and the start of its construction is planned in 2016.

Gazprom had spent 487.5 billion rubles ($9.4 billion) in the last three years on South Stream and upgrading the Russian pipelines that would have supplied it. Some of that work can be used for a separate link to Turkey. Supply contracts and intergovernmental agreements surrounding the project remain in force. The infrastructure built in preparation for South Stream will be used for “Turk Stream”.

“Turk Stream” instead?

Related to implementation of South Stream Russia agreed on 6^th August 2009 with Turkey about energy cooperation with South Stream and also development of Blue Stream pipeline between Russia and Turkey under Black Sea so South Stream has secured also an alternative route. While EU started to create obstacles to project and in case Bulgaria continues to obstruct the construction of the South Stream pipeline this cooperation made base for Gazprom’s “Plan B”. Also on 24 May 2014 Russian President Vladimir Putin already hinted at another route for South Stream, during his meeting with leaders of world media.

Ankara would allow South Stream to reach Turkey under the Black Sea instead of Bulgaria, as originally planned. Russia would prefer not to opt for a plan B, but if the Commission doesn’t stop pressuring Bulgaria to freeze the construction of the pipeline, this alternative appears to be a viable option.

While announcing about South Stream hold off the Russian leader said he will add an extra branch to his existing Blue Stream gas pipeline to Turkey and build a new storage and trading “hub” on the Turkish-Greek border. The pipeline will have an annual capacity of 63 billion cubic meters. A total of 14 bcm will be delivered to Turkey, which is Gazprom’s second biggest customer in the region after Germany. The rest can be shipped through Turkey’s pipeline network to the Balkans.

On the left, the planned South Stream route, to the right, the Blue Stream pipeline to Turkey. Image from http://www.gazprom.com

Russia’s energy minister Aleksandr Novak said that the new project will include a specially-constructed hub on the Turkish-Greek border for customers in southern Europe. Novak later confirmed that Vladimir Putin personally ordered for the South Stream project to be mothballed, and its existing facilities to be repurposed for the new Turkish pipeline. (Source: RT )

The clear winner of new plans is Turkey – the in-between partner and energy hub – who will take gas from Iran and Russia to Europe. In addition Russia and Turkey also noted that plans for Russian firm Rosatom to build a $20 billion nuclear power plant in Turkey are proceeding full speed ahead.

The bottom line

South Stream exposed cracks in EU strategy as Hungary, Austria, Serbia and Bulgaria among others saw it as a solution to the risk of supply disruptions via Ukraine, which have occurred three times during the last decade. Brussels, on the other hand, saw it as entrenching Moscow’s energy stranglehold on Europe. It remains to see whether Russia’s decision was final or a political ploy – a tactical step – to gain more favorable terms.

From my point of view the original South Stream is the better alternative than “Turk Stream” as it is the direct option to EU/Europe and avoid a transit risk related to Ukraine or Turkey so in my opinion the best follow-up would be attempt to solve Russia-EU differences and run pipeline directly to Europe as initially planned.

P.S:

Turkey, the country that bridges Europe with Asia is merely the latest expansion of Putin’s anti-dollar alliance as Turkey and Russia agree to use local currencies in trade. Wider perspective about this issue can be read from my article ¥uan and Waterloo of Petro$

Update 05/12/2014:

The South Stream pipeline crossing southeastern Europe could still be completed, despite the stated intention of President Vladimir V. Putin of Russia to abandon the project, according to Jean-Claude Juncker, president of the European Commission.  The comments by Mr. Juncker, at a news conference here on Thursday, indicated that the bloc was intent on keeping at least the idea of the South Stream project alive — despite the European Union’s sanctions against Russia over the crisis in Ukraine, and despite the Europeans’ longstanding skepticism about a pipeline that could extend the region’s heavy reliance on Russian energy.

“South Stream can be built,” Mr. Juncker said. But, he added, “the ball is in the court of Russia.” Mr. Juncker’s comments — as surprising in some respects as Mr. Putin’s sudden decision to reroute the pipeline — were the latest twist in a project that has became a geopolitical tug of war between Brussels and Moscow. (Source: NYT )

The Nabucco-South Stream race intensifies

The race between the two EU’s eastern gas pipelines is going on while next winter can again show some supply problems via Ukraine. South Stream got latest boost on 11^th November 2009 as Russia’s Energy Minister Sergei Shmatko and Slovenian Economy Minister Matej Lahovnik signed an agreement on the passage of the South Stream gas pipeline across Slovenian territory. Same time shareholders in the Nabucco have started talks with two European top lenders over borrowing almost €1.5 billion for the pipeline’s construction; a €5.6 billion loan is needed for the construction first stage of the project and the shareholders have also started talks with two credit insurers. Besides loan Nabucco still desperately is searching gas for its planned pipe.

With South Stream Russia is looking a more reliable route for its gas exports to Europe as it bypasses Ukraine and Belarus, where price disputes have in the past led to gas shortages. EU Commission tries with Nabucco provide a supply of gas not subject to Russian control.

The competition

The competition over gas is coming harder. In my article “New Player in Caspian Sea Power Corridor” I described how China has came to game to take big share of Turkmenistan gas.

For contest between EU’s Nabucco and Russia’s South Stream China’s actions favor later. Today’s arrangements are securing gas for South Stream while Nabucco still is searching supply. It is more clear that Nabucco should be filled with Iraqi and/or Iranian gas and political aspects related to this may delay finding(private) investors and the implementation of project as whole. In bottom line while Russia is taking its part from old gas fields and China from old and new gas fields the Nabucco pipe still is more than half empty.

More about this comparison one may find from my post “EU’s big choice – Nabucco or South Stream?“.

Bulgaria?

From 2015 South Stream is scheduled to take gas into the EU via Bulgaria. A northern branch ends up in Italy via Serbia, Hungary, Slovenia and eventually Austria. A southern route takes the gas through Greece and under the Adriatic Sea to Italy. With Slovenia Russia has all the necessary European partners for us to be able to complete its project. During Summer 2009 there was discussions if South Stream could pass Bulgaria. Russia however agreed on 6^th August 2009 with Turkey about energy cooperation with South Stream and also development of Blue Stream pipeline between Russia and Turkey under Black Sea so South Stream has secured also an alternative route. After that the discussions between Bulgaria and Russia got a new boost.

Austria?

 

Austria has officially backed Nabucco even some of Austrian companies are also partners in South Stream. On 11^th Nov. 2009 Russia and Austria had meeting. PM Putin said after talks with Austrian Chancellor Werner Faymann that they agreed to draft an agreement on cooperation in South Stream. Faymann said South Stream is in Austria’s interests and that Austria’s government had given a mandate to start negotiations two weeks ago. He said Nabucco and South Stream shouldn’t be viewed seen as competitors: “We believe that this is diversification as well as a chance to make the energy supply more secure,” Faymann said. More in CNBC news.

Bottom line

Russia made already on May 2009 a proposal including the South Stream gas pipeline to pump natural gas from Russia to the Balkans and onto Europe in a list of EU priority projects. The U.S./EU backed Nabucco project had been included in the list, but South Stream not yet. From my point of view I would like to see EU to change priority status from Nabucco to South Stream. Nabucco could still be kept alive in case to wait stabilisation in the Middle-East.

 

New Player in Caspian Sea Power Corridor

Competition – or development – of EU’s eastern gas supply routes has intensified this year. Both EU/U.S. backed Nabucco and Russia’s South Stream have made deals to guarantee realization of new pipelines until 2015. The EU’s new “southern corridor” – Nabucco as essential part of it – has been dubbed a version of U.S. “Silk Road Strategy” aimed to block Russia from gas fields around Caspian Sea and its connection to Iran. Russia on the other hand wants direct access to EU markets without transit via Ukraine.

Until this summer the gas game has be seen as battle between Russia and West. Now the world economic crisis and current low price of gas have brought a new player to game in fuel sector – China. With its financial strength China has now had ability to intensify its offensive towards the Caspian Sea energy sources especially in Kazakhstan (especially oil) and Turkmenistan (especially gas). Will the outcome be, that both Russia and Western powers with their companies will lose Caspian oil and gas while it will flow to East? Not necessary but from now on one can not ignore China as key player in region.

As main source related to energy game in Kazakhstan and Turkmenistan I have used Ajdar Kurtov’s fine article “SCO Yekaterinburg summit and China’s energy offensive towards the Caspian Sea”

Kazakhstan

Back in the 1990s Kazakhstan made easily available its mineral wealth to American, British, French and Italian companies. The bulk of the profit generated was channeled to Kazakhstan’s new partners. A threat loomed large of Kazakhstan turning into a third-world country with a raw exports role to play for the highly-advanced states.

However, Kazakhstan growing stronger economically, socially and politically while the world hydrocarbons market prices shooting up early this century made Kazakhstan leaders think better of their old stands. The new conditions prompted Kazakhstan to reconsider the earlier signed agreements, and Astana specifically proclaimed the objective of establishing state control over the oil and gas sector. The Kazakh authorities brought pressure to bear on the foreign companies in a bid to force the latter to accept changes to the earlier signed contracts.

The national company “KazMunaiGaz” was made responsible for advancing Kazakhstan’s state interests in the oil and gas field institutionally. Initially Kazakhstan leaders applied much the same tactic to pursue the same objective to one of Kazakhstan’s three oil refineries, the Pavlodar refinery, which is located by the Russian border and technologically oriented to Russian oil refining. The facility was privatized in January 1997 and the government’s stake placed in management by the US CCL Oil Ltd. Company on the terms of a public-private partnership agreement. But the Kazakh government prematurely terminated the agreement a few years later and handed over a 51% stake to the OAO “Mangistaumunaigaz”. The company later brought its stock of shares to 58%, with 42% of the Pavlodar oil refinery’s stock capital owned by the state. After that the national company “KazMunaiGaz” bought 51% of the “Mangistaumunaigaz” stock of shares from Indonesia’s Central Asia Petroleum and consequently gained control over the facility.

It was reported on the 16th of April 2009 that amid the world economic crisis Kazakhstan borrowed from China 10 billion dollars during N. Nazarbayev’s visit to Beijing. The Chinese CNPC Company bought a 50% stake of “Mangistaumunaigaz” for 1.4 billion dollars. Kazakhstan leaders are ousting western partners from the hydrocarbons market and refusing to meet Russian companies halfway, while losing ground to China. Chinese companies already own a third of Kazakhstan-produced oil, or more than 20 million tonnes per year. The purchasing of Kazakhstan’s “Mangistaumunaigaz” assets by China’s CNPC further tightens China’s grip on the Kazakh oil market and weakens the positions of Russia and the West in Kazakhstan’s fuel and energy complex.

Turkmenistan

China’s policy of advancing towards the Caspian Sea region resources is seen also in Turkmenistan. Ashgabat has long discussed the construction of a 6,500 kilometer gas pipeline from Turkmenistan to China to Japan. The construction project was due to be carried out in 10 years and was pretty costly (11 billion dollars, of which some 1.7 billion dollars would account for the sea section of the pipeline). Later the easterly direction of Turkmen natural gas deliveries was sort of “updated”, namely the option for laying a pipeline to Japan was dropped, with China having been made the only terminal point of delivery.

A more important development for Turkmenistan in 2006 was the republic’s president S. Niyazov’s visit to China in early April. The main agreement in a package he signed in Beijing was the General intergovernmental agreement on the implementation of the Turkmenistan – China gas pipeline project and on selling natural gas from Turkmenistan to the People’s Republic of China in the volume of 30 billion cubic metres annually for 30 years since the time the gas pipeline was commissioned, which was due in 2009.

The new Turkmenistan-China gas pipeline will be nearly 6,500 kilometres, with over 180 kilometres due to be laid in Turkmenistan, 530 kilometres, – in Uzbekistan, 1,300 kilometres, – in Kazakhstan, and over 4,500 kilometres, – in China. The overall cost of the project makes up some 20 billion dollars. 17 billion cubic metres of Turkmen gas were due to be annually exported through the development of new gas fields, while the remaining 13 billion cubic metres of annual gas exports,- through the construction of gas purification and treatment plants at the largest gas condensate field Bagtyyarlyk.

The construction of the pipeline (Turkmenistan-China) got under way in 2008 when Russian Company “Stroytransgaz” won 395 m€ contract for laying the Turkmen section of project and also plant to purify and dehydrate gas and a gas-measuring station. The Turkmen stage is expected to be finished by December 2009 and the entire pipeline in late 2010.

Iran?

On February 21st 2009 the Iranian and Turkmeni governments signed an agreement that will give Iran the rights to develop the Yolotan gas field in Turkmenistan. The deal will help Iran resolve gas supply problems in its north-eastern provinces. Turkmenistan will sell Iran an additional 350 billion cubic feet of gas annually, more than doubling current supplies of almost 300 bcf a year, according to the agreement first disclosed by Iran’s official media and later confirmed by Turkmenistan.Iran also recently offered to invest $1.7 billion for a 10 percent stake in the second phase of Azerbaijan’s huge Shah-Deniz gas field which will come on line by 2014. Iran already has a 10 percent share in the first phase and it wants to import large volumes of gas from the Azeri field. For Iran, the deals couldn’t be better suited to its objectives. It’s economically unviable currently to supply gas to its isolated, north-eastern third of the country. Getting gas from Turkmenistan would therefore make more Iranian gas available for export to Turkey.

Turkmenistan-Afghanistan-Pakistan-India (TAPI)

The Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline on the other hand would feed natural gas into downstream economies that are desperate for natural gas supplies. Afghanistan is the first of these, and energy shortages are rarely discussed as one of the problems of their economy, but with only 10 – 12% of the populace having access to electricity and with only limited natural gas resources (perhaps enough for a 100 megawatt power station), the country needs to import natural gas in large volumes. Pakistan is still desperate for help with natural gas and other energy fuels. But so far there is no pipeline to help.

There is some base to claim that U.S.military’s involvement in Afghanistan is directly related to the large reserves of natural gas in Turkmenistan. While the U.S. military may be a wholly owned subsidiary of the international (i.e. American and British)oil companies), its anyway clear that demand to increase troop levels in Afghanistan jumped a bit along with the recently publicized discovery of the very large large natural gas reserves in the Yoloten-Osman gas field in southern Turkmenistan.

Some (geo)political remarks

• In March 1999, the U.S. Congress adopted the Silk Road Strategy Act, which defined America’s broad economic and strategic interests in a region extending from the Eastern Mediterranean to Central Asia. The act was revised in 2006 to include the energy interests of the US as one of the primary reasons for the US to be in Afghanistan – note no reference to Osama Bin Laden or Al Qaeda ;The Silk Road Strategy (SRS) outlines a framework for the development of America’s business empire along an extensive geographical corridor. The successful implementation of the SRS requires the concurrent “militarization” of the entire Eurasian corridor as a means to securing control over extensive oil and gas reserves, as well as “protecting” pipeline routes and trading corridors. This militarization is largely directed against China, Russia and Iran. More about background of this battle in my article “Is GUUAM dead?”

• As said the new pipeline will run through Uzbekistan and Kazakhstan to Xinjiang in western China. Xinjiang is becoming increasingly important as a transit route for gas pipelines from Russia and Central Asia. Given the vast region’s location several thousand kilometers inside China, it is impractical for the Chinese to protect fully the long stretches of pipelines through Xinjiang’s vast mountains and deserts so they are trying to eliminate the militant groups before the pipelines become operational. So far the unrest in Xijiang has be seen based to ethnic questions. The energy aspect explains why China’s response to unrest is and will be strong also in future.

• Summit of the Shanghai Cooperation Organization that was called in Yekaterinburg on the 16^th of June. Besides some universal ideas in statements and declarations the SCO Energy Club has to this day failed to come up with a cooperation model that would suit all member-states. China’s actions on the ground will lay the basis for actual energy cooperation in the SCO framework since instead of some remote private owner China as state (via state-owned company) is implementing the projects. Promoting energy cooperation in SCO framework must from now on take the “Chinese Factor” seriously.

• The bad news for Russia is that there is a customer willing to take all the gas that Turkmenistan has for sale: China. It has been steadily gaining access to the energy wealth of Central Asia, while ousting American, European and Russian companies from the area. Beside oil and gas the Chinese are simultaneously planing to transport also the mineral resources in question to China’s western border.

• For contest between EU’s Nabucco and Russia’s South Stream China’s actions favor later. Today’s arrangements are securing gas for South Stream while Nabucco still is searching supply. It is more clear that Nabucco should be filled with Iraqi and/or Iranian gas and political aspects related to this may delay finding(private) investors and the implementation of project as whole. In bottom line while Russia is taking its part from old gas fields and China from old and new gasfields the Nabucco pipe still is more than half empty.

More about background of Nabucco/South Stream battle in my articles “Is it time to bury Nabucco?” and “EU’s big choice – Nabucco or South Stream?”