An audacious new plan to pipe Russian gas to Europe has thrown light on Turkey's emerging and potentially crucial role in getting gas to the energy-hungry continent following the political standoff surrounding events in Ukraine.
The €39 billion Turkish Stream plan was announced by Russian president Vladimir Putin in Ankara last month and would see 63 billion cubic metres (BCM) of natural gas carried under the Black Sea to Turkey each year. The Turkish Stream would replace the defunct South Stream pipeline project that was to transit gas to Europe via Bulgaria.
It would also see Turkey occupying the crucial role of middle man between supplier Russia and EU member Greece. As part of the Turkish Stream announcement, Russia said it would supply an extra three billion cubic metres of gas a year to Turkey at a 6 per cent discount.
Russian energy giant Gazprom upped the ante this week urging Europe to hook up to the proposed Turkey project, with chief executive Alexy Millar saying: "The Turkish Stream is the only route along which 63 billion cubic meters of Russian gas can be supplied, which at present transit Ukraine. There are no other options."
The EU, which receives 30 per cent of its natural gas supply from Russia but is looking to diversify, has opposed the plan.
Economic problems
Russia’s fall-out with the EU over the Ukraine crisis as well as burgeoning economic problems at home mean Moscow has been forced to quickly seek alternative routes to get its gas to European markets.
Added to these concerns was the collapse last month of the anticipated South Stream pipeline to pump gas from Russia to Europe via Bulgaria.
Russia announced the end of the project last month before it had started and blamed Brussels for the failure following its ruling last June that the project would contravene EU competition laws.
In light of these events and because of its position as a physical bridge between Europe and Asia, including energy producers Iran and Iraq, Turkey has emerged as the key country from where to transit eastern gas to Western Europe.
However, another motivation fuelling Turkey’s regional ambitions and close ties to Moscow – itself curious as a result of its outright divergence with Russia over responsibility for the unfolding catastrophe in Syria – is the soaring demand for energy at home. Natural gas consumption in Turkey has increased 20 per cent since 2007, while the country’s overall energy production capacity fell slightly in 2012. During a recent 10-day cold snap, Turkey consumed two billion cubic metres of gas, according to the country’s energy minister. Ireland consumes about five billion cubic metres a year.
Turkish Straits
About three million barrels of oil passed on ships through the Turkish Straits in 2013 en route to the Mediterranean and Black Sea regions, but because of a convention signed in the 1930s, Turkey cannot charge toll fees.
This hunger for energy resources at home and influence abroad has seen it quick to spot opportunities to position itself at the crux of energy transit between Europe, Asia and the Middle East.
In 2013, Ankara completed a pipeline from oil-rich Iraqi Kurdistan which pumps 150,000 barrels a day to Turkey’s Ceyhan oil facility on the Mediterranean coast.
In March, construction is set to begin on the 2,000km Trans-Anatolian Pipeline (TANAP) which will transport gas from fields in Azerbaijan through Turkey and on to Greece at an initial rate of 16 million cubic metres a year.
Though Turkey is working hard to keep up with changing regional and national dynamics, analysts suggest caution.
Tim Ash, head of emerging market research at Standard Bank, questions whether Turkey has the operational capacity to replace Ukraine as a transit route long-term.
“Ukraine has huge underground storage facilities with a capacity of 18 BCM which are very difficult to build [or] replace. But clearly Russia is looking to show a willingness to build around Ukraine to improve its bargaining power with Ukraine,” he said.
According to Ash, energy security in itself is a huge strategic objective. “Turkey’s long-term aim is still to improve energy security and diversified energy sourcing.”
Meanwhile, collapsing oil prices are damaging Turkey’s bargaining position as it attempts to negotiate gas prices with Russia for this year. The sides have tried and failed twice in recent weeks to reach an agreement.
Closer to home, though Ireland gets most of its gas from Scotland, gas prices are heavily affected by international circumstances, and with oil prices falling and Turkey looking to reintroduce a steady flow of gas to Europe, natural gas prices here could remain low.
In how events in Russia and Turkey may affect gas prices in Ireland, analyst Ash believes that in general, the more diversified energy sources and supplies are for both producers and consumers, the less open countries should be to fluctuating prices and potential economic booms and busts.
