The Turkish Stream as envisioned by Gazprom. Source: Interfax Energy
by Wan Ahmad Fayhsal
"It does not make economic sense," says Maroš Šefčovič mumbling over the broken deal of South Stream pipeline project. The Vice-President of the European Commission in charge of Energy Union has cried foul at Russia's decision to abandon Bulgaria – an integral transit country for Russian gas slated in the South Stream earlier – in preference over Turkey as a new transit country for its gas delivery to Europe.
South Stream, the scrapped pipeline project helmed by Russian energy giant Gazprom is designed to carry 63 billion cubic meters (bcm) of Russian gas across the Black Sea where Bulgaria was originally designated as the transit country before the gas being transported straight to the heart of Europe.
Many believe the fallout was due to the pressure made by EU’s executive body – the European Commission (EC) upon Bulgaria to remain firm with EC’s stand for "anti-monopoly" that falls under EU Third Energy Package. Key element in this legislative package is on the "ownership unbundling" which requires Gazprom to hand over its energy transit infrastructure to autonomous operators independent from energy generating and mineral producing companies. In short, EU wants to wrest away control of the pipeline from Gazprom right after the gas landed on Bulgaria's soil.
Russian President Vladimir Putin made clear in his official statement that the decision to cancel South Stream and replacing it with, dubbed by many analysts to be the "Turkish Stream" was done purely on economical and technical ground which Putin described was hampered by "EC’s non-constructive approach".
Gazprom CEO Alexey Miller made a clear ultimatum – "take it or leave it" – by declaring that the Turkish Stream is going to be the sole gas route for 63 bcm of Russian gas to be supplied to EU and "there are no other options".
Political jibes were already traded from both sides of the spectrum. EC President, Jean-Claude Juncker accused Kremlin of holding Bulgaria at ransom for cancelling the $50 billion worth project. On the other end, Viktor Orban, the Prime Minister of Hungary who has a closer tie with the Kremlin lambasted Brussels, by claiming "EU has worked ceaselessly to undermine this program (South Stream)".
The tone raised by Juncker and Orban is not shocking considering the fact this "pipeline politics" has been brewing for years earlier.
Construction of pipelines at the corridors of Eastern Europe have always been the subject of politics more than economic – regardless of comments made by all political leaders of the involved nations. Prior to this, the failure of Washington and Brussels backed-Nabucco pipeline that plans to transport oil and gas from Caspian Sea to EU is viewed by many as another geopolitical circumvention towards Russia's growing influence in that region.
Despite of Nabucco's economical unviability due to insufficient gas supplies to make it profitable, the allure of diversifying EU gas supplies and to lessen European dependence on Russian gas is great enough for Washington to throw its diplomatic weight in full support of the project – a sign of a transatlantic political at play. The project finally went stillborn after Kremlin counteracted with the now defunct South Stream pipeline and the newly announced Turkish Stream will tilt the balance of power play further to Russia.
EU is highly energy dependent
EU imports natural gas in the staggering amount of 311.5 bcm. The largest exporter of energy to EU is none other than Russia where in 2007 it exported 185 million tonnes of crude oil and 100.7 million tonnes of oil equivalent of natural gas – both amounting to 32.6% and 38.7% of EU's total oil and gas imports respectively.
Presently, most member countries of EU notably in the Western European are highly dependent of Russia's natural gas through Gazprom-managed pipelines. Statistics released by Gazprom on its 2013 gas supplies to Europe indicates that 79% of its gas export or 127.1bcm was destined to Western European market while the Eastern and Central European states consumed 21% or 34.4 bcm. The total gas delivered by Gazprom amounted to 161.5 bcm, equivalent to one-third of gas consumed in EU.
The consumption pattern translated from this energy dependency from outside EU would be more serious in future. In studies done by EC, by 2026, EU's total import dependency will rise from 53% up to 70% where its oil and gas import dependency levels will be up to 90% and 80% respectively.
Where is Turkey in this? Despite of not possessing its own oil or natural gas, Turkey's position as an energy corridor between Central Asia and Europe has made it strategically important for European countries in energy imports.
There are currently two major oil pipelines and five gas pipelines in operation within Turkey's territories and another six planned pipelines to be constructed that have to make a transit via Turkey before flowing to Europe.
Even before this groundbreaking decision made by Kremlin and Ankara to start this Turkish Stream, EU Energy Security and Solidarity Action Plan published in 2008 had already identified Turkey's pivotal role in securing safe routes of gas supplies to Europe.
From EU to Eurasia
The attendant consequence of this project is the regional integration of EU and Asia. Russia has planned to integrate these two continents as a real Eurasia via the creation of Eurasian Economic Union (EEU) – now effective on 1st January 2015. The possibility for Turkey to join EEU is there given the signs of growing bilateral relationship between Russia and Turkey. What is more apt than having the center of this EEU at Turkey, which straddles between Europe and Asia, separated by the Strait of Bosphorus and Turkey as potential Eurasian energy hub will cements its relevancy further.
The foundation for EEU of course has been laid down last year by Putin and his counterpart, China's premier Xi Jinping. They had signed a groundbreaking deal between the two countries to collaborate in the area of energy and finance notably by building the 4,000km "Power of Siberia" gas pipeline worth $400 billion. Gazprom of Russia and CNPC of China – tied up the mammoth deal where Gazprom will provide 38 bcm of Russian gas to China for 30 years beginning 2018.
With Turkey on board, former Soviet satellite countries in Central Asia of Turkic origins like Turkmenistan, Kazakhstan, Uzbekistan will be more warmth in gravitating towards Ankara. This integration enables them to balance the spheres of influence emanated by Russia and China, as now they will have Turkey as their big brother to balance the Russo-Sino's influence within that region – a win-win situation for every Eurasian countries.
This new pipeline has a huge potential to invigorate Eurasian economic community due to the dependency of the suppliers of energy coming mostly from Asia and its energy hungry European consumers. As European Economic Community (EEC) is crumbling down due to the series of financial crises, the economic opportunities have now tilted to the east. With EEU already online, the economic shift of EU countries is just a matter of time – moving towards the greener pasture of Eurasia.
The writer is a fellow at Putra Business School, Malaysia.
note: The article was first published by The Malaysian Reserve on 29th January 2015