Turkish President Recep Tayyip Erdogan and Russian President Vladimir Putin inaugurated a new undersea natural gas pipeline – known as Turkstream –from the Russian Black Sea coast to western Istanbul on January 8. The 930-kilometer pipeline began delivering 15.75 billion cubic meters (bcm) of gas to the Turkish market, while a second leg of the pipeline with the same capacity will start exporting Russian gas to southeastern Europe once it is finalized by the end of 2020.
The completion of the Turkstream pipeline was an important achievement both for Russia and Turkey. Russia now has a choice to suspend the use of its pipeline through Ukraine (the two have been at war since 2014) and sell its gas to Turkey and Europe through Turkstream, while Turkey fulfills its goal of becoming a regional energy hub.
Turkey’s President Erdogan, 2nd right, and Russia’s President Putin, 2nd left, with Serbia’s President Vucic, right, and Bulgarias’s Prime Minister Borisov, left, inaugurate Turkstream in Istanbul, Turkey. Jan.8, 2020 (AP Photo/Lefteris Pitarakis)
Turkey is geographically well-situated to serve as a transportation hub for oil and natural gas from the Middle East, Russia, and the Caspian Sea region.
Turkey will further boost its image of a major energy transit route once the existing Trans-Anatolian Natural Gas Pipeline, which carries natural gas from Azerbaijan to Turkey, starts sending gas to Greece, Albania, and Italy through the nearly finished Trans Adriatic Pipeline. Turkey is geographically well-situated to serve as a transportation hub for oil and natural gas from the Middle East, Russia, and the Caspian Sea region.
With growing domestic demand and next to no energy reserves of its own, Turkey heavily depends on imports. More than half of its natural gas comes from Russia, amounting to around 24 bcm per year. The new pipeline will provide an additional 15.75 bcm of Russian gas per year to Turkey.
Because Iran is Turkey’s second largest source of natural gas, Ankara has stepped up its efforts to boost supplies from Russia to offset the losses of Iranian energy. Turkey has slowed down imports of Iranian gas to abide by American sanctions.
President Erdogan’s embrace of the Russian gas deal also has to do with regional pipeline politics in the eastern Mediterranean region, which recently discovered vast natural gas reserves. Since there were no major gas findings in the Turkish side of the Mediterranean, Turkey has been locked in a dispute with Greece and Cyprus over Ankara’s attempts to drill for gas in coastal waters of Cyprus – a historically disputed island between Turkey and Greece.
The Turkish government has opposed the efforts of its Mediterranean neighbors (Cyprus, Greece, Italy, Jordan, Egypt, Israel, and Palestinian Authority) to develop the region’s hydrocarbon resources if Turkish Cypriots and Turkey were not included in energy extraction and transportation deals.
A January 2020 agreement by Greece, Cyprus, and Israel to build a new undersea pipeline to Europe to deliver gas from the eastern Mediterranean region outraged the Turkish government.
A January 2020 agreement by Greece, Cyprus, and Israel to build a new undersea pipeline to Europe to deliver gas from the eastern Mediterranean region outraged the Turkish government, which feels that a new pipeline in the area that bypasses Turkey would sideline and diminish its regional role.
To exert more pressure on its neighbors to include Turkey in energy decisions, President Erdogan signed a maritime agreement with Libya’s internationally recognized Government of National Accord, which infringes on the sovereignty of the Greek island of Crete and potentially threatens pipeline plans to transport gas from the eastern Mediterranean to Europe. In this context, the implementation of the Turkstream pipeline was a consolation prize for President Erdogan.
Some energy observers believe that Turkey will not only strengthen its energy supply security with Turkstream, but it will also benefit financially from controlling the transnational movement of gas through its territory.
Although Turkish officials believe that the new pipeline elevates Turkey’s role as a regional energy transit route, it is less certain that the country will benefit from it as much as it expects. Turkstream carries potential economic downsides for Turkey, while the biggest beneficiary from the pipeline will likely be Russia.
Turkstream carries potential economic downsides for Turkey, while the biggest beneficiary from the pipeline will likely be Russia.
Here are the reasons.
First, Turkey will not be getting a reduced rate for Russian gas, even though it is Russia’s second largest gas importer after Germany. Turkey will pay around $305 USD per thousand cubic meters of gas received through Turkstream. As a comparison, the European Union (EU) pays on average $220 USD for the same volume of gas. The Turkish-Russian agreement on Turkstream keeps the price of natural gas attached to the price of oil, and it provides no leeway for Ankara to negotiate rates.
Second, the agreement prohibits Turkish companies from reselling gas to third parties, even if there is energy glut in the domestic energy market. Such a rigid requirement may force Turkish customers to pay more for gas than the market price and sap the country’s budget. The EU managed to remove a similar clause from its gas agreement with Russia based on the principle of maintaining a free-market system in the energy sector.
Third, once the second leg of the Turkstream pipeline is finalized by the end of 2020, Ankara would not be able to impose transit fees on the Russian gas that will pass through Turkey to European countries, because the offshore and onshore parts of Turkstream’s extension to Europe belong to Russia’s state-run gas monopoly Gazprom.
Turkstream allows Russia to secure its energy transit options, while solidifying its influence on Ankara.
If Turkey objects or disagrees with Russia on pipeline or gas price matters, the Kremlin has a choice to redirect gas supplies from Turkstream to Europe through the existing pipeline that runs through Ukraine to southeastern Europe. Therefore, Turkstream allows Russia to secure its energy transit options, while solidifying its influence on Ankara.
With heavy dependence on Russian gas and the less than advantageous Turkstream agreement, Turkey will have next to no leverage on Russia about energy matters regardless of Turkey’s belief that it is becoming a major energy hub. Turkish energy analysts recognize the fact that their country’s growing dependence on Russian gas will reduce Turkey’s negotiating power.
At this juncture, Ankara may not be so bothered by the unfavorable pipeline deal it has struck with Moscow in the context of deepening overall relations with Russia and energy politics of the eastern Mediterranean region. But putting all its eggs in one basket may backfire on Turkey if domestic customers end up paying a premium for Russian gas and if the country’s energy budget takes a hit.
If happiness is multiple pipelines for Russia, happiness should be diverse energy suppliers for Turkey.
