Following meetings with Ukrainian officials in Kiev early this September, the vice president of the European Commission, Maros Sefcovic, laid out his vision for how the often contentious relationship between Ukraine, Russia and the EU ought to be structured. “Russia as an exporter, Ukraine as a transit country and the EU as the main importer,” he said. Despite his formulation, Moscow has made no secret of its desire to end the use of Ukraine as a transit country for Russian gas by 2019. It has found support from a number of European countries and companies that do not want their energy supplies to be held hostage by the need to regulate Russian-Ukrainian relations. Two proposals are on the table. The first, known as Nord Stream 2, would double the current capacity of the existing Nord Stream pipeline in the Baltic Sea that directly connects Russia to Germany. The second would involve opening a new southern pipeline route, either the South Stream project linking Russia to Bulgaria or Turkish Stream linking Russia to Turkey, via the Black Sea. The EU views both proposals with extreme skepticism. Andrei V. Belyi, an associate professor at the University of Eastern Finland and the project researcher at the Centre for Climate Change, Energy and Environmental Law, told Energy Diplomacy Magazine (in Farsi) about Russia’s gas relations with the EU, in particular after Moscow détente with Ankara.
What is your opinion about the energy role in Russia-Turkey relation resumption? Don’t you think energy issues, for example Turkish Stream, had the major motivation for both sides to settle down their dispute?
© Baltic Scholars for Ukraine
“Basically, Turkey and Russia have their own “energy” reasons for resuming their relation. Turkey is the biggest natural gas importer from Russia, only to Germany. Beside, Russia has defined another natural gas export route to Turkey, the Turkish Stream, which seems to be an infeasible project, and Russia is following just political means, and does not like to neglect the route.
“Turkish Stream is totally a political project, because Europe has faced to natural gas oversupply, and the price of natural gas has been declined. Besides, LNG price is decreased, which means natural gas pipeline encountered a strong rival. Nowadays, LNG is seen as an interesting alternative to pipeline gas, and LNG storage could also compete with underground storage.
“In addition, transaction costs for pipeline gas are greater and less predictable than the operational costs of LNG; for pipelines there are greater administrative and regulatory costs, however LNG is free from the rules of the network codes. So some companies prefer LNG over pipelines. In recent years, at least prior to 2015, overall gas demand in Europe declined, while it has grown for small LNG.
“Since European natural gas demand indicates a descending trend and LNG & mini-LNG plants have become more attractive, any new pipeline projects such as Turkish stream are economically in doubt. Hence it seems to be a political project rather than economical one. In fact, it does not seem that Europe needs a new natural gas route to meet its demand, because it’s oversupplied now.”
What is your prediction for the future of Turkey – Russia relation?
“Although two sides start to normalize their relation, it should be noted that they have still serious controversy not only on Syria, but on Caucasus crisis, the Nagorno-Karabakh conflict and it is unlikely to expect both sides dispute settlement, for these kinds of energy cooperation opportunities. Thus, the conflicts will be serious between two sides, which prevent them to become an alliance for each other. Therefore, some analyses which evaluate Turkey’s policy as a “Pivot to East” do not look realistic. In fact, Turkey – Russia relation resumption does not mean that Turkey is going to withdraw western treaties, such as NATO, or making a strategic alliance with Russia. To sum up, I should emphasis, the conflicts are severe yet, and prediction of their future relation is so complicated, due to uncertainties.”
You emphatically mentioned LNG as a key factor for EU and as a strategy to meet its own natural gas need. Who will be the supplier of EU’s need to LNG?
“Let’s not call it the strategy; it is just as a result of market situation. In one side, EU natural gas market is oversupplied, and the situation is not going to be changed near future. But on the other side, both US LNG production and exporting are increasing, particularly because of shale gas production and technology enhance in ammonia refrigeration cycle, which makes LNG production more efficient and profitable. As a result, LNG is going to achieve a notable share in EU energy needs and it can flow through the EU. I would like to emphasize it is not Europe’s strategy, but the market’s condition. Recent US advancement in natural gas production and more efficient technologies achievement in LNG production has made it competitive in comparison with pipelines.”
After Turkey-Russia conflict, some analysts predicted Turkey may incline to The West more, especially Ukraine, to make a united frontier against Russia, particularly in field of natural gas issue. Yet, Turkey even did not lift the restrictions for LNG shipment through Bosporus to help Ukraine faced lack of natural gas in the winter. What were the hindrances for Turkey-Ukraine ties cement and applying it against Russia?
“The main approaches were Ukraine economic and political instability, which made this country not so attractive for Turkey to make deal with. Also, from different point of view when we talk about LNG for Ukraine, I think it is not economical because gigantic LNG cargos cannot pass through Bosporus. So, it seems that from both sides, there are major obstacles to make united frontier against Russia.”
Does Turkey have access and other prerequisites to become as the south natural gas hub for Europe?
“There is an important point when we talk about natural gas hubs; we can distinguish two different definitions for concept of “hub”: the first one is a place where different pipelines congest and go through different destinations. In fact, hub can be considered as transport and storage facilities which traders can easily transform gas flow from one transmission system to the other. In this definition, hub can be considered somehow a corridor.
“If we assume this notion of a hub, as I mentioned before, EU has been faced oversupply the UGS plans and other facilities are utilized completely and there is no free room for new project and new pipeline, which is mandatory for Turkey to become a new hub, or corridor.
“I want to draw your attention, LNG plants are going to be considered more and more, not because of being cheaper but because of the flexibility it offers: It might cost more in $/mn Btu terms but it yields higher profits because of the more optionality and greater simplicity in terms of trade.
“For instance, “Skangas” has opened two liquefaction plants, one in Norway and the other in Finland. The former is about 100,000 metric tons/year at Risavika, Norway, using Norwegian gas; and the other one is the much smaller Porvoo, Finland, of 20,000 mt/yr. That is for liquefying gas from the Finnish grid, which is Russian gas and hence cheap. It means that part of the pipeline gas surplus is liquefied. Thus, LNG is seen as an interesting alternative to pipeline gas, and LNG storage could also compete with underground storage.
“The other important evidence proves saturation in European natural gas market, is the fact that every new pipeline project, referred to bank, faced the challenging question: “where the product gas is going to?” because all EU natural gas capacity is full. Hence, Turkey cannot become a new hub for EU in this meaning.
“The second meaning of “hub”, is define as a player which allows the participants of the trading carry out within their operating area to access short-, medium-, and long-term supplies, as well as access to a large number of sellers and buyers. So it is a financial platform of trade, like NBP in UK and TTF in Netherland. However, in this regard, Turkey has not enough prerequisites for this aim.”
What would be Turkey’s part in Russian plans to nullify Ukraine as the traditional transit route for European gas supplying?
“Russia follows two different routes for this purpose: Both projects, Nord stream in north and Turkish stream in south, seem to be political, rather than economical, owing to natural gas market saturation in Europe, as I mentioned before.”
What will be Russian role in Mediterranean gas field development in your opinion? How does the development of “Tamar, Leviathan and Aphrodite” change Mediterranean countries relation, especially the effects on Israel-Turkey relation?
“Well, I think the point is good political relations can make and accelerate the energy relation, not the vice versa. Thus, relation between these countries should be improved, in order to observe an energy-oriented cooperation between players in the future.”
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