Friday, 29 September 2017

Why could a new gas import route to EU from Russia face a fork while crossing Turkey?
According to Financial Times, in early September the UK Company Petrofac was awarded an engineering, procurement and construction (EPC) contract by the Gazprom-owned South Stream Transport company to develop a gas-receiving terminal near Kiyikoy in Turkey. Under the contract, Petrofac will provide EPC for the receiving terminal, which will be ready for commercial operations in December 2019. When implemented, it will receive 31.5 bcm from the Turkish Stream offshore pipeline, originating from the compressor station in Anapa on Russia's side of the Black Sea.

The Turkish Stream gas pipeline, it was said, will comprise two lines of 15.75 bcma each. Moscow and Ankara signed an intergovernmental agreement on the construction of the Turkish Stream in October last year. According to this agreement, the first line of the gas pipeline is intended for natural gas supplies directly to Turkey while the second should ensure transit of gas via Turkey’s territory to the neighboring countries of South Eastern Europe.

However, the extension of the second line from the Turkey's border further into Europe is associated with certain conditions. Yet a year ago, the Turkish newspaper Daily Sabah, as well as a number of other media, quoted the Russia's Minister of Foreign Affairs Sergey Lavrov who said, "After the failure of the South Stream, we will be ready to extend Turkish Stream to the territory of the European Union only after we received an unambiguous formal paper that guarantees the implementation of this project."

Offshore pipe-laying for the Turkish Stream across the bottom of the Black Sea began in May this year. According to Natural Gas World, at the 86th Izmir International Fair in August Russia’s energy minister Alexander Novak informed that Gazprom had already laid more than 170 kilometers of the offshore part of the Turkish Stream gas pipeline. By the end of September, the work most likely has progressed far even no less than a hundred kilometers.
Of course, European gas consumers especially in South Eastern countries would be interested in knowing how the preparations are now proceeding to receive gas supplies to the EU by the Turkish Stream pipeline, which, as announced, are planned to commence in December 2019. Gazprom and BOTAS are reportedly negotiating the foundation of a joint venture TurkAkim Gaz Tasima intended for the construction of the onshore part of the Turkish Stream's second line. To ensure transit of gas through Turkey's territory from the receiving terminal on the Black Sea coast near Kiyikoy to the Turkish Greek border, it will be necessary to construct a gas pipeline of 180 kilometers. Meanwhile, Greece, Italy, and now Bulgaria again are in active support of the idea that gas imports should be carried out to their territories.

An infographic above shows how while reaching Turkey this new gas transportation route faces two alternative scenarios, as it should be decided whether to follow by the Greek direction, or take another direction actively supported by Bulgaria.

What is the outlook for extending the Turkish Stream towards Greece and Italy?
Many attentive observers in Europe have already noticed the real progress in creating the conditions for extension of the Turkish Stream gas pipeline to Greece and Italy. This, in particular, is evidenced by the results of First bilateral intergovernmental conference organized by the Greek-Italian Co-operation Council in Corfu. The two prime ministers, Alexis Tsipras and Paolo Gentiloni also attended this event on 14 September. In their presence the ministers of the two countries, Giorgos Stathakis and Carlo Calenda signed a joint declaration. The document notably made a reference to the development of a new diversified route for the transport of Russian gas through the IGI Poseidon pipeline and the extensions of the gas transmission systems of Greece and Italy, named by the Greek side as the Greek Stream.

In fact, this is not the first joint action in support of projects granted a common logo of "Greek Stream". It was made public in June that the CEOs of Gazprom Alexei Miller, Edison, Marc Benayoun, and Depa, Theodoros Kitsakos who is also the chairman of IGI Poseidon, signed a co-operation agreement at the St Petersburg International Economic Forum. The agreement envisages carrying out joint efforts to establish a new route for Russian gas supplies to Europe. Thus, these companies confirmed their desire to co-ordinate the development of a pipeline project, including IGI Onshore of 600 kilometers pipeline with the capacity up to 16 bcma through the Greek territory and IGI Poseidon of 200 kilometers offshore pipeline, 10-12 bcma across the Ionian Sea to Italy. It was made in the presence of Carlo Calenda and George Tsipras, the secretary-general for international economic relations at the Hellenic Ministry of Foreign Affairs.

Before the above-mentioned events, in March Eni concluded a memorandum of understanding (MoU) with Gazprom for the supply of Russian gas through the route providing gas imports by transit via Greece to Italy. It is no secret that Italian energy companies are interested in replacing the current Russian gas route to Italy from Central European Gas Hub AG (CEGH, formerly known as Gas Hub Baumgarten) in Austria with a shorter and more economical southern route. This goal can be achieved by connecting the second line of the Turkish Stream with the IGI Poseidon gas pipeline at the Turkish Greek border. In arguing its position in the European Commission Italy has said more than once that since it would be just a replacement the use of the southern supply route is not expected to result in enlarging Russian presence in this part of European gas market.

Meanwhile, the IGI Poseidon gas pipeline project is only one of the possible options for connecting European consumers to the Turkish Stream pipeline. Although, up to now, this scenario is obviously regarded as a priority, in South Eastern Europe another alternative gas transportation route is being discussed.

How much is it possible returning back supposedly to a new, but partly to not-yet-forgotten old route of gas imports to Europe via Bulgaria?

Probably, many in Europe still remember how in December 2014 Moscow abandoned plans to build the South Stream gas pipeline because of which Bulgaria together with some other countries of South Eastern Europe lost an opportunity for transit-free access to gas supplies directly from Russia through the Black Sea. The irony of the situation is that just when the cooperation on the South Stream project had been stopped Bulgaria actively came up with new initiative to create a gas hub "Balkan" to distribute imported gas to other countries within South-Eastern European region. Insufficient economic rationale of this initiative speaks for itself - after three-year discussion it is still unclear, from where and, most importantly, when Bulgaria will receive the gas necessary for the hub "Balkan" to fulfill its gas distribution functions. It is evident to anyone that one billion cubic meters of natural gas from Azerbaijan, which Bulgaria plans to import by the TANAP pipe line from Shah Deniz 2, will meet only one-thirdŽ of Bulgaria’s annual gas consumption by 2020 that is absolutely not enough for the operation of this regional hub. And the suggestions to expect Iraqi, Israeli, Egyptian, Cypriot, Qatari, US or any other gas could help balance off regional demand are still very far from practical implementation.

Under these circumstances, seeking a chance to catch up Bulgaria apparently prepares at once for two new scenarios of gas supplies from Russia. The first one related to an old route of the South Stream tentatively named Black Sea Stream during the presentation of the gas hub "Balkan", executed by Bulgartransgaz EAD on 5 September 2016; the second is a new route of the Turkish Stream passing by transit throughout Turkey's territory.

As for the latter scenario, "15.7-16 bcm of natural gas could be supplied both to and from Turkey", Prime Minister Boyko Borisov said as he inspected the construction of a transit gas pipeline to Turkey in the Lozenets-Nedyalsko section, Bulgaria’s FOCUS News Agency reported. This pipeline stretching almost 20 kilometers from the Lozenets gas compressor station to the village of Nedyalsko is considered as the initial part of the new gas interconnector Turkey - Bulgaria (ITB). In total, the Bulgarian section of the pipeline will be about 75 kilometers in length - from the Lozenets gas compressor station to the Turkish village of Malkoclar. The Bulgaria’s government is working to secure the delivery of 15.4 bcm of Russian gas directly to a planned gas hub. However, "The Russian gas could come via the pipeline we are now building if we do not reach an agreement between the European Commission and Gazprom for a direct pipeline to the gas hub. We are preparing for both options," Prime Minister Borisov commented.

One should bear in mind the fact that Bulgaria managed to obtain permission from the European Commission for the supplies of Russia’s gas needed for efficient performance of the gas hub "Balkan".

According to an announcement of Premier Minister Borisov on 19 July, he had requested from Brussels for a link to the Turkish Stream, through which Russia’s gas would be delivered directly to Bulgaria. In a letter of reply signed by Miguel Arias Cañete, European Commissioner for Climate Action and Energy, Brussels said it supported the development of the gas hub and reminded that Bulgaria needed to improve its energy infrastructure. The letter, however, did not mentioned the particular project.

Unlike Brussels officials, whose special opinion can be obtained, as in the case of Bulgaria, only through official requests and repeated reminders, in the European gas market all stakeholders and beneficiaries - from energy and utility undertakings to many ordinary citizens - gas consumers in member countries - all of them, most evidently, are monitoring development of gas routes on their own initiative without any outside aided awareness or strong recommendations. Eventually, one does not have to be excessively perspective to realize how it is important to be better prepared for possible changes and new challenges in the certain segments of gas market. Professional organizations provide useful assistance with such efforts. For example, the European Network of Transmission System Operators for Gas (ENTSOG) published a Regional Investment Plan for South East Europe. According to the publication, the report underlines importance of the IGI Poseidon pipeline and refers to the Tesla pipeline. It should be noted that both energy projects are considered as alternative routes for the Turkish Stream’s extension towards Europe.
Why are the diverging paths of gas supplies, at which both the investment projects' developers and future consumers must target, indicate possible directions a lot faster than energy policy strategists in Europe make their principal decisions?