Gas Coming to Turkey – And after that?

The European Climate Foundation's Julian Popov stole the show in a session dedicated to "the future in South-east Europe without the South Stream pipeline project" at Flame in Amsterdam, the Netherlands, taking the ballast out of calls for building mega infrastructure projects like the now defunct Russian natural gas pipeline project.

Mr. Popov noted the distinction between political drivers and actual economic forecasts and “reality” when it comes to implementing such projects. “South Stream,” he recalled, “was a very politically driven project, which was highly unrealistic.

“In that sense, the replacement [for South Stream] is also a highly unrealistic project, which is very politically driven, and it's not linked to any forecasts of actual [gas] demand,” he said.

Furthermore, he explained, a country like Bulgaria may be 100% dependent upon Russian gas, but gas makes up only 10-12% of the country's primary demand. Greece and Serbia shared similar situations regarding gas, while countries like Macedonia and Albania have virtually no consumption of natural gas.

If such big projects are built, asked Mr. Popov, will that change anything? He responded, “You could deliver 100 bcm to Bulgaria, but it won't use more than 3 bcm, and there's no reason to expect demand to grow.”

He attributed that assertion to market liberalization, which is reducing demand, and to energy efficiency, something which is a key priority for countries in South-eastern Europe. Without a significant industrial boom, or coal replacing gas, according to him gas demand in the region is likely to stay at present levels or even a slight decrease.

Providing a perspective from Croatia, Vladimir Durovic, Director of Strategic Development, Plinacro, noted that, in the wake of South Stream, Gazprom has changed its philosophy from being an “end user” to that of a “gas hub” with the new Turk Stream project, which would only deliver gas to the border of the European Union.

“We have come to the realization that South Stream is cancelled,” he offered, “but at the same time, the new proposal is Turk Stream. Now, with gas coming to a hub in Turkey, what happens after that?”

He noted that South Stream, a huge project had had an actual leader.

“For the countries in the region in terms of economics/politics, they are not in the position to develop a new transmission system now – it's too complicated,” explained Mr. Durovic, who said that this is in contrast to Gazprom's ability to build Turk Stream to Turkey whose position as a hub for other markets is a different situation.

As to whether South-eastern and Central Europe has a need for such projects, according to Janos Feher of Hungarian TSO FGSZ, the answer is not clear. Recalling times when those countries were under the sphere of Soviet influence, he said then they were fully dependent on Russia for gas and the relationship was one-sided.

Mr. Feher characterized the situation for those countries today: “Whether Ukraine will be switched off and a new tap will be opened in Turkey – it's a poker game. We have to take it seriously, because whether we like it or not, this is the only connection.”

He reported that Hungary had been the first to build an interconnector with Austria following the 2009 gas shut-off; still, Hungary depended on Russian gas. “We have to live with this, regardless of whether we agree with it or not,” he said.

Hungary, he said, had interconnectors with six of its seven neighbors. Hungarian-Romanian reverse flow, according to Mr. Feher, is slow in coming, but it will happen. He mentioned a project called “Tesla” which would involve Hungary, Macedonia, Serbia and Greece, and also Eustream's “Eastring Project.”

“With these projects we will solve this issue,” he said. “TSO's, countries in this region know that mega projects depend on whether there is political support from the EU or not, and very expensive with long time frames.

“So we believe that small steps and inter country cooperation are the way forward,” said Mr. Feher.

The Energy Community Secretariat's Predrag Grujicic said he sees the shaping of gas policies in regulation, through application of the acquis towards the establishment of a pan European natural gas market.

He recalled that the Energy Community had raised concerns against projects like South Stream, “But they saw it as an investment opportunity – this is what we keep forgetting. The economies of the contracting parties in the Balkans are in such bad shape that for them this was an example of a potential opportunity to raise their GDP by at least 1-2%.”

Mr. Grujicic observed that some countries are beginning to reform their gas markets and now was an opportunity to reform and gain better bargaining positions. Small regional connector projects, he said, are key to introducing more liquidity and fair pricing.

“I don't think this region will always be dependent on Russian molecules,” he opined. “We're not saying that these countries should look for other routes and contributors of supply that will increase their security of supply. These small interconnectors will help them a lot,” he said.

Session moderator, Ana Stanic, EA Law, pointed out that a stable gas demand for the region has always been a stumbling block.

-Drew Leifheit