Developing a Western Energy Strategy for the Black Sea Region and Beyond

Russia’s natural gas leverage over countries in Europe has become a recognized challenge for European energy security. Currently, the EU imports about one third of its gas from Russia, with almost half of that coming through Ukraine. Countries that get most of their supply from the Russian Federation have become the most vulnerable as their consumption data shows.

http://www.atlanticcouncil.org/images/publications/Black_Sea_Energy.pdf

The Kremlin uses energy not just as a commodity to earn cash, but also as a means of increasing its neighbors’ political dependence and fostering corruption – sometimes, at the highest levels. The last 25 years have demonstrated that Moscow would use its energy muscle to impose its foreign policy agenda on the European countries, which import a large share of their natural gas from Gazprom.

The Black Sea region is pivotal in terms of addressing the challenge of gas supply diversification for Europe. The principal solution to this problem is geographic diversification of gas sources. Only a strongly competitive environment will force Gazprom to begin acting like a corporate entity and not a government agency. In a 2009 meeting with this author, Gazprom CEO Alexei Miller has admitted that his company is “half-corporation and half-state agency.”

Russia attempted diversification of Ukraine gas transit by building the Nord Stream pipeline to Germany and planning for a Black Sea-focused South Stream project. However, In December 2014, Putin replaced South Stream with Turkish Stream, initially projecting four gas pipelines across the Black Sea to Europe via Turkey. According to a study published by the Oxford Institute for Energy Studies, “Of the 63bn m/³yr of capacity, 14bn m³/yr would replace the volume currently delivered to Turkey via Ukraine and the trans-Balkan pipeline, while the rest would be delivered to the Turkish-Greek border, where Gazprom would set up a natural gas hub for southern and central European customers.”

However, in the light of the recent events – the downing of the Russian SU-24 bomber by Turkish Air Forces – the fate of the project becomes grim. Worsening relationships between countries make further energy cooperation unlikely.

An alternative project that would fit Europe’s interests better is Tanap/TAP (Trans-Anatolian/Trans-Adriatic pipeline). The Tanap/TAP project was announced in November 2011, at the Third Black Sea Energy and Economic Forum in Istanbul, as an alternative to the failed Nabucco pipeline project.

Tanap is a new 48-56-in standalone pipeline already under construction across Turkey, and is intended to carry Azeri natural gas from the Shah Deniz II field. The estimated reserves of Shah Deniz II alone are 991bn m³. Tanap’s projected capacity is 16bn m³, expandable to 30bn m³/y, and the field itself has reserves for at least a 30-year supply.

TAP is an important component of the greater energy project – Southern Gas Corridor initiative – as it would link Asia and Europe. TAP would bring up to 10bn m³/yr of Azeri gas from Turkey, via Greece and Albania, across the Adriatic Sea to Italy.

Aside from such large-scale projects as Tanap/TAP, a variety of smaller scale initiatives is also on the list of options for European energy supply diversification. The most noteworthy ones are the following:

Greece-Bulgaria Interconnector. Although only three countries will be directly involved in the TAP project, the number of countries that could benefit from its implementation is likely to rise in the future. For instance, in early 2014, Turkey and Bulgaria agreed to build a 114-km pipeline connecting the two countries’ natural gas distribution networks, which would allow for the supply of additional volumes from Shah Deniz to Europe.

But there is more. The Nabucco West project has been frozen, but not entirely abandoned. Eastring is the most intriguing pipeline project in the region. It addresses the vital needs of the countries concerned – and is reversible. The proposed pipeline would connect Slovakia with Romania via Hungary. One version of the pipeline would be 832 km long, while another would be 1,274 km long and reach Bulgaria.

The North-South Corridor is a proposed project that would include a system of integrated power lines and transportation routes, as well as oil and gas pipelines running from the Baltic Sea to the Adriatic and the Black Sea. It includes Adria LNG, a proposed floating LNG terminal on the island of Krk, Croatia.

Development of domestic resources might also serve as a viable option for the local consumers. Significant reserves of natural gas in Eastern Mediterranean, including Egypt’s Zohr and Israel’s Leviathan, Tamar and another new discovery may come online either as LNG plays or as a pipeline via Cyprus and Turkey.

http://blogs.wsj.com/experts/2015/04/03/how-the-eastern-mediterranean-could-supply-natural-gas-to-europe/

Possible deposits of shale gas on the territories of Black Sea nations such as Georgia can also be a much-needed solution of energy diversification in the region.

http://www.naturalgaseurope.com/black-sea-basin-solutions-for-the-region-and-europe-27117

Gas supplies from sanctions-free Iran will also bring a relief to Turkey and Europe, especially through the existing Iran-Turkey pipeline. However, it may take years to bring Iranian LNG capacity online.

With oil prices remaining in the record low levels, natural gas prices and investment will be low as well. This is a bad news for Russia. If the situation in the European energy markets does not change within a relatively short period (within 1 or 2 years) Gazprom is likely to lose its grip over Southern and Eastern Europe – a welcome energy security development for the region and for Europe as a whole.

Ariel Cohen is Nonresident Senior Fellow at the Atlantic Council's Dinu Patriciu Eurasia Center and Global Energy Center and Director, Center for Energy, Natural Resources and Geopolitics (CENRG) and Senior Fellow at the Institute for the Analysis of Global Security (IAGS). He is the founder principal of International Market Analysis (IMAStrategy.com)