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    Turkish Stream To Turn Into a 1-Line Project Unless Concessions from Moscow, Says Özdemir

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Summary

"I am of the opinion that if the Turkish Stream project will be realised, especially after the results of the elections in Turkey, there will be just one line"

by: Sergio

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Top Stories, , Turk/Turkish Stream, News By Country, Russia, Turkey

Turkish Stream To Turn Into a 1-Line Project Unless Concessions from Moscow, Says Özdemir

Natural Gas Europe recently sat down to talk to Volkan Özdemir, Chairman at EPPEN (Institute for Energy Markets & Policies). 

During that conversation, the Ankara-based expert predicted that the Turkish Stream project could stumble as a result of geopolitics. The divergent positions of Russia and Turkey on the role of the pipeline and on Moscow’s influence in the Balkans might turn the Turkish Stream into a Blue Stream II, he said. In other words, its capacity might be further reduced to 15.75 bcm.

“I am of the opinion that if the Turkish Stream project is realised, especially after the results of the elections in Turkey, there will be just one line… This is for the Turkish domestic market,” the expert, who previously worked for Turkish state-owned pipeline company Botas and Turkey’s Ministry of Energy & Natural Resources, said during our talk.

Özdemir also referred to Botas’ decision to initiate court proceedings against Gazprom over gas prices, saying that the legal action is part of the wider ties between the two countries, where the Balkans and Syria equally play a role. 

He talks more fully about Turkish Stream, geopolitical relations between Russia and Turkey, and more in the interview below.

What’s your personal understanding of the Turkish Stream? Do you see one, two, or four lines?  

From the beginning, I was of the opinion that the declared capacity of 63 billion cubic metres (bcm) was not viable, because of a lack of demand both in Turkey and South East Europe. Half of the capacity could be realised. However, after the declaration of Gazprom that they already gave up half of the capacity and two of the four original lines, I am of the opinion that if the Turkish Stream project is realised, especially after the results of the elections in Turkey, there will be just one line. So it will not be 32 bcm, but 16 bcm. This is for the Turkish domestic market. 

Don’t you think that a second line could be constructed in case Turkey and Russia agreed on jointly establishing a gas trading company in Turkey?

It is highly unlikely. I am highly in favour of the creation of a Eurasian natural gas hub in Turkey, with Russian companies taking part in the gas trading business in Turkey. At the end of the day, I see that the Russian understanding is just to use Turkish territory as a corridor for natural gas. Russia's understanding is not [about] making Turkey a natural gas hub; its proposal would not lead to the creation of natural gas trading centre in Turkey. From a Turkish perspective, this is not really acceptable. Turkey is already a natural gas corridor for TANAP, for Azeri gas, but it is very different, since Turkey is in an alliance with the West. I don’t think that Turkey will accept Russia's proposal to become just a transit country for Russian gas.

Do you think the final outcome of the gas negotiations between the two countries have to do with the developments in Syria?

Not only in Syria. There is also a significant difference in the understanding of the Balkan geopolitical system as well. Turkey and Russia are in different camps. In this sense, Ankara does not allow Russia to use Turkey as a transit country to Greece, Macedonia, and Serbia. That would automatically increase Russian influence in the Balkans. That is in contradiction with Turkish foreign policies in the region. 

Could Turkey and Russia agree to disagree once more and decide to find a compromise in Syria and in the Balkans? For example, Ankara could allow some concessions in the Balkans in exchange for decreased military activity in Syria?

This could only be possible if Russia agreed to give Turkey power to resell gas to Europe. Russia does not want to give such a power to Turkey. [If Turkish Stream is to happen, it] will be just one line. I would call it the "Blue Stream II project", only designed to feed the domestic market.

Are the developments we are speaking about in any way related to the arbitration case between Turkey’s Botas and Russia’s Gazprom? Do you think that this legal action initiated by the Turkish network operator is part of the broader picture we are discussing now, or is it an isolated case?

I think that the arbitration case should be interpreted as one of many elements depicting gas ties between the two countries. The arbitration is an instrument for Turkey to get a price discount from Gazprom. The two countries can resolve their issues before the decision of the International Arbitration Court. Based on the negotiations between Moscow and Ankara, I am of the opinion that this arbitration will be dissolved, and Botas will get a natural gas discount from Gazprom. The discount should be more than 10%, and it will be part of the broader gas negotiations between the two countries.

Did you just say that the discount will be more than 10%?

Yes, more than 10%. The arbitration case is not an end in itself, but an instrument to proceed with negotiations. 

In general, do you think that Turkey has alternatives? Can Ankara buy gas from other countries? Iraq, for example?

Turkey has a lot of options. It could reduce its dependence on Russian gas from today’s 55% to 40%, but it can't totally get rid of Russian gas imports. Russia is and will remain the main gas supplier in the near future, but Turkey could decrease this dependence by making better use of its under-utilised 4 bcm LNG capacity in the EgeGaz LNG terminal near the city of İzmir. 

Would it not be more expensive?

That is the problem. Two-thirds of Turkish domestic gas prices are regulated, subsidised by the government. That is why all the companies that have spot LNG import licenses could not buy spot LNG. It is because of regulated prices in the domestic market. If they import spot LNG at 7/8 Million Btu price, and given the Turkish Lira/Dollar exchange rate, they cannot pump this gas into the domestic network and make profits. If these regulations are lifted and if Turkey decides to decrease its dependence on Russian gas, it should first make use of its under-utilised LNG capacity. 

Are there alternatives to LNG?

There are, but time is needed for those alternatives to materialise. As you know, gas from Shah Deniz II will come by 2018, and also there is a big potential for the Kurdish part of Iraq. The government of Turkey and the Kurdish Regional Government of Iraq already signed several agreements envisaging both oil and gas trade. By the end of 2017, Turkey could theoretically start importing gas from Iraq. That would increase diversification. 

Does this require additional investment on the Turkish side?

Botas is already investing, but there is not much missing - less than 100 kilometres of pipelines. This could be constructed within two years. By the end of 2017, Turkey could theoretically import Iraqi gas.

What about the Iraqi side?

The construction of the pipelines is already going on, but it is not a problem. The political future of Iraq, political developments, and security threats are the real problems. In the mid term, Turkey could and should have two more options, from Shah Deniz II and the Kurdish part of Iraq. At the moment, Ankara’s only option is to increase its under-utilised LNG terminal in Egegaz LNG terminal near İzmir.

Sergio Matalucci is an Associate Partner at Natural Gas Europe. He holds a BSc and MSc in Economics and Econometrics from Bocconi University, and a MA in Journalism from Aarhus University and City University London. He worked as a journalist in Italy, Denmark, the United Kingdom, and Belgium. Follow him on Twitter: @SergioMatalucci