Russia’s Turkey pipeline deal possibly may keep door to Europe ajar

Russia’s memorandum of understanding to build a natural gas pipeline to Turkey after canceling its South Stream project could help keep the door open for it to eventually sell more gas to Europe, two Washington-based observers suggested (OGJ Online, Dec. 2, 2014).

“There’s something going on between two countries which are getting more comfortable being European outliers,” said Edward C. Chow, a senior fellow at the Center for Strategic and International Studies Energy and National Security Program.

Turkish President Recep Tayyip Erdoga appears comfortable with Russian President Vladimir V. Putin, he said during the Dec. 17 discussion at the Center on Global Interests at Johns Hopkins University’s School for Advanced International Studies.

Erdoga apparently likes the prospect of Thrace becoming an alternative to Bulgaria for additional Russian gas headed to Europe, Chow said. “It’s notable that when Putin arrived for his most recent visit and announced he wanted to sign an MOU for a not-yet-defined pipeline project, Erdoga didn’t say, ‘Wait a minute,’” he added.

Turkey may represent a great opportunity for Russian gas giant Gazprom, said Tim Boersma, a fellow and acting director of the Brookings Institution’s Energy Security Initiative.

“A hub in Turkey may mean that molecules coming from Azerbaijan and Kurdistan would be mixed with those from Russia, creating supplies through a third party that some European customers might find more acceptable,” he explained. Turkey does not want simply to become a transit state and not have access to gas for its internal use, but Boersma said Gazprom may not have a problem with that.

Alternative to China

A deal with Turkey also provides Russia an alternative to China, which possibly is growing more cautious as it contemplates its own oil and gas imports from Russia via pipeline, Chow said. “There weren’t any announcements about Chinese loans following both the May and most recent project deals. That was interesting, since they have usually come soon after,” he explained.

“I believe the Chinese outlook toward Russian risk has gone up since March,” Chow continued. “It’s not that Chinese money isn’t available. It’s that Russia may not want to accept harsher Chinese terms.”

Turkey, meanwhile, is taking a more pragmatic course and may not want to take a strong stand against Russia’s involvement in Ukraine, Boersma said. “We and the Europeans may not like it, but it’s apparently a fact of life,” he said.

Building a pipeline to Turkey and seeing how markets evolve and whether they provide opportunities to reach Central and Southern European markets makes sense for Russia, Boersma continued. Poland and Lithuania are both building LNG import terminals, but consumers there likely would have to pay a premium for the regasified fuel because it would not be competitive with gas Russia ships by pipeline, he said.

“A scenario under which Europe does completely without Russian gas is hard to see,” Chow said. “If Gazprom acts in a market way, it will lower prices to protect its share.”

Contact Nick Snow at [email protected].