by Costis Stambolis*
It is a fact that Gazprom remains one of Europe’s main natural gas providers, ensuring reliable and abundant supplies via a network of pipelines such as Nord Stream in Western Europe and Blue Stream and the Trans Balkan pipelines supplying Turkey. While European gas consumption stagnates, production is declining mainly because of the depletion of the North Sea reserves. These trends make Gazprom optimistic that its exports to Europe will by 2017, compared to current levels, increase by 8% and remain significant in the coming decades.
Yet, the transit of 52% of this gas via Ukraine remains a threat to Gazprom’s ambition to maintain safe and abundant gas supplies to its European partners in the coming years, since the country has proven an unreliable and unstable partner on several occasions in the past. Gazprom has been looking for options to eliminate this transit risk for many years, and in particular via the construction of the huge South Stream pipeline, planned to run via the Black Sea, and then through the Balkans to Austria and Italy. However, for mere political reasons, Brussels torpedoed the plans for the project’s construction:first by setting obstacles to the licensing procedure on the ground that it did not meet the provisions of the Third Energy Package (e.g. the requirement to separate generation and sale operations from transmission networks), and then by forcing Bulgaria, in a clearly blackmailing manner, (under the threat of a possible bank embargo due to the liquidity problem that Bulgarian banks were facing over the period June-September 2014) to stop the construction of the land section of the pipeline.
New pipeline course
In the face of political obstacles, but also due to the increasing construction cost of South Stream - whose budget had exceeded USD 35 billion – and the simultaneous reduction in crude oil prices (60% drop in 8 months), Gazprom decided to develop an alternative pipeline project, still running under the Black Sea, but bypassing Bulgaria and avoiding EU territory. The new pipeline is planned to reach Turkey a few kilometers north of Istanbul, and will then run towards the Greek-Turkish borders, where the Greek-Turkish interconnector operates since 2007. The exit area at the Turkish-Greek border will be around Ipsala.
Gazprom’s plan, as confirmed by its CEO Alexei Miller end of January, is the creation of a delivery point at the Greek-Turkish border where gas can be further transferred to Europe. In fact, this means that Bulgaria and other Balkan countries will need to get their gas via Greece, since the Greek-Bulgarian interconnector is forecasted to be constructed by 2018 latest.
It should be noted that Turkey, out of the total Turk Stream’s capacity of 63 BCM, will be receiving at least 16-17 BCM of the pipeline’s capacity to cover its own needs. A large share will help meet the growing energy needs of the Istanbul area (with a population of 12 million). Consequently, even if the necessary infrastructure on the Greek side were not ready by the end of 2016 –when the first line of Turk Stream is expected to come on-stream – the pipeline would still operate and supply the Turkish market with sufficient gas volumes.
The project also offers economic advantages: First, some of the investments made for the South Stream project will be fully used for the implementation of the pipeline to Turkey. As regards the project’s cost, Turk Stream’s is estimated at one third of South Stream’s initial value, namely about USD 10 billion. The reason behind this significantly reduced cost is that the project’s budget now includes just the undersea section and about 188 km on Turkish territory. In addition, under Gazprom’s new strategy, European companies will be responsible for building the necessary infrastructure to bring the gas to their market, at their own costs. As a result, the new project not only appears viable, but also the safest and financially most competitive gateway to European markets.
Upgrade of Greece
Turkish Stream is a chance for Greece to play a more strategic and geopolitical
role in the region by turning into a regional gas hub thanks to two main
pipelines – TAP and Turk Stream, the Vertical Corridor and the various
additional facilities (interconnectors, LNG terminals, reserve spaces). Fully
aware of the advantages offered by a gas hub, Bulgaria is looking for an
opportunity to develop its own. However,
here the question remains as to where would such a hub would get the gas from
and where would it direct it to.
Greece appears best placed to make the most of the project, not only because the location at the Turkish-Greek border offers a competitive advantage but also because some energy infrastructure is already under development. Let’s hope that the country’s new government will manage to adequately leverage these new developments for the benefit of the economy and the geopolitical upgrade of the country.
* Costis Stambolis is the Executive Director of the Institute of Energy for South-East Europe (IENE)
