Sunday, January 29, 2012

South Stream and the Trans-Anatolian pipeline: the end of Nabucco?

South Stream and the Trans-Anatolian pipeline: the end of Nabucco?
By Jonathan Levack

With South Stream and the Trans-Anatolian pipeline set to transport Russian and Azerbaijani gas, Turkey's solidifies its position as a regional energy transportation hub....

Turkey's energy minister was a busy man in December. Shortly after signing an agreement with Azerbaijan to construct an estimated $5 billion Trans-Anatolian natural gas pipeline, Taner Yildiz was shaking hands with Russian Prime Minister Vladimir Putin over a deal that allows Russia to build its own South Stream pipeline under the Black Sea using Turkish territorial waters.

Both deals envision the transit of gas from countries of the former Soviet Union to Europe. In theory, these should contribute to Europe's stated goal of energy diversification and further underline Turkey's geopolitical credentials.

Indeed, it seems that Turkey is on the road to becoming a genuine energy player in the region. According to energy researcher Olgu Okumus of CERI Sciences Po in France, "these pipelines are concrete indicators that Turkey is on its way to becoming an important transit country."

The two deals could result in an estimated 70 billion cubic metres (bcm) of gas entering Europe each year. But the signing of both deals brings into question the viability of Europe's pet project, Nabucco. The multibillion dollar project would bring gas from various sources to the Central European gas hub in Austria.

Many analysts have seen South Stream as a rival to Nabucco, but according to Okumus, it's the Trans-Anatolian pipeline that is Nabucco's real competitor.

"The Trans-Anatolian pipeline aims to transfer the same gas source to Europe as Nabucco," he explains.

And unlike Nabucco, Okumus told SETimes, the Trans-Anatolian pipeline will have a guaranteed gas supply.

"The most important partner in the Trans-Anatolian pipeline is SOCAR [the State Oil Company of Azerbaijan], which manages the Shah Deniz II gas field with BP. In other words, the Trans Anatolian pipeline will not have a supply problem because the region's dominant supplier is a stakeholder."

Turkey's new stance seems in stark contrast to previous support for Nabucco to bring gas from various sources right to the heart of Europe.

But according to Professor Ahmet Evin of the Istanbul Policy Centre, this is no U-turn. "Between 2002 and 2009 Turkey did not signal great support [for Nabucco] either. Turkey, particularly under current Minister Taner Yildiz, has realised Nabucco is a private sector project."

The implication is that if the private sector can't build it, why should Turkey step in? Unlike Nabucco, the benefits of the Trans-Anatolian pipeline to Turkey are clear. Of the 16 bcm of gas slated for the pipeline annually, 6 bcm will be reserved for Turkey's domestic market at potentially low prices. The surplus 10 bcm will be distributed to countries beyond the border, potentially including Bulgaria, Romania, Hungary and Austria.

As for South Stream, at first glance the benefits for Turkey may seem less obvious. The project will transit up to 60 bcm of Russian gas under the Black Sea to Bulgaria and then on to both Central and Eastern Europe annually.

Therefore, the current route envisions no gas for Turkey. However, Yildiz has been on record as saying that Turkey got concessions on existing agreements with Russia, but due to their nature, it's impossible to tell how significant these are.

According to Okumus, "because Turkey gained nothing official from South Stream, we can assume that the Minister has at least negotiated the price of the existing purchase agreements or revised the take or pay conditions."

But Evin argued that despite potential concessions, the agreement is "obviously politically motivated. Think about it as a package of deals with Russia."

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