Turkey and Russia: stronger partners in regional energy security, business (2)
by
MEHMET ÖĞÜTÇÜ & DANILA BOCHKAREV*

Turkey has regarded getting Russian crude for this pipeline as essential to raise Ceyhan, which is also the termination point for the BP-led Baku-Tbilisi-Ceyhan (BTC) oil pipeline, into a regional oil hub. However, prior to Vladimir Putin's visit, Moscow proved reluctant, instead promoting the Burgas-Alexandroupoli pipeline, which will run between Bulgaria and Greece. Now that Bulgaria's new government is dragging its feet and Putin has given his strong political backing, the Samsun-Ceyhan option has become “realistic” and “viable” in the words of Putin himself.

This quid pro quo is not officially acknowledged by Ankara and Moscow, but is widely noted by international observers. Eni would commit oil from its own and other companies' Caspian production for the Samsun-Ceyhan pipeline in addition to Russia joining the construction work and committing oil volumes to the pipeline.

Three factors explain the sudden shift in Moscow's decision toward the Samsun-Ceyhan bypass. First, American and European companies in Kazakhstan are reluctant or unwilling to finance the Burgas-Alexandroupoli pipeline project. Second, the new Bulgarian government, which took over in July 2009, has suspended its participation in this pipeline and other major Russian projects in Bulgaria, pending a detailed review of their terms. Finally, the Turkish government has pressured Russia to lend support to the Samsun-Ceyhan pipeline, allowing Russia in return to use its Black Sea exclusive economic zone waters for the South Stream pipeline project.

Another Blue Stream in the making?

Gazprom also affirmed a commitment to expand an existing Black Sea gas pipeline (Blue Stream-1) for possible transshipment across Turkey to Cyprus and Israel. As in the case of South Stream (with its implausible promise of 63 billion cubic meters [bcm] per year), in Blue Stream-2 (at a more restrained 16 bcm), there is no word about the sourcing of gas (although Russia presumably hopes to redirect Turkmen gas into South Stream), financing this multi-billion dollar project and future market destinations for exported gas.

For instance, Syria is already importing gas from Egypt and prolonging Blue Stream-2 from Turkey to Israel seems a prohibitively expensive proposition, unless the construction costs are passed on to gas consumers, as has been the case with Blue Stream-1 in Turkey. Last but not least, Israel has discovered its own gas reserves and shies away even from LNG imports, let alone paying for the extra costs of Blue Stream-2.

Nabucco vs. South Stream in a positive sum game?

The Nabucco pipeline has latently been seen in Moscow as an economic and political risk which poses a threat to Russia's energy domination in the Caspian region and creates a more competitive, consumer-oriented energy market in the European Union. Brussels (or parts of Brussels, to be correct) is keen on diversifying the routes and sources of supply through non-Russian gas and pipelines.

By skirting Russian territory, the Nabucco pipeline would undercut Moscow's monopoly on European (and Turkish, given that Ankara is Gazprom's second-largest customer in the world) natural gas shipments and the pricing power and political clout that come with it. That may explain why Nabucco, which cannot go forward without Turkey's support, has encountered a variety of obstacles thrown up by the Russian government, including efforts to deny it vital gas supplies in the East and a customer base in the West.

Turkey and other countries in the path of Nabucco have been eager players in this geopolitical drama, entertaining offers from both sides. Turkish authorities have even tried, without much success, to leverage the pipeline negotiations to further Turkey's bid to join the EU, while keeping options with Russia open, too. Turks do not see a clear political or economic benefit to shutting out or ceasing energy relations with Russia, on which they heavily rely for oil and gas supplies.

If both projects are realized (though not a likely scenario in the current investment and geopolitical context), Russia and Turkey would play a major role in meeting Europe's growing gas needs. The sustainable energy security for the EU is impossible without enhanced strategic cooperation with Russia and Turkey. Projects like Nabucco are not going to put a halt to Russia's energy business, but rather offer consumers important competing supply routes that should ideally deliver a more healthy business environment and efficient gas markets.

Turkey's standard position is that South Stream and Nabucco are not rival projects and that they can both coexist in Turkey. Ankara also welcomes Gazprom's participation in the Nabucco project as it will maximize gas volumes transiting via Turkey.

Russians looking to play a role in Turkey's downstream sector

Russia defines energy security as security of demand for its producers -- meaning acquisition of downstream assets in the EU and other key markets such as Turkey. The strategy has worked well with Germany and Italy; for example, BASF and Eni have received access to the Russian upstream in return for Gazprom obtaining access in Europe's downstream.

Russians want to play a lead role in Turkey's lucrative downstream sector as well. In July 2008, LUKOil agreed to buy Turkish retailer Akpet, significantly boosting its downstream presence in Turkey. Gazprom is also keen on bidding for major city distribution projects and gas-fired power plants.

Putin's offer to move ahead with a Russian-built nuclear power plant in Turkey suggests a sweetening of the overall Russian offer on energy deals with Turkey, while both Western and Russian proposals are on the table. It looks as though Turkish energy dependency on Russia will further increase through the first nuclear power plant in Turkey to be built by the Rosatom/Atomenergoprom group of companies, pursuing an aggressive international expansion strategy.

Russia and Turkey against or together with Europe?

Extensive energy and trade ties with Russia, in the new dynamic geo-strategic conjuncture, has also generated positive political ramifications for Turkey, making it more willing to cooperate with Moscow. Yet, it would be an overstatement to say that Turkey has been changing its traditional foreign policy direction or simply playing the Russia card against the West in order to strengthen its hand.

Turkey knows that a genuine single European energy policy is not expected anytime soon. Plus, the EU is unable, due to internal bickering, to open accession negotiations on the energy chapter of the acquis communautaire. On the contrary, Russia offers concrete proposals in the framework of a sound strategic context.

However, both Turkey and Russia are aware that Europe's economy needs to bring additional gas and diversify transit routes. According to estimates made by the International Energy Agency (IEA), the EU's import needs will be five or six times higher than its domestic gas production in the year 2030. There is a growing understanding amongst leading EU members that European energy security is impossible without Russia, taking into account its gas supplies, and significant presence in Austria's Baumgarten trading platform and storage facilities, where South Stream and Nabucco will literally terminate.

As the country in the center of gas flows, Turkey does not want to be a simple physical transit bridge and wants to secure a fair share from Baumgarten's “gas hub” role by bringing back some of these benefits to Central Anatolia. Therefore, the EU should also be aware that neither of the new pipeline projects is possible without taking into account Turkey's priorities and interests. Rather, the EU, Russia and Turkey need to join their efforts to develop energy solutions to the long-term benefit of all if they will be lasting.

Prospects

Certainly, Putin has shown himself as a skillful “energy chess” player in the Turkish context as well. The Russian “energy offer” seems designed primarily for political effect in Europe and secondarily for drawing Turkey into a closer strategic alignment with Russia. They express Moscow's intentions to enlist Turkish cooperation in thwarting the EU's Southern Gas Corridor project.

Putin's offers reflect that intent, but they do not necessarily come with commensurate capabilities. It is still not clear whether Moscow's offers are backed by actually available gas and oil resources or financing. The agreements are non-binding and preliminary, in the nature of memorandums of understanding and protocols of intent.

There is a growing convergence of perspectives between Ankara and Moscow on issues ranging from Palestine to Iran to the Caucasus and Central Asia. Further, as energy looms larger in the domestic and regional calculus of both countries, especially in terms of their respective European relationships, the strategic importance of their rapprochement will undoubtedly grow stronger.

A closer Turkish-Russian partnership in energy should not be seen as a zero-sum game. It will no doubt help European supply security while at the same time address the demand security concerns of Russia, Caspian nations, Iran and Iraq. If Turks can turn this into a win-win proposition to serve these interests and dissipate deep-seated concerns, as they have been doing with regard to the disputes in the Middle East and the Caucasus, they could become a genuine regional power, and the role of a major energy hub comes with this.