Turkish Stream to affect Ukraine’s transit

Ukraine’s losses from the Turkish Stream gas pipeline running under the Black Sea will total $300-$450 million annually. Kiev receives as much from Gazprom for transit of gas to Turkey. During the recent years, the transit averaged 10-15 billion cubic meters. If the Turkish Stream is built at its full capacity, Kiev’s losses will double. And this will be only part of the problems the Ukrainian authorities will face, if the Black Sea gas pipeline is built eventually.

During the last days, the prospects of the project’s resumption have become as never realistic. Ankara said it seeks the construction of the Turkish Stream. If one pipeline with a capacity of 15 billion cubic meters is built, it will satisfy the needs of Turkey only. Turkey receives as much gas via Ukraine now. The rest is supplied via the Black Sea Blue Stream. If two pipelines are approved, Moscow will become closer to the establishment of a southern gas route to Europe.

So far, Ankara has announced officially that it agrees on the first option. Minister of Economy Nihat Zeybekci said they are not discussing whether to implement the projects (Turkish Stream and discount for Botas state-run oil and gas company – TASS’ note) or not. "Political decisions are in place to settle the issue of further implementation of the project," Tass quotes Zeybekci as saying.

“All the projects of Gazprom in the north and south pursued one strategic goal – to create alternative routes of gas supply to Europe passing by Ukraine,” says Igor Yushkov, the senior analyst at the National Energy Security Fund. “The logic is clear: to avoid the situation when our hands are twisted and we may fail to implement our commitments to European partners. The capacity of the North Stream that is not used at full and the capacity of the second pipeline is enough to stop the transit via Ukraine. However, we need the southern wing to energize Turkey, Balkans, Greece, and Italy. Even one pipeline of the Turkish Stream will reduce the gas supply via Ukraine by 10-15 billion cubic meters. The twin pipelines will increase this figure to 30. Ukraine will lose in transit and incomes as much.”

Last year, the transit of the Russian gas via Ukraine totaled 64 billion cubic meters. This is by half less than in 2010, when the Nord Stream was not put into operation and Kiev had an opportunity to settle the problem strategically.

“Ukraine could follow Belarus’ example then and sell its gas and transport system,” Yushkov says. “Would the country lose its independence? No, as Minsk’s experience shows. In addition, Belarus is supplied with the cheapest gas. In Ukraine there are already European prices and constant problems.”

With the Turkish Stream, Ukraine may lose also half of the remaining transit, which will create internal problems. “For Kiev, even the constriction of the 1st line of the pipeline may have negative consequences, as it may deprive Ukraine of 14-15 billion cubic meters of the Russian gas transit to Turkish consumers,” says Dmitry Marunich, co-chairman of the Kiev-based Energy Strategies Fund. “As transit volumes will fall, Ukraine will have to increase the cost of the transportation inside the country, which will prompt further increase in the gas price for the population and industrial sector. It will be necessary to reconsider the operation of the gas and transport system (now it operates from the east to the west). Perhaps, it will be necessary to withdraw from service separate parts of the pipeline system. I’d like to recall that by the assessments of Nikolay Azarov, the former prime minister of Ukraine, made yet in 2013 when the transit volumes average nearly 30 billion cubic meters, Ukrtransgas company will have to withdraw from operation a number of trunk pipelines.”

The Ukrainian expert believes that Kiev has nothing to do but hope that Gazprom will seek to build more than one line and it will become a stumbling block to the implementation of the Turkish Stream project.

“Otherwise, the economics of the project will be questioned,” Dmitry Marunich says. “As we see, Turkey as before weighs the construction of only one line of the pipeline. It is necessary to understand that the southern route passing by Ukraine is not as relevant as before, considering the Nord Stream 2 project lobbied in the EU. This may become a reason for moderate optimism in the country that risks suffering the highest damage from the construction of the gas pipeline under the Black Sea.”

“Now, I think the key problem with the Turkish Stream is the number of the pipelines to be built,” Igor Yushkov says agreeing with the Ukrainian expert. “Turks need only one pipeline, of course, to receive gas passing by Ukraine. However, I think in such form, the project is not profitable for Gazprom (by some data, the project costs up to 1 billion Euros). The company needs a second pipeline to supply gas to Europe. Here, problems similar to the ones connected with the South Stream emerge. Washing and Brussels are against.”

In such situation, Yushkov says, Turkey’s stance may have a tangible role. “It may become a king of lobbyist for the project in Europe so that the Russian gas had the same rights as the Azerbaijani one that will be supplied via the Southern Gas Corridor, so that the EU did not differentiate the supply of 10 billion cubic meters of the Caspian gas and 15 billion cubic meters of the Russian gas,” Igor Yushkov says. “Much will depend on Turkey’s stance and on whether our relations have been restored and whether the two presidents will meet in August.”

Another obstacle to the construction of a second pipeline of the Turkish stream may be the strained relations of Ankara and Brussels. This may become a bigger problem than the arrangements of Turkey and Russia.

Volkan Özdemir, Chairman of Ankara-based EPPEN (Institute for Energy Markets and Policies), told Kommersant Ankara needs to improve its relations with Russia and show the West that it has alternative partners. In his words, Gazprom will manage to achieve the construction of the twin pipelines of the Turkish Stream and the main issues of the talks will be the dispute on the gas prices for Turkey. The interests of Ukraine, which Ankara had regarded as a strategic partner yet not so long ago, will not be taken into account, indeed. On the one hand, Turks have openly declared that Gulenists and their educational centers operate in Ukraine. On the other hand, Ankara openly ignores the economic requests of Kiev. For instance, Deputy Minister for Infrastructures of Ukraine Yuriy Lavrenyuk said the Turkish side has refused from Ukraine’s offers after the meeting of the Ukrainian-Turkish Committee for Motor Transportation.

“The Turkish side has rejected Ukraine’s suggestions to liberalize the motor transportation as continuation of the issue of the free trade zone discussed by the presidents of Ukraine and Turkey. The Turkish side rejects any opinion of increasing the number of the motor freight activity from Ukraine to Turkey amid the growing commodity turnover,” the deputy minister complained.