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Expressing high hopes for future cooperation with Turkey, Alexei Miller, head of the Russian state-owned company Gazprom, announced in early May that gas would start flowing through the new gas pipeline Turkish Stream by December 2016. Its initial capacity would be about 16 billion cubic meters or a quarter of the eventual full capacity. Gazprom is also negotiating with Greece to continue the pipeline through its territory until it reaches Southern Europe.
But Gazprom's enthusiasm should not be taken at face value. Previous announcements about such deals have gone awry. Less than 18 months ago, in November 2013, Miller said this in Bulgaria:
"A landmark event has taken place today: Construction started on the Bulgarian section of the South Stream gas pipeline—the most large-scale and important project in Europe.... Bulgarian consumers will receive gas at a lower rate as the gas pipeline runs directly from Russia via the Black Sea. The construction follows a strict schedule: before the year's end construction will start in Serbia, then in Hungary. Therefore, South Stream is steadily running ahead. Bulgarian consumers will receive first gas via South Stream in December 2015."1
Half a year later, the government of Bulgaria's Prime Minister Plamen Oresharski, which had signed the agreement with Gazprom, was booted out of office, and the South Stream project was put on ice until the European Commission signed off. Then in December 2014, Russian President Vladimir Putin surprised everyone, including his hosts, when he announced in Ankara the cancellation of South Stream and the start of its successor Blue Stream (as known as Turkish Stream).
Since then, Russian and Turkish energy officials have been scrambling to catch up with these lofty political intentions. How likely is it that they would be met? Not at all. There are at least three reasons for skepticism.
First, Turkish officials from the state-owned energy company BOTAS openly say that environmental analyses could last well into 2017.
Second, there is also the issue of who picks up the tab, which is officially calculated at $19 billion for the seabed installation and another $2 billion for the land installation. Gazprom has stated it would fully cover the underwater part, yet the Russian company's main priority for the coming years is clearly the "Power of Siberia" pipeline to China, with projected costs of $55 billion. Gazprom cannot afford to finance both at the same time.
Third, the projected capacity of the pipeline is four times larger than the current needs of Turkey. This means that if the pipeline is extended to Ankara only, it will be running at a large loss, hence the idea of extending it through Greece and possibly onto Italy. The trouble with that proposition is that Greece, like Bulgaria with South Stream, is bound by the European Commission's rules. The recent defiant behavior of the Syriza government with regard to renegotiating the Greek rescue package has brought only negatives from European officials. It is unlikely that the Greek government will defy the European Commission on energy policy, which means that the same issues that led to the cancellation of South Stream would need to be addressed.
In summary, Turkish Stream is likely to be significantly postponed in time, until Gazprom reaches an agreement with the European Commission over access to its pipeline for its competitors. If such an agreement is reached and Turkish Stream becomes viable, so does South Stream, which at about half the cost is more efficient to build. Turkish Stream then remains just a dream.
Note
1. London Stock Exchange, October 31, 2013.
