Ankara ended 2011 with a pair of big -- and seemingly contradictory -- gas pipeline deals that are almost certain to alter the regional energy picture but that have also raised some interesting questions about the goals of Turkey's energy policy.
The first deal was a memorandum of understanding signed with Azerbaijan on December 26 to build a pipeline that would take Azeri gas across Turkey. Called the Trans-Anatolia Gas Pipeline, the project is scheduled to be finished in 2017 and would initially carry 16 billion cubic meters (bcm) of gas, to be expanded to 24 bcm. (For more background on the project, take a look at this previous post and at this Jamestown Foundation analysis.)
With its guarantee of a steady supply of gas flowing westward, the Turkish-Azeri deal was hailed by many as the first tangible step towards finally creating a "southern corridor" for the delivery to Europe of non-Russian gas. But, with the ink barely dry on that agreement, Russian Prime Minister Vladimir Putin and Gazprom CEO Aleksei Miller on Dec. 30 announced that Ankara had given Moscow the green light to go ahead and build South Stream, designed to take some 63 bcm of Russian gas to Europe, through Turkey's Black Sea territorial waters. As Putin put it, Ankara had just given Moscow a "wonderful Christmas gift."
Although both deals may be part of Ankara's plan to make itself a major energy transit hub, there was something dissonant about them coming so close together. With the Azeri agreement, Ankara appeared to be taking part in laying the groundwork for an energy corridor that would help Europe reduce its reliance on Russian gas and that would serve as a template for other pipeline projects -- including, ideally, a modified version of the troubled Nabucco pipeline plan -- that would bring non-Russian resources from the Caspian and the Middle East westward. On the other hand, with the Russian agreement, Ankara was now taking part in a project that many analysts see as designed to undermine Nabucco and the European Union's plans to dilute Gazprom's influence in the European energy market. So what gives? In a recent newsletter, GlobalSource Partners analyst Atilla Yesilada took a look at the two deals and what they mean:
The 16 billion cubic meters per annum capacity trans-Anatolian [natural gas] pipeline will carry Azeri gas to Europe, as well as serve Turkish demand. If it is built, this is an outstanding achievement that increases Azerbaijan's dependence on Turkey and reduces Turkey‟s on Russian and Iran gas. The pipeline could have also served as the backbone of the future Nabucco trunk line.
A few days later, Ankara signed the treaty that permits Gasprom to build an underwater pipeline to pump gas to Balkans, called the Southstream.
The Southstream is a direct competitor for Nabucco and the Trans-Anatolian, as well. Ankara is not part of the consortium, and has reportedly given away the concession in return for a reduction in the gas price, as well as the forfeiture of the take-or-pay agreements that was costing [Turkish pipeline company] BOTAS.
If this is the case Ankara has really made an unwise choice. It has surrendered [the] EU to the suffocating embrace of Gasprom, while giving up on the giant Nabucco project that would have sealed Turkey‟s role as a leading supplier to EU, which could be leveraged to improve accession hopes. Yet, we withhold final judgment. We are not sure whether Russia earnestly intends to build Southstream or use it as an ace card to buy the Ukrainian grid. We also need to find out whether Southstream (if ever built) would supply new gas or supplant the Ukrainian trunk. If the latter option is the case, Nabucco is still alive and trans-Anatolia is commercially is feasible.
Nevertheless, we suspect that Ankara‟s motivations may be political. It intends to punish EU at whatever cost. If this is name of the game, Ankara seems to have forgotten that revenge is best served cold. EU will suffer if Ankara has decided to help Gasprom monopolize the NG market, but what is in it for Turkey?
In his own analysis, Jamestown's Vladimir Socor suggests that Turkey "receives no direct advantage or compensation from" the South Stream agreement it made with Moscow. For example, in return for green lighting South Stream, Ankara had previously pushed for Moscow to agree to pumping its oil that originates in Black Sea ports through the proposed Samsun-Ceyhan pipeline, which would help significantly reduce the dangerous tanker traffic through the crowded Bosphorus Strait. But that condition does not appear to be part of the deal that was signed.
That said, analyst Alex Jackson (check out his blog, Caspian Intelligence) suggests that Ankara's South Stream deal with Moscow could actually end up bolstering, rather than undercutting, Nabucco and the idea of a non-Russian southern corridor. From a recent piece he wrote for Natural Gas Europe:
For those who backed Nabucco over South Stream, concerned about the latter’s reliance on Russian gas, the Trans-Anatolian pipeline is an unexpected blessing which saves the Southern Corridor. Official circles in both Ankara and Baku have made it clear that they would built the pipeline “whether or not buyers first came forward with commitments to buy the gas”. This is in pointed contrast to Nabucco, where drawn-out disputes about price and suppliers led to mounting frustration in Azerbaijan and Turkey alike.
In this light Turkey’s signing of the South Stream deal and the Trans-Anatolian MOU was not ‘disloyalty’ to Nabucco so much as a masterful political stroke. South Stream may never get built, particularly if the Trans-Anatolian pipeline undercuts its demand base in Europe; pushing ahead with the latter means that Turkey gets transit rights for European gas whilst still getting a binding contractual discount on its gas imports from Russia.
Ankara is essentially playing both pipelines off against each other. This may explain Putin’s decision to bring South Stream’s construction forward a year – to compete not with Nabucco but the Trans-Anatolian pipeline. Turkey’s strategy may yet misfire, but in promoting both South Stream and the Trans-Anatolian line it is kick-starting Europe’s hunt for new gas supplies.
Clearly, even with the signing of these two deals, there will be much more jockeying in the coming years between Ankara and its neighbors on the energy front.