Russia's South Stream Pipeline Could Run to Turkey

Russia's controversial South Stream pipeline, which would transport gas via the Black Sea into Europe towards the end of the decade, received support from Turkey on Wednesday when Ankara said it may let the conduit pass through its territory.

Turkey would consider granting access for the line if Moscow made such a request, Energy Minister Taner Yildiz said.
 

The subject is one of a series of issues including increased gas supply, gas price revisions and nuclear power that Turkey and Russia are set to take up in talks in Ankara next week, according to Turkish officials.

The future of the 2,400-km (1,490-mile) line from Russia via the Black Sea to Bulgaria and from there further into the European Union, avoiding Ukraine, has been cast into doubt because of Russia's annexation of Crimea from Ukraine.
 

The Ukraine crisis has intensified EU efforts to reduce energy dependence on Russia, while Moscow has long sought to curb its reliance on Ukraine as the main pipeline route for sending Russian gas to Europe, its biggest market.
 

The European commissioner for energy, Guenther Oettinger, said in March that discussions with Russia over South Stream's regulatory approval in the European Union were on hold.
 

The EU delay could offer an opportunity to Turkey, where gas demand is rising fast.

"We are open to assessing any request for the line to pass through Turkey's territory," Yildiz told reporters when asked about South Stream.
 

"It is said that there could be such a demand. If there is a request, we will consider it," said Yildiz, due to hold talks with Alexander Medvedev, deputy head of Russian state-controlled Gazprom, in Ankara on Monday.
 

South Stream would carry around 60 billion cubic metres (bcm) of gas a year to Europe towards the end of the decade, enough to meet more than 10 percent of its annual demand.

Officials said Russia's annexation of Crimea created a risk for Turkey, noting 12.5 percent of its gas supplies passed through Ukraine, and that steps to prevent a supply problem could be on the agenda next week.

In a letter to European leaders last week, President Vladimir Putin warned Russia would cut natural gas supplies to Ukraine if it did not pay its bills and said this could lead to a reduction of onward deliveries to Europe.

To eliminate such transit risk for Turkey, Ankara proposes to have South Stream enter land in the Thrace region of northwest Turkey rather than Bulgaria, to avoid routing it directly from Russia into an EU country.

"That way Russia will be able to feed directly with the line the Marmara region of Turkey, which has the highest level of consumption," said an analyst, who declined to be identified.
 

The construction of a second Blue Stream pipeline, complementing an existing one that runs under the Black Sea from Russia to central Turkey, could also come onto the agenda soon, sources close to the matter said.

 

The South Stream consortium is led by Gazprom, which declined to comment. However, sources at the company said a full change in the pipeline's route was unlikely as re-routing would require additional costs and cause delays.

 

Turkey Over Italy?
Should re-routing South Stream directly into Turkey not work, an alternative would be to suspend the line's extension from Bulgaria towards Italy and instead use its gas to supply western Turkey, a short distance south of its Bulgarian landfall.

Russia has awarded several contracts to build the conduit, especially in its offshore and Bulgarian sections, and Gazprom has said it would start laying pipes this autumn despite the crisis.

Replacing Italy with Turkey as South Stream's final destination could make sense as Turkey's gas demand is rising while Italy's is falling.

"Turkey may overtake Italy as Gazprom's second-biggest customer in Europe after Germany within a decade, and the Turks have already requested an extension to Blue Stream, which brings Russian gas via the Black Sea to central Turkey," said an advisory source who works with Gazprom on European supplies.

Italian gas demand peaked around 85 bcm in 2005 and has since fallen to about 77 bcm, similar to levels last seen in 2000. Turkish gas demand has more than tripled since 2000 to almost 47 bcm, with further rises expected along with economic and demographic growth.

South Stream's plans for extension as far as Italy are already in doubt.
 

One of Gazprom's main partners in the project, Italy's Eni , has said the future of South Stream has been put in question by the escalating dispute over Ukraine. The EU has also postponed clearing the project.
 

Besides Gazprom and Eni, the other shareholders in the project are France's EDF and Germany's Wintershall.
 

Industry sources say that once South Stream is built to Bulgaria and serves western Turkey, the project could still be expanded to Italy once political relations between the EU and Russia improve again and demand picks up.
 

"In the long term, Italy still needs Russian gas because its other main supplier, Algeria, is struggling to keep up production and central Europe has very few alternatives. Hence, support for Russia remains strong here and I wouldn't rule out South Stream being extended at a later stage," the adviser said.
 

Bulgarian Foreign Minister Kristian Vigenin said this month that the standoff over Ukraine may temporarily disrupt building South Stream, but he saw no long-term threat to the project.


More but Cheaper Gas
To meet rising demand in Turkey, Ankara also wants an increase in the capacity of the Blue Stream pipeline by around 3.5 billion cubic metres annually from 16 bcm currently. It is seeking a cut in the price of gas it obtains from Russia.
 

Turkey's plans for a third nuclear power plant are also expected to come up in next week's talks.

Russia's Rosatom is building the first four nuclear reactors at Akkuyu in southern Turkey but the project has hit delays that will push back the start of production by almost a year. Its second planned nuclear plant was awarded last May to a Japanese-French consortium.

By Orhan Coskun and Evrim Ergin

(Additional reporting by Gulsen Solaker in Ankara and Vladimir Soldatkin in Moscow; Writing by Daren Butler and Henning Gloystein; Editing by Dale Hudson and Mark Heinrich)