Russian
Prime Minister Vladimir Putin and Gazprom chief
executive officer Aleksei Miller announced on
December 30 that Turkey has authorized the
construction of Gazprom's South Stream pipeline
through Turkey's Black Sea exclusive economic
zone, bypassing Ukraine en route to central
Europe.
Turkey's Energy Minister Taner
Yildiz had handed the South Stream permits to
Putin in Moscow two days earlier. Putin thanked
Turkish Prime Minister Recep Tayyip Erdogan for
"this wonderful Christmas gift to Russia".
South Stream is nominally designed for up
to 63 billion cubic
meters (bcm) of gas
annually, diverting transit from Ukraine and
monopolizing markets and pipelines in Europe. The
underwater section in the Black Sea is supposed to
be built in four consecutive stages, each at some
15 bcm annually. Turkey's Black Sea exclusive
economic zone is the only possible route for South
Stream from Russia to Europe (landfall point in
Bulgaria).
Ankara's "gift" is twofold. Its
go-ahead to South Stream strengthens Russia's hand
against Ukraine and Europe. Although non-viable as
a gas project in its own right, South Stream is a
major political tool for expanding Russian
influence in Ukraine and Gazprom's positions
within the European Union.
Ukraine regards
South Stream as a direct threat to Ukraine's own
gas transit system, the country's number one
national asset. That system carries some 110-120
bcm of Russian gas annually to Europe. The
Ukrainian government takes the South Stream bypass
threat at face value. It fears that Russia would
shift its gas exports into South Stream, reducing
the Ukrainian system to semi-idleness, loss of
value and ultimate bankruptcy, unless Ukraine
yields control of its transit system and even
internal distribution networks to Gazprom.
Moscow proposes a deal along those lines
to Ukraine. All Ukrainian governments irrespective
of political color have resisted such a deal,
until now. Turkey's sudden green light, however,
has suddenly increased the credibility and urgency
of the South Stream bypass threat to Ukraine. It
undercuts Ukraine's bargaining position, with
potentially devastating effect.
The
Putin-Miller announcement on TV and follow-up
actions can precipitate a Ukrainian cave-in at the
January session of parliament. There, legislation
is being drafted to allow Gazprom (in one form or
another) to control Ukrainian pipelines. The
government hopes that Russia would in that case
renounce South Stream, continue using Ukraine's
transit system to Europe full-scale, and reduce
the gas price to Ukraine, in return for control of
pipelines.
Turkey's move discourages the
Ukrainian public from resisting a negotiated
handover of pipelines to Russia. With South Stream
poised to start in Turkish waters, many Ukrainians
will conclude that a deal acceptable to Russia is
preferable to no deal, disuse and decay of
Ukraine's pipelines.
Earlier, on December
22, Ukrainian President Viktor Yanukovych and the
government had held talks with Erdogan and the
Turkish government in Ankara, inaugurating the two
countries' "High Level Strategic Council", a
Turkish initiative. Yanukovych remarked that
"diversification of energy supplies, for Ukraine
and Turkey, is our strategic goal that we will
always be pursuing".
Ukraine and Turkey,
he said, will establish a permanent joint working
group on energy cooperation ... "And any practical
solutions on strategic projects will certainly not
be a secret. As soon as they are agreed upon, we
will announce them."
On December 23,
Ukrainian Minister of Foreign Affairs Kostyantin
Hryshchenko was a guest keynote speaker at the
Turkish Foreign Affairs Ministry's annual general
meeting, by invitation from his Turkish
counterpart Ahmet Davutoglu. They emphasized
"unprecedented opportunities for Turkey-Ukraine
strategic partnership in the Black Sea region.
Did Turkish leaders inform their visiting
Ukrainian counterparts about Ankara's imminent
decision for Russia on South Stream? When that
became public, Hryshchenko Twitted to complain
that South Stream "is a political, not an economic
project".
Yildiz claimed credit for Turkey
opening this gas route to help Europe. On this
basis, he urged Brussels to open negotiations on
the energy chapter in the dormant association
agreement with Turkey. Sarcastically, he claimed
that South Stream, too, is a part of the EU's
Southern Gas Corridor.
Ukraine had barred
South Stream from its own Black Sea exclusive
economic zone. There is no corridor available
between Ukraine's and Turkey's zones; they are
directly adjacent to each other. Thus, Russia
could only launch this project in Turkey's zone
with Turkish consent.
Ankara took several
years to bargain with Moscow over a suitable
reward. In August 2009, Erdogan and Putin agreed
that Turkey would allow South Stream if Russia
guaranteed oil supplies to Turkey's Samsun-Ceyhan
pipeline project. That line would cross Anatolia
north-south, from the Black Sea to the
Mediterranean, anticipating massive oil supplies
from Kazakhstan via Russia.
The scheme
involved lifting the oil in Russian tankers at
Novorossiysk for delivery across the Black Sea
into the planned Samsun-Ceyhan pipeline. That plan
proved premature at the very least in 2010-2011.
Ankara has now accepted a far lesser reward for
allowing Russia to proceed with South Stream.
Moscow has apparently agreed to minor
concessions on the price of gas supplies to Turkey
for 2012, as a one-off gesture. The supplies seem
to be governed by four different contracts with
specific volumes. Gazprom and Turkey's state
company Botas signed the amended contracts on
December 28 in Moscow as Yildiz displayed the
South Stream permits to Putin. Pricing is not the
only issue, however. Take-or-pay obligations pose
a further problem for Ankara.
Turkey falls
consistently short of taking the full volumes of
Russian gas stipulated in take-or-pay contracts.
Thus, Turkey imported 18 bcm of gas in 2010, and
apparently a similar amount in 2011, instead of
the 30 bcm contracted annually with Russia. Such
shortfalls are possible and perhaps even
unavoidable because Turkey's gas market is
oversubscribed. Not all of that 30 bcm is
take-or-pay. But Moscow apparently tolerates the
shortfalls from the take-or-pay volumes, without
requiring Turkish payment for volumes not taken.
This may well be another part of the
undeclared tradeoff to allow South Stream in
Turkey's exclusive economic zone. Otherwise,
Turkey receives no direct advantage or
compensation from this project. Turkey is not
entitled to transit fees or gas volumes if the
pipeline is built, which remains an uncertain
proposition in any case.
However, Ankara's
go-ahead enables Moscow to increase pressure on
Ukraine, and to sabotage the EU's energy policy by
enlisting Gazprom's European allies into the South
Stream project.
Vladimir Socor
is a Senior Fellow of the Washington-based
Jamestown Foundation and its flagship publication,
Eurasia Daily Monitor, and is an internationally
recognized expert on the former Soviet-ruled
countries in Eastern Europe, the South Caucasus
and Central Asia. Socor is a regular guest
lecturer at the NATO Defense College and at
Harvard University’s National Security Program’s
Black Sea Program. He is a Romanian-born citizen
of the United States based in Munich, Germany.
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