Southstream Pipeline: Will Economics Triumph over Politics?

by Christina Nagy-McKenna, Enerdynamics Instructor

Late last month Turkey shot down a Russian fighter jet after it allegedly flew into Turkish airspace. As the world waited for the Russian 145122298 (2)Federation’s response to what its President Vladimir Putin called “a stab in the back,” few expected that a major natural gas project would be sidelined and thus deal a blow to both countries. And yet, the Federation suspended this Gazprom-sponsored project, as well as all other trade with Turkey, as part of economic sanctions meant to penalize the country financially.

This action by Gazprom and the Russian government does not just harm Turkey. Cancelling the Turkish Stream pipeline project will have longer-term negative implications for both countries as well as prospective pipeline customers. After all, what exactly does a region do with miles of pipe that is custom made for a project that was just suspended?  And what do customers like the Italian energy company Eni do when the pipeline they were counting on to be finished in 2018 is now in limbo? Are these issues enough to bring all parties back to the table to negotiate? As of this morning, the answer seems to be yes.

Turkish Stream is the second Russian pipeline project to be scrapped since the winter of 2014 when tensions escalated with Ukraine and Crimea voted to be annexed to the Russian Federation. The $12-14 billion project was to transport Russian gas across the Black Sea to Turkey and then into Southeastern Europe instead of through the Ukraine as originally planned in the Southstream Project.

Now that Russia has suspended Turkish Stream, it will need to store miles of pipe, estimated to be worth $1.95 billion, that is bespoke to the Black Sea. Perhaps the Federation has only hit the pause button on the project. Perhaps after a period of time when tensions have eased, the Gazprom will be allowed to resume construction of the pipeline and its business with Turkey. This certainly seems possible, especially after this morning’s news: President Putin said the project can continue if the European Community (EC) gives certain written guarantees to Turkey. Details about what exactly the Russian Federation expects from the EC will be forthcoming.

Gazprom mapTurkish Stream Pipeline System Map, Gazprom Website, December 2015

 


References

Burminstrova, Svetlana and Stubbs, Jack, “Turkey Row Leaves Russia Stuck with Abandoned Gas Pipes Worth Billions,” Reuters, December 3, 2015.

Kottasov, Ivana, “Russia Suspends Turkish Gas Pipeline Project Over Downed Warplane,” CNN Money, December 3, 2015.

Nissenbaum, Dion and Peker, Emre, and Marson, James, “Turkey Shoots Down Russian Military Jet,” Wall Street Journal, November 24, 2015.

“Turkish Stream Pipeline Project a Go if Turkey Gets Guarantees from Brussels: Putin,” Daily News, December 17, 2015.

 

 

 

About Enerdynamics

Enerdynamics was formed in 1995 to meet the growing demand for timely, dynamic and effective business training in the gas and electric industries. Our comprehensive education programs are focused on teaching you and your employees the business of energy. And because we have a firm grasp of what's happening in our industry on both a national and international scale, we can help you make sense of a world that often makes no sense at all.
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