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TurkStream good solution for Russia to boost gas exports to southern Europe

The TurkStream highlighted as a lucrative way for Russia to further expand into European markets.

TurkStream good solution for Russia to boost gas exports to southern Europe

A natural gas pipeline project that will carry Russian gas to Turkey and Europe, TurkStream is regarded as a successful example of Turkish-Russian energy cooperation. The project is also seen as a lucrative gateway to reach southern European markets for Russia while ensuring diversified channels of Europeans to meet its gas demand that has been on the rise for the last 3 years, Turkish Daily Sabah reported.

The TurkStream project was born out of a necessity to make up for the additional gas demand from Europe and to add new pipelines as the Ukrainian pipes carrying Russian gas to Europe have worn out, said Vitaliy Yermakov, the head of the Center for Energy Policy Research at Russia's National Research University.

«TurkStream is a good solution for Russia to expand its export markets in southeastern Europe,» Yermakov said, stressing that Turkish-Russian energy cooperation continues to progress.

TurkStream emerged after the failed South Stream project, when Bulgaria rejected the entry of Russian gas into its territory under pressure from the U.S. Congress, he recalled. The South Stream is a cancelled pipeline project to transport Russian gas through the Black Sea to Bulgaria and through Serbia, Hungary and Slovenia further to Austria. Yermakov stressed that Turkstream essentially serves the purposes of the South Stream pipeline project.

Yermakov also stressed that the TurkStream pipeline is very convenient and necessary since the routes over Ukraine are 40 years old and worn out. «The TurkStream is a very much needed new route as the old ones are simply going out of operation soon,» he added with strong emphasis on Russia's goal to expand into the European market via the TurkStream project.

Russian exports have underscored that although Europe is going to have more diversified gas with the Southern Gas Corridor project through the TANAP and the TAP, the idea to bring more Russian gas via a southern flank seemed attractive as the European gas demand has been rising, especially over the last 3 years.

Russia is the largest gas supplier of EU countries and Russia's Gazprom gas monopoly controls 35 % of the gas market in Europe, more than any other supplier. In 2016, Russia made up 39.5 % of Europe's gas imports and 37 % in 2017. Russia's gas exports to Europe rose 8.1 % last year to a record level of 193.9 billion m3 (bcm).

Russian Energy Minister Alexander Novak said that European consumers are likely to boost imports of Russian pipeline gas, while Russia intends to raise its share in the global LNG market. «As for pipeline gas, we expect Europe to increase its imports due to a cut in its own output and an increase in consumption,» Novak noted.

Turkey last year imported 28.6 bcm of gas from Russia and the amount corresponded to nearly 52 % of Turkish gas imports. The 1st line of TurkStream reached the Turkish shore at the end of April after 930 kilometers of deep-water offshore pipe laying from Anapa, Russia, to Kıyıköy, Turkey. The 2nd pipeline will be also complete within 2 months, Gazrom CEO Alexey Miller said.

TurkStream's 1st line will carry 15.75 billion m3 of natural gas to Turkey. The project will have a total throughput capacity of 31.5 billion m3 with the 2nd line that will go to Europe. Over the 1st 8 months of the year, Gazprom exported over 133 billion m3 of gas to Turkey and the EU – up 5.6 % from the same period last year, Miller said in August. The Nord Stream 2 is expected to cost around $11 billion to transport 55 billion m3 of Russian gas per year to Germany via the Baltic Sea once it becomes operational in early 2020.

Conflicts of interest may cause volatility in oil market In a report prepared in association with Sabancı University's Istanbul International Center for Energy and Climate, Yermakov argued that the conflicts of interests in the near future may create fluctuations in the global oil market.

The report «Russia, Saudi Arabia and the U.S.: Supply Dynamics Among the 3 Largest Oil Producers» pointed to the dynamics created by the «3 largest» global oil producers while forming the current global oil market, how they shape oil markets and the current situation.

According to the report, the world is transiting to a low-carbon future, and this transition might lead to a dramatic and destructive price fluctuation based on a strategic conflict of interest in the global oil market. At this point, it is important to think about the past-present-future time chain and to understand what new oil market developments in the 3 major producers shape the oil industry and why and how strategies change and what these changes mean.

The report elaborates on global oil market developments, revealing the challenges faced by the 3 major global producers. The main problem that Yermakov drew attention to in the report was how producers and export countries with different income needs and different levels of financial durability can reach agreements.

Referring to the developments of the past 5 years that have tested the stress levels of oil-producing nations with respect to the economically viable cost of production, fiscal breakevens, and elasticity of supply under quickly changing market conditions, Yermakov stressed that new market dynamics and trends turn former net importers into net exporters, creating new geographies of global petroleum trade with the U.S. becoming a net exporter.

Touching on the effects of real supply-demand balance and real country strategies on the oil market, Yermakov said that the total oil production of the U.S., Russia and Saudi Arabia constitutes almost three-thirds of the oil production all over the world.

Stressing that the increase in production led to a decline in oil prices in the aftermath of 2014 peak prices, Yermakov continued: «The U.S. production growth was a surprise for everyone. The oil trade has shifted to new regions and started to target the American, European and Asian markets. On the other hand, Saudi Arabia has come to play a more active role in the OPEC.»

Yermakov stated that the agreement between Russia and the OPEC is longer-termed than expected, adding: «With this agreement, excess oil in the market was consumed – which brought balance to the market. Russia's tactical depreciation of the ruble in the recent troubled years has stabilized Russia regarding oil production in the long-term.»