Putin’s Turkey Gas Pipe Will Meet Rising Demand as EU Stagnates

Russian President Vladimir Putin’s plan to replace the South Stream natural gas pipeline to Europe with a link to Turkey would meet rising demand in the nation as the European market stagnates, according to EON AG.

The project would be a real “game changer” and also allow Russia to cut its gas transit via Ukraine by at least a third, Uwe Fip, a senior vice president at EON Global Commodities, said yesterday at the Frankfurt Gas Forum.

Turkey’s energy consumption is set to almost double over the next decade as European gas demand remains flat through 2019, according to the U.S. Energy Information Administration and the International Energy Agency. Putin on Dec. 1 ditched a plan to build the $45 billion South Stream pipeline to Europe, citing resistance from the European Union, and instead proposed to supply the same amount of gas into Turkey.

The proposed pipeline is a “win-win partnership for both Russia and Turkey” with Russia winning from a political point of view and Turkey getting price benefits, Gulmira Rzayeva, a senior research fellow at the Center for Strategic Studies Under the President of Azerbaijan, said at the conference.

South Stream was meant to bypass Ukraine, which currently carries about half of Russia’s gas supply to Europe through its pipelines, helping meet about 15 percent of the region’s demand for the fuel. OAO Gazprom and Turkish pipeline company Boru Hatlari Ile Petrol Tasima AS now plan to build a pipeline capable of shipping 63 billion cubic meters (2.2 trillion cubic feet) a year from Russia to Turkey.

The infrastructure built in preparation for South Stream will be used for the Turkish pipe, Gazprom Chief Executive Officer Alexey Miller said Dec. 1.

European Supply

While the full link is unlikely to be built, half of that capacity “can find a home,” John Roberts, an energy security specialist at Methinks Ltd. with more than 40 years experience on Turkey matters, said yesterday at conference.

The pipeline may be 28 billion cubic meters, half of which would offset gas shipped to Turkey via the so-called Western route through Ukraine and Bulgaria and the rest of which would flow into the Balkans, Fip said. That compares with almost 84 billion cubic meters of Russian natural gas Ukraine transited to Europe last year.

Turkey may use an extra 6 billion cubic meters, according to Roberts, who predicts about 10 billion will be shipped to Europe. That’s equal to the spare capacity on the Trans-Adriatic pipeline set to deliver gas from the Caspian region to Europe, he said. Gazprom could book that space under EU rules that support third-party access to gas infrastructure projects and block other regional suppliers such as Turkmenistan, he said.

Before it's here, it's on the Bloomberg Terminal.