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(Photo taken from timesofisrael.com)

by Piotr Stepinski  & Wojciech Jakóbik (BiznesAlert.pl Editor in Chief. Energy analyst at Jagiellonian Institute)

In December 2014 Russia cancelled South Stream pipeline project. It was to run through Black Sea to Bulgaria. Its gas was to be delivered to Balkan states, Hungary, Austria and Italy. According to Russians the project was abandoned due to lack of good will of European Union. Instead of South Stream, Gazprom proposed a gas pipeline to Turkey and called for creation of gas hub in Greece. That is why the company said that in 2019 it plans to resign from gas transit through Ukraine. Is this plan possible?

Turkish Stream construction is not even started. For now it lacks any binding documents not mentioning the political commitment of Russia and Turkey to study this possibility. Cost of this pipe is also a problem. At the end of 2012 South Stream costs were estimated at about 25 bn dollars. In October 2014 it rose to 50,5 bn dollars. Turkish Stream cost will be comparable because the route and length are similar. But because of Western sanctions on Russian banking sector, Gazprom is having serious problems with access to foreign capital for its projects. Russia is engaged into several costly projects like Chinese gas pipelines without any source of money. That is why they are being frozen for now and so Turkish Stream will be as long as Moscow finance condition stays bad.

Another challenge is the EU law. Gazprom would like the pipe to stay its property but third energy package restricts that one company owes a line and sells the energy resources using it. It is an unbundling rule separating ownership of upstream, downstream and distribution. It is also unclear whether Russia is capable of supplying enough gas for Chinese projects and Turkish Stream. Russians admit, that it will be a serious problem. The pipeline capacity is 63 bn cubic meters a year of which 47 bn should go to Europe. But still there is no route bringing gas from Turkish border further into European market. Talks over Greek connection are only starting and they are already undermined by Greece’s engagement in Trans Adriatic Pipeline project which is a rival to Turkish Stream. That is why resigning of gas transit through Ukraine would be so hard for Kremlin.

Greek example is interesting, because Greece uses negotiations on Turkish Stream as a leverage in talks on further EU economic help. Russians use that to gain influence on European gas infrastructure future. They want to build Turkish Stream link to Europe through Greece. The problem is that U.S. is already working on alternative that could spoil Russian game.

It is for sure that Russians will continue to use Turkish Stream card in negotiations with Europe. In the end the pipe is to share South Stream’s fate, if Russia would not resign of its confrontational policy. In the long term it is bound to fail.

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