In the second half of 2017, the world’s most modern pipe-laying barge will
lay the first string of the Turkish Stream pipeline across the Black Sea from
Russia to Turkey.
Despite all the vicissitudes of recent Russian-Turkish relations, including
the assassination of the Russian ambassador to Turkey Andrei Karlov December
19, the two nations remain committed to laying at least one 15.75bn m³/yr pipe
between Russia’s offloading terminal near Anapa and a landing site at Kiyikoy,
on the Black Sea coast of Turkish Thrace.
But there is still a lot that remains uncertain. These mainly concern the
question of a second string – in effect another 15.75bn m³/yr pipeline running
roughly parallel to the first; the question of a connection to the
Turkish-Greek border; the issue of who would be served by a second string; and
the possibility of foreign partnership in the offshore component of the new
system.
This much is known: on December 8, a wholly-owned subsidiary of Gazprom,
the Russian gas giant that is developing the project, signed a contract in
Amsterdam with the Swiss-registered Allseas group to lay more than 900 km of
line on the floor of the Black Sea.
In a reminder of Turkish Stream’s role as heir to previous Gazprom efforts
to use the Black Sea as southern supply route to the European Union, the
contract was actually signed by a Gazprom subsidiary, South Stream Transport, a
Dutch-registered company originally set up to develop the long-planned South
Stream pipeline from Anapa to Bulgaria and then on to the Austrian hub at
Baumgarten.
Allseas will use the state-of-the art
Pioneering Spirit, with its
six on-board welding stations and six on-board coating stations, to lay the
line. In Gazprom’s announcements concerning the contract there was, however, no
mention of one curious fact: as far back as April 2014, Allseas had secured a
previous contract from South Stream Transport to lay South Stream’s second
string, using the same vessel. At that time, however, the ship was called the
Pieter
Schelte, in honour of Pieter Schelte Heerema, the father of Allseas
founder, owner and president Edward Heerema. The name was changed to the
Pioneering
Spirit in the wake of protests concerning Pieter Heerema’s role as a Dutch
officer in Nazi Germany’s notorious Waffen SS during World War Two.
Gazprom has not said how much either of the Allseas’ contracts were worth.
But since South Stream Transport originally agreed to pay Italy’s Saipem €2bn
($2.1bn) for the original contract to lay the first string of South Stream and
some ancillary works, the assumption was that Allseas’ 2014 contract was worth
around €1.2-1.5bn.
Although both South Stream and Turkish Streamwere originally
conceived as four-string systems capable of handling 63bn m³/yr, at present
Gazprom seems to be focused on getting just the first string operational, with
the possibility of adding a second. In June 2016, referring to a four-string
system, Gazprom’s deputy head of finance, Igor Shatalov, declared: "The Turkish
Stream project has been meticulously worked out. The cost of the four lines was
estimated at about at €11.4bn.” A two-string system would cost substantially
less than this. Moreover, €1.8bn of physical pipe, ordered in early 2014 for
the planned first two strings of South Stream, has already been delivered and
is stacked up on the dockside at the Bulgarian port of Varna.
The presence of this piping makes it highly likely that Gazprom will go
ahead with a second string for Turkish Stream, even though the
intergovernmental agreement (IGA) signed by the Turkish and Russian ministers
of energy in Istanbul October 10 gives Russia the right to cancel the second
line.
The uncertainties concerning the second line do not relate so much to the
issue of whether it will be built as to the use that will be made of it. The
IGA provides for Gazprom and/or its affiliates to have 100% ownership of the
offshore section and for Turkey’s Botas to have 100% ownership of the onshore
section; a logical arrangement since the agreement specifies that the onshore
section shall terminate at a connection "with the existing gas system of the
Republic of Turkey.” In practice, this means Botas will be sole owner and
operator of a short line of around 80 km from Kiyikoy to Luleburgaz, the
nearest potential junction with Turkey’s main distribution system.
However, while the second offshore line will be 100% Gazprom and/or its
affiliates, the onshore line to "to the border of the Republic of Turkey with
its neighbouring countries” will be a 50-50 partnership between Gazprom and
Botas. In practice, this is expected to follow the onshore section to
Luleburgaz and then run 130 km further to Ipsala, on the Turkey-Greece border.
The significance of Ipsala (on the Turkish side of the border, and of Kipoi on
the Greek side) is that this is the point at which the Tanap pipeline across
Turkey connects to the Trans-Adriatic Pipeline (TAP) across Greece and Albania
in order to deliver Azerbaijani gas to Europe.
So far, Gazprom has provided no indication that it might be interested in
shipping gas carried by Turkish Stream’s second string to European customers
via TAP, although EU rules specifically allow for third party access to the
second 10bn m³/yr element of TAP capacity.
Indeed, judging by a meeting held in Moscow on 13 December between Gazprom,
Italy’s Edison and Depa, Greece’s gas supplier, Gazprom is still looking at
options to deliver second string Turkish Streamgas to Europe via a wholly
new pipeline system intended to reach Italy by means of a new pipeline across
Greece and the revival of an old project – Poseidon – for a direct 200-km
pipeline across the Adriatic from Greece to Italy. At the very least, the talks
with Edison indicate that Italy and France – since Edison is owned by
Electricite de France – are very much in Gazprom’s sights when it comes to
identifying potential European Union customers for Russian gas deliveries via
Turkish Stream.
The problem is who will finance such an approach. In June, Shatalov said
with regard to the overall Turkish Streamproject that "the level of
readiness to attract project financing is very high.” The IGA carefully leaves
the way open for third parties to join the system, specifying that both the
company developing the offshore section (in effect, Gazprom) and the company
developing the onshore section to connect to the second string (in effect, the
Gazprom-Botas consortium) "may raise third party funding.”
At present, there is no indication as to which third parties might be
approached to help defray Turkish Stream’s cost.Meanwhile, the most
salient fact remains the simplest. As Gazprom stated in its announcement
December 8: "Allseas will start building the first string of the pipeline in
the second half of 2017.”
picture: Route of Turkish Stream (Credit: Gazprom)
*John M. Roberts is a senior fellow at Atlantic Council's Dinu Patriciu Eurasia Center and Global Energy Center
(http://www.naturalgasworld.com, 29 December, 2016)