Page 4 - FSUOGM Week 50 2019

FSUOGM COMMENTARY FSUOGM
Doubts loom over TurkStream
TurkStream is all but complete, but how much gas it will flow is unclear
TURKEY
THE first string of Russia’s TurkStream gas pipe- line now has a firm start date early next year, but weak gas demand in Turkey and construction delays in Europe have raised doubts over the project’s credibility.
TurkStream consists of two 15.75bn cubic metre per year strings that run under the Black Sea and make landfall in eastern Turkey – one that will supply the Turkish market and another that will serve customers in Europe. The first string is due on stream on January 8, with the event set to be marked by a ceremony led by Russian President Vladimir Putin and his Turk- ish counterpart Recep Tayyip Erdogan. But this fanfare aside, there are serious doubts about how much gas it will actually flow next year.
Turkey is one of Gazprom’s biggest custom- ers, receiving supplies via Ukraine and the 12 bcm per year Blue Stream that also runs under the Black Sea. But recently its purchases have been declining. From 29 bcm in 2017, supplies dipped to under 24 bcm last year, and dropped by a further 34.5% in January to September to 11.6 bcm. If this trend does not reverse, Russia will have only limited need of TurkStream to fulfil its goal of meeting its Turkish supply obli- gations without sending the supplies through Ukraine.
There are two main factors driving this trend. First, Turkish gas demand has weakened, shrink- ing from 51.6 bcm in 2017 to 47.3 bcm in 2018. A further 8% drop was recorded in January to Sep- tember, to 33.3 bcm. Turkey’s ongoing economic and financial crisis, which has seen its national currency plunge in value and inflation and bor- rowing costs soar, was an obvious cause of this slump. Turkish power generation firms that rely on gas were hit, as a result of the rising cost of gas imports and their heavy debt burden.
Some gas plants have had to shut down to avoid running at loss – some permanently. And pressure on the sector is likely to increase as the government in Ankara continues its push to use more domestic coal, limiting room for gas.
Secondly, Russia has been in fierce competi- tion for market share in Turkey with Azerbaijan and LNG suppliers. The Southern Gas Corri- dor (SGC) started up in mid-2018, leading to a 21.5% growth in Azeri gas supplies in January to September to 6.86 bcm. Global LNG prices have meanwhile plummeted this year, with
oversupply in Asia driving most of the spare vol- umes to terminals in Europe.
Obstacles in Europe
If Turkish demand for Russian gas does not rebound, Russia can of course devote most of the first string’s capacity to supplying Europe. But plans to route TurkStream’s gas through Bulgaria, Serbia and then Hungary are running into difficulty.
Originally, Bulgaria had promised to com- plete the infrastructure needed to handle this supply. But Sofia did not finalise a $1.2bn con- tract with Saudi-led Arkad to build the extra pipes until September.
Putin vented his frustration at delays earlier this month, accusing Bulgaria of deliberately stalling TurkStream – a claim Sofia denies.
“If the Bulgarian leadership does not want [TurkStream], we will find other ways to implement it in southern Europe,” he said at a conference.
TurkStream’s second string is all but com- plete, but it will remain idle until Bulgaria fin- ishes its work.
The project also faces a looming threat from the EU, whose opposition led to the demise of TurkStream’s predecessor, South Stream. The European Commission has already expressed its view that extending the pipeline into Europe would impede competition, although it has not yet issued a formal decision.
EU has also reinforced its energy market leg- islation, applying its rules on supply and trans- mission, third-party access and transparency to gas pipelines entering the bloc from non-mem- ber countries. If imposed, these requirements would make it difficult for Gazprom to run Turk- Stream at peak capacity.
However, it is ultimately up to affected EU member states, in this case Bulgaria, to decide whether EU energy rules should be applied, potentially allowing Gazprom to side-step the legislation. Germany opted against enforcing the rules in Nord Stream 2’s case.
All this leaves a lot of uncertainty for a pro- ject which has cost Gazprom more than EUR7bn ($7.8bn) to develop. And the longer it takes for Bulgaria, Serbia and Hungary to prepare for TurkStream’s gas, the longer it will take Gazprom to recoup these investments. ™
WHAT:
TurkStream may see limited use next year because of weak demand in Turkey and construction delays in Bulgaria.
WHY:
Turkish consumption has dipped because of economic difficulties, while Bulgaria was slow to award a pipelaying contract.
WHAT NEXT:
This creates a lot of uncertainty for a project that cost Gazprom $7.8bn to develop.
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w w w . N E W S B A S E . c o m Week 50 18•December•2019