Page 5 - FSUOGM Week 49 2022

FSUOGM COMMENTARY FSUOGM

ambitions. The Kremlin wants to send Russian between 2000 and 2006, but then the country
gas to Turkey for onward transport to Europe. rapidly expanded its own gas production at the
As more and more EU member states and com- BP-operated Shah Deniz field, allowing it not to
panies are expected to phase out Russian gas only cover its own gas needs but export supplies
over the coming years, the Russian plan appears to Georgia and Turkey. With much of its gas con-
to be to sell supplies to Turkey that could then tracted to foreign buyers, Azerbaijan then turned
be resold to European buyers. Once in the grid, back to Russian supplies in 2017-2018, only to
after all, gas molecules are indistinguishable. cease purchases again after the second stage of
And deciding how much of the gas that Europe Shah Deniz’s development flowed its first gas in
takes from Turkey has a Russian origin would 2019. And then in mid-November this year, Gaz-
be hard to do. For example, Ukraine stopped prom announced it would once again resume gas
importing gas from Russia years ago and sources deliveries to Azerbaijan – some 1 bcm between
much of its imports from Poland and Slovakia; now and March to cover peak winter demand.
however, that gas is ultimately Russian in origin. Russia could therefore sell more gas to Azer-
The gas hub plan is still in its infancy and baijan, covering as much of its domestic demand
would take years to develop. Neither Moscow as possible, and this in turn would free up more
nor Ankara have commented on an exact time- volumes for Azerbaijan to send to the EU – effec-
frame, nor a cost estimate for the extensive new tively Russia would sell gas to the EU through the
pipeline infrastructure that would be required. back door. This would undermine EU efforts to
But the original TurkStream cost roughly $12bn, deprive Russia of global gas market share – the
giving an idea of the expense it would take to gas would simply be sold somewhere else.
double its capacity to 63 bcm per year. Russia has been running a similar scheme
TurkStream was originally envisaged with a with the Kingdom of Saudi Arabia (KSA): Rus-
capacity on the order of 60 bcm, but Moscow sia sells crude to the kingdom, which the latter
decided to halve its capacity in October 2015, refines for its domestic needs, freeing up more of
as Turkey had expressed less interest in taking its own non-sanctioned crude to export to cus-
as much Russian gas as was originally planned. tomers in the West.
Months earlier Gazprom and its European part- While a strategy of selling more gas to Azer-
ners had also unveiled the Nord Stream 2 plan, baijan, and using Turkey as a conduit for contin-
which was considered a better route for send- ued, but indirect gas supplies to Europe, would
ing more gas to Europe, particularly as it was be a logical response by Moscow to the EU’s
expected to strengthen energy ties with Ger- commitment to severing energy ties with Russia,
many without having to rely on a transit country. but it also carries risks.
Using Azerbaijan, Russia would be hard- First, it would put Turkey in a highly advan-
pressed to develop a new and costly expansion tageous position, capable of cutting off large
of TurkStream in light of its economic isolation volumes of Russian gas supply to Europe in the
by the West – strained access to international event of a break in relations between the two
financing being a key hurdle. But Moscow may countries. Russia and Turkey have at times had
also be hoping that the EU does the work for it. an uneasy relationship – most notably in late
European Commission President Ursula von 2015, when the Turkish air force shot down a
der Leyen personally travelled to Baku in July to Russian fighter jet flying close to the Syria-Tur-
sign a deal that doubles Azerbaijan’s gas deliver- key border. The two sides reached a rapproche-
ies to Europe. The EU is asking to purchase 20 ment the following years.
bcm per year by 2027. Doing so would require There is also the added cost of transiting gas
further upstream development in the Caspian through Turkey. This is what made the Nord
Sea, and the expansion of the Southern Gas Cor- Stream 1 and 2 pipelines such a desirable option
ridor (SGC) pipeline network that runs through for Russia – the absence of transit fees. If Russian
Turkey to Southern Europe. gas was sold to Europe via Turkey in a covert
While the Brussels-Baku deal is aimed at way, then the transit fee would take the form of
replacing Russian gas supply, it may also present Turkey buying the gas at a below-market rate, for
Moscow with an opportunity. While Azerbaijan onward sale at a higher price.
is a net exporter of gas, it also struggles with a Meanwhile, the Azeri gas market will not offer
domestic gas supply squeeze, as the government Russia the same returns as Europe provided.
has long prioritised the sale of its gas overseas Faced with what is likely the irrevocable loss
over home needs, in order to maximise export of most of its market share in Europe, however,
revenues. This means that when Gazprom these may be the best options for Moscow to
announced in November it was restarting gas pursue, particularly as it will take much longer
exports to Azerbaijan to help cover domestic for Russia to develop extra infrastructure to send
demand that raised eyebrows in Brussels. gas that would otherwise have gone to Europe to
Gazprom was a supplier of gas to Azerbaijan China and other Asian markets. ™

Week 49 12•December•2022 www. NEWSBASE .com P5