Batya Natan

“Southern Gas Corridor is a clear signal to Russia”

Last week, Turkish Policy Quarterly, a well respected journal on foreign policy, held a roundtable discussion in Istanbul, on Southern Gas Corridor and its geopolitical implications, titled as ‘A Critical Juncture for the Southern Corridor: Will All Pipelines Lead to Turkey?’

“Southern Gas Corridor is a clear signal to Russia”

 With the participation of Turkish and foreign experts on energy, issues pertaining to energy security, particularly the future of Trans Anatolian Gas Pipeline Project (TANAP) and Trans Adriatic pipelines were discussed from a broader perspective. Among the speakers, Matthew Bryza, former US ambassador to Azerbaijan who currently serves as the Director of the International Centre for Defense Studies in Talinn and also as a board member of Turcas, took his time to answer our questions. Below you will find the whole text of our interview.

 

The agreement of Trans Anatolia Natural Gas Pipeline (TANAP) Project was signed on October 14th. TANAP and South Stream have been considered as competing projects. Do you agree?

I do agree. From the Russian perspective, they are rival projects. One of the major reasons that Kremlin and Gazprom designed Gazprom in the first place was not only to bypass Ukraine but to try to box in gas from the Caspian region and to maintain Gazprom’s monopoly power. But in the end, I don’t think South Stream matters to TANAP and the Southern Corridor. Because TANAP and the Southern Gas Corridor are going to happen, it doesn’t matter what Russia does with the South Stream pipeline. I think the Russian strategy is going to fail.

 

What is the significance of TANAP in terms of decreasing Europe’s energy dependency on Russia?

First of all, TANAP is only a part of the overall Southern Corridor. There is this TANAP and there is the extension of the existing South Caucasus natural gas pipeline across Azerbaijan and Georgia. There is also the Trans Adriatic Pipeline to deliver the last bit of gas into the heart of Europe to Italy. So TANAP carries the gas across Turkey. It is crucial for the European Union to acquire a volume of gas that in itself is not significant in terms of reducing Gazprom’s monopoly power. But it is a step in creating a super highway of natural gas transit that will be quite significant.

The amount of gas then TANAP will bring into Turkey-Greek border and then across Europe is 10 bcm. Today Russia exports 160bcm into Europe. So it’s almost 6 percent.

 

But it will be sending a message to Kremlin, don’t you think so?

That’s number one and number 2 is that it will expand. There should be the ability to deliver three times the amount of gas over time to Turkey-Greek border. So if we reach to 18 percent of what Gazprom is delivering to Europe, that will be considered a lot.

 

Comparing South Stream vs TANAP, experts say that the pipeline which finishes its construction earlier, has a higher chance of prevailance? Is that really the case? Why so?

I think generally, that’s true. Sequencing of natural gas pipelines matter.

 

Is it because of the contracts concluded in advance?

No, because often there is a limited market share that two projects may be competing after and once that bid of market is taken up by one project, there is nothing left for a second project.

That’s what happened back in the 1990s.When instead of remaining focused on the Trans Caspian Pipeline from Turkmenistan, Turkey decided to play a double game and then signed an agreement for Blue Stream under the Black Sea. That meant Trans Caspian Pipeline was postponed for so many years. I think in this case things are a little bit different. Southern Corridor Pipeline like TANAP or TAP, is going to happen no matter what Russia tries to do. But it is going to be up to Russia to decide whether it still wants to build the South Stream Pipeline, even though it is going to be the most expensive and least economic pipeline in the world. It may decide to do it for political reasons.

 

Diversification of energy resources and routes is a way of coping with energy blackmails. And it has become a hot topic owing to what happened between Russia and Ukraine.

However, cost of energy also matters for the economy, in terms of determining the energy supplier to the markets. How will TANAP help in this case?

The gas Turkey buys from Russia is very expensive. 60 percent of Turkey’s gas comes from Russia; another bunch comes from Iran. The prices are said to be very high. These are confidential figures.

The prices Azerbijan offers will be much lower, getting diversified gas whether from Azerbaijan or from Israel and Cyprus will help Turkey bring down the costs.

 

The same thing holds for Europe also. Once in a meeting, a Gazprom official stated that “if Europeans can’t find gas cheaper than what we offer, they will come to us in the end."

But they can and they have. We see that in the area of North Western Europe. For the last couple of decades, countries around the North Sea, United Kingdom, Netherlands, France, Belgium, France, Germany have been developing a network of natural gas trading hubs, places where pipelines converged, Russian pipelines and European pipelines including from Norway. Also from the United Kingdom. And there are eight or so places where gas is being traded. And it is traded there in a liquid form according to the rules of supply and demand. Not according to the monopoly rules that Gazprom favors to keep prices high. And now you see the gas price today, the spot market price for liquid natural gas there, is much lower, 6.5 dollars for million per stream vs. 10 dollars in Southern France. In Southern France, they don’t have the sort of trading capability that they have around the North Sea.

Because of this lower price in Northern Europe, Northern European countries and companies have been able to force Gazprom to lower its price. They had negotiations and in fact Gazprom has given their money back because the price was so high in the past.

 

Energy pipelines are usually considered as assets. Do they also bring liabilities especially in foreign policy?

They can bring a liability. They have brought a liability for Europe. Europe has awakened and realized that it is a liability to depend on Russia. Ronald Reagan warned Europe back in the 1980s; “Don’t do it! You are going to regret having this pipeline linked with Russia. It will make too  dependent!” Now Europe has awakened and they regret it.

 

Providing alternative energy routes that bypass Russian dominance is now the name of the game- as a means of containing Russia. Is there also a risk in this policy, of provoking further Russian aggression especially when it feels at bay? Provoking Russia to take over control of the pipelines, lets say in Caucasus?

Absolutely no, the opposite is true. If the temptation remains for Russia to meddle, to control these energy routes, it’s going to grab them, that’s what Crimea is all about. President Putin needed to do something to look strong again after he was humiliated by President Yanukovic’s running from Kiev. The low hanging fruit was grabbing Crimea.

Now that NATO has responded in a strong way, now that the Russian economy is in big trouble with the oil price plummeting well below the Russian needs to balance its budget, with capital flight at an enormous rate predicted to reach maybe a hundred twenty billion dollars which will be double compared to last year. Now with inflation rising, and with Russia being isolated around the world, Russia is backing off.

Russia was going to go until it ran into the wall of resistance.

 

We know that Turcas is one of the companies that offered bids for Israel’s Leviathan project. But we ended up in a stalemate.

Yes, it is frozen.

 

Do you think shared economic interests will overcome political conflicts between Israel and Turkey?

No, I don’t believe pipelines will bring peace. I believe that the politics have to line up to some certain threshold/degree and at that point economics can generate a momentum in the relationship. And economy then lifts the relationship to a point that politics can be even further aligned.

 

How about Cyprus and Turkey?

Exactly the same. The energy provides a driver. The ultimate confidence building measure, if you can get the two sides close enough to gather, is to begin a real negotiation, a real give and take. They’ve never gotten back to that. Not even with the negotiations over the past year. They got close but they didn’t get there.

 

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