The thaw in relations between Turkey and Russia, after the apologies for the shootdown of the Russian bomber aircraft by Turkish Air Force and after Recep Erdoğan’s August visit to Petersburg, seems to have driven from the deadlock the construction of the Turkish Stream gas pipeline. During the visit, aready called "historic" by some of the experts, the Turkish leader expressed his "great interest" in the project and confidence in the successful completion of the gas pipeline intended for supply of Russian gas to Turkey and to Europe.
"We will take all the required measures to provide for the supply of the Russian gas to Europe using this pipeline", assured Erdoğan at the joint press conference with the Russian President Vladimir Putin.
Turkey even suggested splitting 50/50 the expenses on building the part of pipeline that will be constructed within the Turkish territory. Besides, according to Turkey’s President, an agreement has been achieved on financing on a fifty-fifty basis the construction of the pipeline section on the Black Sea bottom.
Speaking about the details of the agreements reached during the visit, the Russian Energy Minister Alexander Novak said that Russia and Turkey were preparing actively for the construction of the first part of the Turkish Stream gas pipeline designed to supply Russian gas to Turkish consumers. The parties decided to form an ad hoc working group and to draft a roadmap. The first pipeline string is supposed to be completed in December 2019.
Russians hope to approve the draft intergovernmental agreement on the Turkish Stream gas pipeline this October, and then to acquire all the necessary permissions for prospecting and construction. "The agreement itself and the construction of the first pipeline string will start after we get all the permissions for construction and prospecting in Turkey’s territorial waters. This work will be completed in the nearest future", said Mr. Novak.
For that matter, the Russian party had sent the draft intergovernmental agreement to Ankara before the political chill. Over the last two years, the configuration of the project has changed: the original plan to have four strings 900 km each was reduced to two strings: one for Turkey and the other for southern Europe. At the Turkish border the pipeline is supposed to join the ITGI Poseidon: via Greece and the Ionic Sea to the south of Italy. The capacity of each string will be 15.75 billion cubic meters a year.
Just a reminder: the Turkish Stream project substituted for the Southern Stream that was stopped because of the opposition of the European Commission. The intergovernmental agreement on the Turkish Stream had been negotiated since December 2014 but because of the Russian/Turkish political problems the project was frozen in December 2015.
Time will show the degree of the project’s feasibility. However, taking into account the current fragility of the Russian-Turkish relations, it is hard to forecast its future. The more so as the Turkish Stream once fell victim to the political differences between the countries and no one can guarantee that something similar will not happen again. Nevertheless, even if the parties agree upon the construction of the first string of the pipeline, a lot of work has to be done: to specify its cost, to work out the funding vehicle, and, eventually, to find the funds. So the completion dates of constructing the pipeline’s first stage stated by Mr. Novak might be delayed.
The outlook of the construction of the second string is even more clouded. As the Russian President justly said, "the second part, involving the delivery of our energy products to Europe, certainly depends on the third party, too: we have to work on these issues together with European countries and with the European Commission. We and our Turkish partners are ready for this work. But here the involvement of all the participants is required." Knowing Europeans’ attitude towards Gazprom’s gas monopoly and their wish to lower their dependence on the Russian gas, one can easily guess that the negotiations will be anything but simple…
As for the Turkish market, even with Turkey’s strong interest in the project, one should not ignore the issue of the gas price and the love for discounts: Turkey strives to negotiate a discount in any gas contract. The Republic of Turkey is the second largest Gazprom’s market outlet, after Germany. At present, Russian gas is supplied to Turkey via the Blue Stream pipeline and in transit through Ukraine, via the Trans-Balkan pipeline.
In the meantime, while the parties are only preparing to actively negotiate the Turkish Stream, the construction of the Trans-Anatolian gas pipeline (TANAP) targeting, like the Russian project, both Turkish and European gas consumers, is in full swing in Turkey. As of June 2016, 26% of the planned work has been completed in the framework of TANAP: 1166 km of pipes manufactured, 929 km of pipes delivered to constructions spreads, 533 km of pipes welded.
The first supply of Azerbaijani gas to Turkey via TANAP is expected in July 2018. The amounts of the first-stage supplies have been specified: 2 billion cubic meters during the first year, 4 billion cubic meters during the second year, and after that - 6 billion cubic meters annually.
The supply will be effected according to the sale-and-purchase contract signed by the Turkish company BOTAS in October 2011 for the gas extracted in the framework of the Shah-Deniz-2 development.
"The tariff for gas transport via TANAP will make $70 per thousand cubic meters; BOTAS will receive 30% of this sum. Besides, we will discuss with the shareholders the tax payment of $5.95 for the flow of each 1000 cubic meters of gas via our pipeline. So, thanks to TANAP, Turkey is going to get both an alternative source of gas and an important source of tax receipts", said TANAP CEO Saltuk DÜZYOL.
He also mentioned that out of the total $1.3 billion value of the contract for production pipes for TANAP, the Turkish manufacturers account for $1 billion. The total cost of the project work is $4.5 billion, and 80% of the work is undertaken by the Turkish companies.
The TANAP line, with a total length of 1850 km, is being built for transporting Azerbaijani gas from the Shah-Deniz-2 field from the Georgian-Turkish border to Turkey’s western borders. At the initial stage, the annual capacity of the pipeline will make 16 billion cubic meters, to be further extended to 31 billion cubic meters. Initially, 10 billion cubic meters will be directed to Europe, and 6 billion cubic meters - to western regions of Turkey. 30% of the TANAP project belongs to BOTAS (Turkey), 58% to SOCAR (Azerbaijan), and 12% to BP (UK).
By the way, the fall of the world oil prices was beneficial for the TANAP participants, as it caused the project’s cost reduction from $11.2 billion down to $9.2 billion. The overall estimated cost of the Southern Gas Corridor also went down: from $45-48 billion to $40 billion.

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According to Rovnag Abdullayev, the CEO of SOCAR (State Oil Company of Azerbaijan Republic), this became possible "thanks to the efficient cooperation and the changes in the market conditions. As of today, $2 billion were saved only on the TANAP construction," said Mr. Abdullayev.
Speaking about the Southern Gas Corridor, Azerbaijani Minister of Energy Natig Aliyev said that the decline in oil prices also brought about the cost reduction of building materials used in the construction.
"Under the present circumstances, the cost of the work in the framework of the Shah-Deniz-2 development is estimated as $23.8 billion (versus the earlier estimation of $28 billion); this sum includes the cost of expanding the Southern Caucasus pipeline, which is $4.9 billion. The cost of constructing the Trans-Adriatic gas pipeline is now assessed as $6 billion", said the Minister.
We should mention that the Southern Gas Corridor involves building a pipeline infrastructure for transporting Azerbaijani gas extracted from the Shah-Deniz-2 gas field to Europe via Turkey.
The main parts of the project include: Shah-Deniz Phase 2, expansion of the Southern Caucasus pipeline "Baku-Georgia-Turkish Border", construction of the Trans-Anatolian Gas Pipeline (TANAP) from the eastern to western border of Turkey, and the Trans-Adriatic Gas Pipeline (TAP) connecting Greece, Albania and the Adriatic coast of Southern Italy. Azerbaijani gas is expected to come to Europe at the beginning of 2020, in the amount of 10 billion cubic meters. Apart from that, 6 billion cubic meters of our gas will be supplied to the western regions of Turkey.
It is likely that by 2017 we will know if Turkmenistan will join the Southern Gas Corridor. The trilateral summit devoted to this topic, with presidents of Azerbaijan, Turkmenia and Turkey participating, will take place in Turkmenia before the end of 2016. It is possible that during the meeting the leaders of the three countries will come to a consensus on the issue of the Turkmen gas transit to Europe via Azerbaijan using the Southern Gas Corridor. In this case the Corridor’s horizons will broaden immensely.
Turkmenistan will benefit from joining the project as well, because, being "at war" with Gazprom, it is striving to diversify its gas outlets. We have already mentioned that at the beginning of this year Gazprom stopped buying Turkmenian gas as Turkmenia refused to make concessions on the price. Now Gazprom is trying to win $5 billion from Turkmengaz by court action at the Stockholm Arbitration Institute.
According to experts, Turkmenia is able to export its gas to Europe in the amount of up to 30 billion cubic meters yearly. "At present, Turkmenian oil and gas fields can produce in aggregate, on a yearly basis, 5 billion cubic meters of gas that can be transported via the Southern Gas Corridor. In future, the yearly production can grow up to 10 billion cubic meters, which will open up great prospects for this corridor", says Minister of Energy Natig Aliyev.
There are two ways to organize supply of Turkmenian gas via the Southern Gas Corridor: to build the Trans-Caspian Pipeline, or to connect the platforms of the Caspian Sea fields belonging to Azerbaijan and Turkmenistan by means of underwater pipelines. The second way seems to be more feasible since it neither requires big expenses nor involves the solution of a number of issues including the Caspian Sea status, which have been an obstacle to constructing the Trans-Caspian Pipeline for many years.
In the meantime, Georgia is also planning to use Turkmenia’s gas from the Southern Gas Corridor, expecting its first supply it in five years.
Georgian Deputy Minister of Energy Mariam Valishvili said that in three to five years it would be possible to import small amounts of gas from Turkmenia. "According to the European Union, it is feasible to ‘mobilize’ a small amount of Turkmenian gas – from 3 to 7 billion cubic meters a year, using the current infrastructure without major additional investments. We do not speak of great volumes as this will require a totally new infrastructure, a new route, powerful pipelines and tens of billions of investments for which I am not sure that Europe is ready today, in view of the situation in our region and in Turkey", says Mrs. Valishvili.
As the Southern Gas Corridor project is progressing steadily, it arouses interest on the part of other gas-producing countries who would like to supply their gas to Europe, including Israel who considers the possibility to tap into the TANAP to transit its gas to European countries. According to Israeli Minister of Energy Yuval Steinitz, the transport of Israel’s gas via TANAP (which is part of the Southern Gas Corridor) would be beneficial both for Turkey and for Israel.
"Israel owns great deposits of natural gas, up to 2.5 trillion cubic meters. We think that the transit of Israeli gas via Turkey can start as early as in 2019", said Mr. Steinitz.
All the above proves again that the decision to start the Southern Gas Corridor was correct and that this project is going to alter Europe’s energy map and to contribute to the European energy security.

Nigar Abbasova

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