Billions Of Dollars Worth Of Pipelines Have Been Abandoned On The Shores Of The Black Sea #mena #midstream #pipeline

By 3rd December 2015 Industry News No Comments

It’s been a high-drama week regarding souring Russia-Turkey relations. Turkey’s recent downing of a Russian warplane in Syria has further dampened relations between the two countries, which are already on opposite sides in the Syrian conflict. Russia’s decision to stop work on the Turkstream pipeline is the latest sign of these deteriorating relations. Moscow’s move also means gas pipelines worth $1.95 billion will be abandoned on the shores of the Black Sea.

It has been a acrimonious start to December for the two countries. Russia has imposed trade sanctions on Turkey, released data it says shows the government is involved in the illegal ISIS oil trade, and directly accused Turkish President Tayyip Erdogan and his family of involvement in these illegal oil deals. Erdogan has vehemently denied these allegations, saying he would resign if it were proven that his government was involved in these deals.

Turkish President Recep Erdogan

Turkstream Halted

Russia’s second largest sales market, Turkey depends on the country for roughly half of its natural gas. Last year, it paid Gazprom up to $10 billion for 27.4 Bcm of the commodity. This is why Russia’s decision to cancel Turkstream is especially significant.

Russian Energy Minister Alexander Novak told reporters Thursday that work on the Turkstream pipeline had been suspended. The system is intended to move Russian natural gas to southeastern Europe via Turkey while bypassing Ukraine.

Russia Energy Minister Alexander Novak shakes hands with President Vladimir Putin

Shortly after Novak’s comments, Italy’s Eni, which was to be one of the primary buyers of Turkstream’s gas, said the project was finished.

Only last week, Russian Deputy Energy Minister Anatoly Yanovsky said that natural gas supplies to Turkey would continue per the contract. But after more than a week of intensifying acrimony between the two countries, the plug was pulled on the project.

Medvedev Issued Warning Last Week

Russian Prime Minister Dmitry Medvedev said last week that important collaborative projects between the two countries are now in jeopardy. In the aftermath of the downing of the Russian jet, he alleged that “some Turkish officials” have financial interests “relating to the supply of oil products refined by plants controlled by ISIS.”

The route of the Turkstream pipeline; Source: Gazprom

Medvedev said last week that Russia might forbid Turkish companies from conducting business in Russia. He said, “[L]ong-standing friendly relations between Russia and Turkey, including economic and cultural relations, have been undermined. This damage will be difficult to repair. The direct consequences are likely to be the renunciation of a number of important joint projects and the loss by Turkish companies of their positions in the Russian market.”

The Gazprom-operated Turkstream pipeline is one of the most significant projects the two countries have collaborated on. The two countries signed a deal to construct a pipeline to Turkey following Russia’s cancellation last year of the building of the South Stream pipeline, which would have transported Russian natural gas to the EU.

Turkstream Timeline

On December 1, 2014, Gazprom and Turkish company Botas Petroleum Pipeline Corporation signed the Memorandum of Understanding on building the Turkstream gas pipeline.

Taner Yildiz, Minister of Energy and Natural Resources of Turkey and Alexey Miller making flying inspection of projected onshore gas pipeline route. Photo by Anadolu Agency

In February 2015 the key reference points of the route and technical solutions for Turkstream in Turkey were approved. Specifically, the landfall location was defined near Kiyikoy village, the gas delivery point for Turkish consumers – in Luleburgaz and a border crossing between Turkey and Greece – in Ipsala.

On May 8, 2015, Gazprom moved on to the construction stage of the Turkstream offshore gas pipeline. The company says it will be solely responsible for the construction of the offshore section. Turkish gas transportation facilities will be built jointly.

Gazprom says Turkstream’s annual pipeline capacity will sum 63 Bcm of gas. It will consist of four strings with the capacity of 15.75 Bcm each. The state-run company says the first string is expected to be built by December 2016. Its throughput of 15.75 Bcm will be exclusively intended for Turkish consumers.

Turkstream Stalled In Recent Months

In recent months, the Turkstream project seems to have stalled due to pricing disputes. The Asia Times reports that The Turkish officials were believed to be requesting a more than 10% discount on Russian gas prices. However, Russia insisted on giving the discount only if Turkey’s government green-lighted the plans for the pipeline.

Since that time, Gazprom has nearly halved Turkstream’s planned capacity to 32 bcm per year.

Last month, Russian President Vladimir Putin dismissed rumors about a stall in the Turkstream project. Asia Times reports that he would only say that the project required additional assessment. However, amid the warplane incident, prospects for the Turkstream pipeline became even more tenuous.

Notably, a key Russia-Turkey meeting about the project was cancelled last week in the wake of the Tuesday incident. This turned out to be a harbinger of Russia’s decision to cancel Turkstream.