Russia’s Offshore Pipe Dreams: South Stream, Turkish Stream, and Nordstream II
When the Turkish President Erdogan and Russian President Putin met in Istanbul in December 2014, they surprised the European energy communities with an announcement of a new pipeline plan, called the Turkish Stream. This offshore pipeline would cross the Black Sea and land in Turkish soil in Thrace to supply gas to Turkish and European markets, circumventing the conflict ridden Ukrainian route. As part of this pipeline project Turkish Stream would replace South Stream which was supposed to land in Bulgaria’s coast.
South Stream project was first coined in 2007 with a capacity of 63 bcm/year. The original project entailed four streams of offshore pipes, each with a capacity of 15.75 bcm/y. One line was expected to supply Turkey, replacing Turkey’s Western route coming through Ukraine and the Balkans, while the other three would be directed to the European markets. However, both projects currently are on hold due to legal and political issues they face.
When the Black Sea offshore pipelines fell into an impasse, Russia started to promote another pipeline, this time through the Nord Sea, a parallel line to the original Nordstream. This pipeline would double the original transit amount of 55 bcm/y by the year 2020. The current partners of this project include Gazprom, Uniper SE, Germany’s BASF SE/Wintersall, Shell, OMV, and ENGIE. Despite the protests from the United States, Ukraine and Eastern European EU member states, the stakeholders appear to be moving forward with the project.
Despite the Russian efforts to build these offshore pipelines, European Commission’s VP for Energy Union Maros Sefcovic repeatedly dismissed the proposals of a pipeline that goes through Black Sea to supply European markets, committing Europe to Ukrainian route despite Russia’s efforts to bypass the transit country. He acquired a similar position when Nordstream II was introduced and repeatedly pointed out the political nature of the deal.
When the EU reacts negatively to a pipeline, the Russian strategy is to pursue the realization of the projects by signing individual agreements with EU members on the route of the pipeline. Although several European countries, including some EU members, declared their interest in buying gas through Turkish Stream or South Stream there had been no finalized agreements. For Nordstream II, too, the Russian strategy has been to deal with the companies in Germany rather than the state or the EU.
The EU, on the other hand, is developing legal framework to fight against monopolies in electricity and gas sectors. In order to do so, European Commission proposed the Third Energy Package (TEP) in September 2007, envisioning an internal natural gas and electricity market. It requires a national regulatory authority for the member countries as well as unbundling of suppliers’ ownership structure.
From the viewpoint of Russia, the introduction of a pipeline through Black Sea will help capture a relatively untapped region. The South East European demand (including Turkey) is expected to increase by 24 bcm by 2020, following the introduction of domestic pipeline systems to the countries that currently lack infrastructure (i.e. Albania, FYROM, and Montenegro). This justifies Russia’s aggressive expansion strategy in South East Europe through the projected pipeline. Since this is expected to be an expanding market, supplying gas to SEE will help Russia to compensate the declining demand for Russian gas in Central and Western Europe.
Other than the economic viewpoint, Russia is eager to circumvent the Ukrainian transit route one way or another. The main Russian stance clearly stands out Ukraine as the trouble for transit disruptions and once it bypasses that route they will be able to provide uninterrupted gas to the European markets. Ukraine, on the other hand, sees the whole Turkish/South Stream project as a political move and for them the main reason behind the disruptions is Russia instead. Nordstream II, on the other hand, proceeded even further with German companies keen to go forward with an additional line and will help Russia to decrease its dependence on Ukraine.
Russia has been decreasing its dependence on Ukraine natural gas transit systematically since the 1990s. Starting with Yamal pipeline that passes through Belarus in 1997, Russia bypassed the Ukrainian route and decreased its dependence over the past 20 years. With the final Ukrainian crisis and Russia’s annexation of Crimea in 2014, Gazprom repeatedly stated its intentions to discontinue its supply of gas through Ukraine. Although such statements received skepticism, Russia consistently restates its position in every instance. Indeed, the recent announcement to build Nordstream extension with two more parallel lines and an additional 55 bcm/year capacity could decrease dependence on Ukraine even further.
The EU, on the other hand, should tread lightly and handle its relations with members carefully. Considering the possible scenarios for the new pipeline projects the union is likely to face a dilemma. For instance, Russia’s Nordstream II extension can be viewed as a new pipeline project and the Balkan members will continue to call the EU to ask Germany and Russia to comply with the TEP framework. Furthermore, in 2015 only 70 percent of the Nordstream pipeline capacity was under use. Just above 39 bcm was transported by the pipeline, with 16 bcm spare capacity.
Still, the fate of these projects is not yet certain. Considering the fact that such large pipeline projects get transformed or even canceled a lot (i.e. NABUCCO) or take years (Nord Stream took 15 years after its first announcement), the Russian insistence to introduce a new line by 2020 might rather be too ambitious.
 At some point, Turkey even allowed Gazprom engineers to survey the area that the pipeline was going to cross.