Amid an inimical international situation, an economy that was bound to recover, but does so rather unconvincingly and a tense domestic atmosphere, Russia continues the construction of new gas pipelines that would boost its export conduit flexibility and largely eliminate the Ukrainian transit issue.
Already 200 km of Nord Stream 2 pipes were laid within the past two months, largely in German territorial waters and even if Denmark carries on its delay tactics, the project seems to be on track to be commissioned by end of 2019. The future of TurkStream, although its construction started significantly sooner – its offshore part was completed this November – was so far shrouded in mystery due to the difficulty of routing its second line.
The completion of TurkStream’s offshore part is definitely good news for Presidents Putin and Erdogan – the first secures 15.75 BCm per year worth of gas sales in avoidance of Ukraine and any other transit obligations, the second gets a stable and discounted supply of natural gas. Yet TurkStream was intended to have two lines with an annual throughput capacity of 15.75 BCm – one to feed Turkey directly, the other to bring gas to Southeastern Europe. As soon as Turkey finishes the construction of required infrastructure around Kiyikoy, the town where the subsea sections meets the Turkish mainland, flows of gas can be kickstarted straightaway. However, the future of the second line – its destination, transit countries and exact route – were heretofore unclear, with two main itineraries having been discussed, let’s call them the Bulgarian and Greek variants.
If transiting gas via Greece, the main export outlet would be Italy, doing it via Bulgaria, Serbia and Hungary would be more even distributed between the three nations involved. A third option was also flaunted for quite some time – that Gazprom might join SOCAR and transport its volumes to European customers via the Transadriatic Pipeline to Italy, the so far only major achievement of the Southern European Gas Corridor project. This could even make sense logistically, as there is only Azerbaijan to fill the 10 BCm per year TAP pipeline and any effort to expand its throughput capacity would necessitate the inclusion of a third party as SOCAR simply does not have enough gas to export more than 10 BCm per year to Europe. This option, however, seems to have lost in actuality and relevance, most likely due to geopolitical reasons – it would be difficult to boast externally about the success of the Southern Gas Corridor were Russia involved in it, too.
The hesitation seems to have reached an end – according to Russian media outlets, Gazprom’s preference for the Bulgarian route has now moved into the active phase. Previously the only indicator pointing towards it were the words of Energy Minister A. Novak (“the Bulgarian route has a higher priority”) and a sudden rise in the number of Russo-Bulgarian top level meetings, an oddity considering that current Bulgarian Prime Minister has previously killed off the construction of the Belene nuclear plant and the SouthStream pipeline. Now, with several Open Season bids closed already and some coming the in the next few weeks, we can state that Gazprom is moving in to secure the Bulgaria-Serbia-Hungary-Slovakia-Austria route.
In October, a call for bids was announced for the projected HU-SK-AT pipeline which would reach the Austrian gas hub of Baumgarten (in tune with Gazprom’s pledge to do so). The total amount of volumes booked surpassed the 4.3 BCm per year threshold, the project passed all economic tests – confirmations of the booked capacities are expected to be granted in March 2019. If it is indeed Gazprom that is behind the capacity bookings, the Russian company has booked transportation capacities in Hungary, Slovakia and Austria for 7 years starting from 2022. The Bulgarian gas transportation company Bulgartransgas will, too, hold a transportation Open Season bidding this December, for transiting gas from Turkey to Serbia – the volumes will be allocated for a 20-year period.
More interestingly, the volumes which the Bulgarian company intends to receive on the Turkish border amount to 15.8 BCm per year – exactly the throughput capacity of TurkStream’s second line. The throughput capacity reaching the Serbian border would be around 11 BCm per year. In another telling similitude to the now forgotten SouthStream project, Bulgaria intends to build a new booster station in Provadia, exactly where it wanted to do so ten years ago when SouthStream was still on the agenda. Many analysts foreordained Russia’s preference for the Bulgarian route, given how often the Bulgarian prime minister and president have met Vladimir Putin this year – the sides never really concealed that they did discuss TurkStream and its continuation into Europe, yet steered clear from any binding commitments.
Russia and all the relevant Southeastern European countries are still not in the position to call it a day and start working on the construction of their respective pipeline sections. There has to be some sort of official finalization of the project, preferably with some sort of involvement of the European Commission. Yet even considering the opaque nature of communication with regard to TurkStream, one can search for tiny little hints when navigating the murky territory of continental gas markets. In a couple of days, on December 7, the Greek Prime Minister Alexis Tsipras will hold an official state visit to Moscow – if you do not hear anything specific from President Putin or Prime Minister Tsipras on the continuation of TurkStream on Greek territory, the odds of it happening will drop even further. They are already low as Greece is quite susceptible to EU/US pressurizing due to its debt crisis – something that Moscow keeps in mind to avoid any sort of reputational damage, similar to the one when it had to call off South Stream for good.