Europe is running low on time. It has yet to create the infrastructure for transit of Russian gas from Turkey.
Speaking at the Valdai Club conference on European energy security in Berlin on April 13, Gazprom CEO Alexey Miller said the European infrastructure for accepting deliveries of Russian gas through Turkish Stream should be in place by 2019. Joining Miller, Russian Economy Minister Alexander Novak added that «the [transit] contract [with Ukraine] is in force until the end of 2019» and the construction of new infrastructure was aimed at «diversifying transit risks». He also said that Gazprom has no need to discuss Turkish Stream’s leg under the Black Sea with its European partners.
Europe has to define its priorities in energy and it has a limited choice. According to a recently published BP study, the Europe’s dependence on Russian gas will grow from 50% to 71% in 20 years. Europe will have less gas of its own while the supplies from Algiers and other outside sources will be reduced. At best liquefied gas supplies will only compensate for diminished European gas production. By 2020 it will account for about 30% of all European gas consumed. According to BP experts’ forecast, the Russian share in European import will remain at the current level (32-33%).
Investors demonstrate growing pessimism over rivals of the Turkish Stream – the Trans-Anatolian Natural Gas Pipeline (TANAP) and the Trans Adriatic Pipeline (TAP). Turkey may consider selling Trans-Anatolian Pipeline (TANAP) project shares, according to the country's Energy Minister Taner Yıldız.
The experts of Washington-based Brookings Institute have come to the same conclusions. Europe will continue to rely on Russian oil and natural gas for a large part of its energy mix through 2030, barring unforeseen, drastic policy changes, said Tim Boersma, a researcher in the Brookings Institution's Energy Security Initiative (ESI). «In sum, the analysis suggests that the transformation of fuel mix in Europe is not going to take place», Boersma said reviewing the conclusions of a new Brookings study entitled «European Gas Market Functioning in Times of Turmoil and Increasing Import Dependence». «We do believe that the share of Russia in Europe’s gas mix will be substantial and we also find in our analysis that for the larger part of Europe that’s not problematic», the study says. «Europe Will Remain Dependent on Gazprom» – this is the title of Austrian Die Press analysis devoted to the study of Russia-EU prospects for gas cooperation initiated by the Brookings Institution. According to the newspaper, the Institution assessed several scenarios of Russian gas imports development by 2040. None of them provides a possible decline in the delivery of Russian gas in Europe.
All the studies don’t take into account the worsening of situation in the Middle East which greatly influences the situation on energy markets and makes consumers face the prospects of reduced supplies coming from Saudi Arabia, Iraq and Qatar. The Brookings researchers say there is always a gap between market expectations and political realities. As a rule expectations fail to materialize. Gazprom will begin the construction of transmission infrastructure for the Turkish Stream project without consultation with the leadership of the European Union. «We do not need to discuss it with our European colleagues», said Miller.
According to him, Gazprom will begin to build a pipeline to replace the Ukrainian transit, once received all approvals. Moreover, the company is not even going to assess the readiness of Europe to purchase the gas. «We will build and we will wait», said Miller referring to the plans to construct a gas hub at the Turkish-Greek border. Russian Energy Minister Alexander Novak said all efforts are concentrated on building a pipeline to Turkey which will supply the consumers in Eastern and Central Europe. According to him, the price will be compatible with what it would be like if the South Stream were built, but Europeans will have to construct their own transit routes to the hub at Greek border. As of now, Greece has paid interest to the project. On a visit to Moscow Greek Energy Minister Panagiotis Lafazanis met Alexey Miller to say the new pipeline will make supplies to Europe more stable. Lafazanis believes it will diversify the supply routes. Slovakia also takes interest in the construction. Slovak gas transport system operator Eustream is planning to build a new gas pipeline from Slovakia to the border of Bulgaria and Turkey. It plans to make it a key element of European energy supplies system. Slovak news website vEnergetike reports that according to Eustream estimates, the new gas pipeline, named Eastring, would cost the operator about 750 million euros ($928 million). The pipeline would begin near Veľké Kapušany (one of the border points between the Slovak Republic and Ukraine) and stretch to the Bulgaria-Turkey border. Existing pipelines will account for 50% of the route. The other half will stretch across Romania. The construction of the pipeline with an estimated capacity of 20 billion cubic meters per year is expected to be finished in three years. Bratislava realizes that the project may involve new countries that were not participants of the cancelled South Stream. Slovakia is an example. It will result in more transit payments and enhanced stability of the whole system with many participants engaged. SME Slovak newspaper reports that the Russia’s decision to cancel the South Stream entails significant changes on the future energy map. Others, except Greece and Slovakia, are cautious. Serbia still cherishes a hope the European Commission would «exert pressure» on Russia and make it revive the South Stream. Looks like the government led by Aleksandar Vučić decided not to take any independent decisions related to energy policy without consulting Brussels first. The decision of Gasprom to implement its plans without any discussions with the European Union pushes Serbia to sidelines. Russian Ambassador to Serbia Aleksandar Chepurin said Serbia and the Balkan states have little choice to Russian gas. The fate of South Stream, which Serbians and Bulgarians miss so much today, should make them understand better what the EU energy policy is about and what unseemly role is played by Kiev. The South Stream fell victim to the geopolitical game played by the United States around Ukraine. The main reason behind the Russia’s decision to build transit routes going around Ukraine was the Kiev’s refusal to modernize its gas transportation system. A relevant agreement was concluded by Moscow and Kiev in 2004 to be stymied as a result of the «orange revolution» that took place soon after. Washington turned Ukraine into an instrument of pressure on Europe and Russia. Besides Gasprom, nobody in Europe wants to construct gas pipelines supplying natural gas from Russia. Europe has a very clear choice: either it cooperates with Europe or finds itself in a dead end.
The hopes for filling the void with US shale gas supplies are doomed. The cost of shale gas exceeds several times the cost of natural gas. The price of natural gas is around 20 USD per thousand cubic meters in comparison with around 150 USD for thousand cubic meters of shale gas. Renewable energy sources are also expensive.