Turkey earns billions of dollars on gas transit, while Ukraine loses its chance

Author : Oleksiy Kushch

Source : 112 Ukraine

Some twenty years ago no one would believe that Turkey would become a gas hub and the largest transit country for Russian gas to Europe
19:00, 28 November 2018


Effective public management works miracles: countries that have never claimed the role of gas hubs become one. Some twenty years ago no one would believe that Turkey would become a gas hub and the largest transit country for Russian gas to Europe. Then the positions of the Ukrainian gas-transport system (GTS) looked so unshakable, taking into consideration its high carrying capacity and a system of underground storage of natural gas, which constituted one-third of European active volumes. Although “gas money” in Ukrainian is beneficial for several oligarchic groups, and these schemes give nothing to the state or to the ordinary people, except for a short period of relatively cheap energy prices which was “bought” by the political concessions, such as recognition of the Sea of Azov as the internal waters of Ukraine and the Russian Federation and cheap transit.

Related: Ukraine's Government continues discussion with IMF on gas prices hike, - Finance Ministry

But if in Turkey, state management makes such “hub” magic, our “elites” generate no less fantastic “anti-magic” in Ukraine, which can be considered as a unique example of economic anti-utopia.

We are literally drowning, despite our unique competitive advantages and strong GTS. Losing such a transit potential and turning a hub country into a dead-end zone requires remarkable managerial talent or remarkable greed.

In 2017, gas consumption in Turkey reached its maximum historical level, exceeding 53 billion cubic meters, having increased by 16% over the year. This trend will continue to continue, because, due to climate change and the reduction of water reserves, the capacity of hydropower in the country is reduced, and the gas should be burned in order to generate electricity.

Related: Who will get Ukrainian gas?

In terms of supply diversification, approximately 25 billion cubic meters come from in the Russian Federation. The other supplies come from Azerbaijan and Iran. In addition, Turkey has established deliveries of liquefied gas from Algeria and Nigeria.

Next year, in addition to the Blue Stream, Turkey will receive another "stream" – TurkStream. The construction of two lines of the TurkStream is estimated at 7 billion euros, the total throughput of this GTS will be over 30 billion cubic meters per year.

According to forecasts of Gazprom, the full completion of the construction of the Turkish Stream will take place in 2019, when the onshore part of the gas pipeline will be put into operation. The sea transit section was completed in advance (literally recently) and was solemnly "accepted" by the heads of the Russian Federation and Turkey.

Related: Russian Gazprom finishes construction of TurkStream sea gas pipeline

According to Gazprom estimates, the capacity of the first line of TurkStream will be used to supply gas to the Turkish market, and the second will serve a mechanism for the transit of gas to Southern Europe: Bulgaria, Serbia, Greece, and Italy. In addition, the current Blue Stream will meet the needs of Turkey.

Initially, the Russians considered the construction of the South Stream project, which was supposed to open the route for Russian gas supplies from Anapa (RF) to Varna (Bulgaria) and further to the Balkans and the countries of Central Europe. But the southern bypass route was much less successful than the northern one. It should be launched in 2014, however, the war in Ukraine, as well as the annexation of Crimea, became the marker that crossed the Russian plans. The freezing of the South Stream was a Brussels’ political advance concerning Kyiv, despite the moans of the Bulgarians in Sofia. In addition, the EU took Gazprom for the gills of the Third Energy Package, which provides for the separation of the functions of transit and sale of gas. But all the bypass gas pipelines of the Russian Federation are building practically for their money.

Related: Zakarpattia residents block Kyiv-Chop highway demanding lower gas tariffs

Gazprom is trying to omit this regulatory zugzwang by creating conditionally affiliated trading structures registered in European countries. But with this scheme did not work with the Turks. Erdogan offered the Russians his political protectorate and guarantees that the Turkish version of the reincarnated South Stream would not be blocked even if the situation in Ukraine exacerbated. The Turkish leader demanded not only to give him a new GTS in exchange but also to provide an exclusive supply of Russian gas to the EU market in terms of surplus transit.

In this transit model, Gazprom only supplies gas to the EU border, and the Europeans determine the method and mechanism of gas intake from the new GTS (jointly with the Turkish side). Thus, the Russian Federation fulfills (albeit very specifically) the requirements of the Third Energy Package, and Turkey receives ideal initial technical conditions for creating a gas hub with a capacity of tens of billions of cubic meters. In the future, of course.

Related: Luhansk thermal power plant switches from coal to gas, - deputy governor

For Moscow, this transit scheme is good because, on the one hand, with the development of southern bypass main gas transit routes, it actually bled the Ukrainian gas transport system, and on the other, it receives a transit partner, Ankara, which can say “no” to Washington’s sanctions.

Thus, while the Ukrainian authorities were hushed by the Turkish side and its all-around support in the form of non-recognition of the annexation of Crimea and despite the fact that Tomos was handed over in Istanbul, the Turks were busy with more prosaic issues. Namely, how to take from Kyiv an annual $ 1 billion transit margin and to destroy the potential for developing a gas hub in Ukraine.

Let us add the prospects for launching a new Caspian gas route, the so-called Southern Gas Corridor from Azerbaijan’s Shah Deniz field, and the scheme of the gas hub in Turkey will be finalized. After all, after the completion of the construction of the South European gas pipeline TANAP, the EU countries will be able to receive an additional 10 billion cubic meters of Caspian gas and taking into account the prospects for expanding the capacity of this alternative direction - up to 30 billion cubic meters.

Related: 'Why so expensive?' How much does Ukrainian gas really cost?

Although everything seems to be obvious and natural here. Russians and Europeans are treating Turkey as an opportunity for additional earnings or hedging the energy risks of their countries, and we are still concerned about the more “saintly aspects” of our identification, hoping that our GTS will “load” itself with the help of the Holy Spirit. Ukrainian authorities rely on the repetition of the miracle in Cana of Galilee and wait for our GTS to be filled with gas by itself.

And while other countries are building pragmatic strategies of personal well-being and often at the expense of their neighbors, Ukraine is more and more immersed in the surreal world.

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