Putin Bets on Germany as Gas Ties with Turkey Go Sour Over Syria
(Bloomberg) -- It’s taken less than a year for Russian President Vladimir Putin to go from hailing Turkey as a potential linchpin in natural gas supplies to Europe to shunning it.
As the nations fall out over the conflict in Syria, Moscow-based Gazprom PJSC, the world’s largest gas producer, said last week it would cut the capacity of a planned link to Turkey and on to Europe by 50 percent. Turkish President Recep Tayyip Erdogan warned Russia last week that energy cooperation could suffer because of the former Soviet nation’s violation of his country’s airspace and military buildup in the region.
That’s a far cry from last year, when Putin said Turkey could become an energy hub for southern Europe as the proposed link under the Black Sea would help Russia reduce its dependence on gas transit via Ukraine, the current route for more than 10 percent of Europe’s gas.
Putin feels able to change tack on Turkey, the second-largest customer for Russian gas, because in September he agreed to expand the Nord Stream pipeline that links Russia directly with Germany.
“Putin is betting on Nord Stream, but that bet is risky," Sijbren de Jong, energy security analyst at the Hague Centre for Strategic Studies, said by e-mail. "Can Gazprom really afford to annoy Turkey and forgo gas revenues? Hardly."
Russia relies on oil and gas for about half of its budget earnings and is adept at mixing its energy policies with political aims. It stepped up energy cooperation with Turkey and China last year as relations with the EU and the U.S. soured over the Ukraine conflict and profits from gas sales in Europe slumped on weaker commodity prices.
Europe receives about a third of its gas from Russia with a third of that volume flowing through Ukrainian pipelines. Gazprom aims to end or at least cut its gas transit through the former Soviet republic after the current transit contract expires in 2019.
Putin said last year that the new Turkey route would help Russia to meet this goal. After talks on the link stalled over the summer, Gazprom said that the Baltic Sea link directly to Germany known as Nord Stream-2 was a priority.
Putin’s bet on Nord Stream-2 is risky as the project may face opposition in the EU, De Jong said. EU Energy Commissioner Miguel Arias Canete said last week the link risked concentrating 80 percent of the bloc’s Russian gas imports on one route while eastern European nations have also warned of the risk of circumventing Ukraine.
Delays in the Nord Stream expansion may lead Russia to once again step up gas cooperation with Turkey. While Putin and Erdogan may never by able to agree on Syria, gas cooperation will be unaffected at the end of the day, Altay Atli, a lecturer at the Asian Studies program of Bogazici University Istanbul, said by e-mail.
There’s "a very strong interdependence between the two countries," he said. "Neither Turkey nor Russia would be willing to sacrifice the economic prospects just because they have different ideas about the future of Bashar al-Assad."
While Nord Stream-2 doesn’t need to be approved by the European Commission, the onshore network may face legislation and political obstacles. Gazprom faces similar problems with the Opal gas pipeline in Germany linked to the existing Nord Stream, which can use only half of its capacity because EU rules require access for competitors.
While political issues don’t hurt talks with Turkey, Gazprom will target Nord Stream-2 for gas supplies to western Europe and also to southeastern states, Miller said last week. Current developments are making Nord Stream-2 "far more important" for Russia, John Roberts, energy security specialist at Scotland-based consultant Methinks Ltd, said by phone from Antaliya, Turkey.
To contact the reporters on this story: Elena Mazneva in Moscow at firstname.lastname@example.org; Dina Khrennikova in Moscow at email@example.com. To contact the editors responsible for this story: Denis Maternovsky at firstname.lastname@example.org; Lars Paulsson at email@example.com Rob Verdonck, Lars Paulsson.
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