24 January 2015

NEW ENERGY SUPPLY SECURITY DYNAMICS OF EU-RUSSIA-TURKEY TRIAD – ANALYSIS

By Hasan Selim Ozertem

The gradual rise in the complexity of the Ukrainian crisis in 2014 has necessitated a multidimensional review of relations between Russia and the West. Current circumstances have sparked the emergence of new parameters in the EU-Russia-Turkey Triad with regard to energy policy.

The gradual rise in the complexity of the Ukrainian crisis in 2014 has necessitated a multidimensional review of relations between Russia and the West. While increasing the depth and scope of sanctions against Russia, the EU was also busy formulating new strategies that are to shape its relations with Moscow through 2020.

In this respect, the EU’s revised energy policies actually represent the demarcation of its relations with Russia, which up until then had largely been characterized by the former’s dependency on the latter. Moreover, questions of resource efficiency and supply security came to occupy top positions of the agenda in Brussels. These changes have paved the way for the EU’s reassessment of its existing structure and prompted the emergence of new equations within the EU-Russia-Turkey Triangle.
Stress tests and the growing importance of the Southern Corridor

The EU Commission’s Energy Security Strategy released on 28 May 2014 differentiated EU-wide energy policies between those with short and medium term outlooks. Hereunder, short term measures outlined in the document included “stress tests” that were aimed at evaluating the extent of risks faced by EU members in terms their dependency on Russian gas. Following these assessments, it was to be decided to what extent the following actions should be taken: i) increasing gas stocks, ii) developing new systems that enable reverse flows, iii) reducing short-term energy demand, and iv) expanding the use of renewable energy technologies.

Concurrently, the Commission decided to perform a simulation that would allow for an evaluation of the possible consequences of a six-month interruption of the gas flow coming from Russia in the case that the country opted to cut off its supply of gas to the EU or if a problem were to arise in the transportation of gas through Ukraine.

Announced on 16 October, the results of the stress tests revealed that Eastern European countries and non-members of the EU’s Energy Community were the most vulnerable to such dramatic fluctuations. It was also shown that even after necessary gas swaps within the EU and the Energy Community, all relevant countries, excluding Ukraine, would still need 5-9 billion m3of natural gas to fulfill their energy needs. Additionally, the results of the stress tests showed that cooperation between member states was necessary to avoid the outright collapse of EU solidarity in times of crisis.

As for the policies exhibiting a medium term perspective, achieving a common EU energy policy, diversifying supplier countries, and creating more efficient market dynamics came to the forefront. On the subject of a common EU energy policy, former Prime Minister of Poland Donald Tusk’s concept of the Energy Union became rather popular. Here, it is expected that Tusk’s accession to the Presidency of the Council of the European Union will help to progress this vision.

In April, Tusk remarked that the EU should bear 75 percent of the costs which are needed to develop the natural gas infrastructures of its member countries, while also providing some valuable insight on liaising in the case of crisis.

It is obvious that every ounce of progress that is made in this very sensitive realm will ultimately strengthen the supra-national structure of the EU and ease the creation of a common energy policy. For now, the EU’s tensions with Russia act as a propulsive force, but considering the limited influence of the EU’s institutions on member states, only time will tell to what extent these policies will be realized. In this regard, “diversifying suppliers”, which is one of the medium term goals of the new strategy, can function as an important test.

Remembering that the Commission suspended the South Stream project pending its adherence to EU law in the May strategy document, and also considering that Russia later withdrew from cooperating with the EU in this regard, the Southern Corridor, of which Turkey is a key player, has become a crucial alternative that has the great potential to actualize the EU’s goal to diversify suppliers. Realizing this, the EU is prepared to take the necessary steps to expedite the development of the Southern Corridor, underscoring that 10 billion m3 of gas could be transported in the initial stages of the project. With later investment in the infrastructure of the Corridor, it is foreseen that 25 billion m3 of gas could be delivered to the EU from the Middle East and the Caspian regions via Turkey.

With the EU’s renewed interest in this southern route, discussions have arisen on increasing the transportation capacity of the Trans-Anatolian Natural Gas Pipeline (TANAP) to 31 billion m3 seeing that 6 billion m3 would be needed by Turkey and 25 billion m3 by the EU. However, some analyses have claimed that the flow of gas from Azerbaijan would not be sufficient enough to allow TANAP to operate at such a capacity.

With these medium to long term considerations in mind, the May strategy also mentions the possibility of including Iran, right along with alternatives such as Turkmenistan and Iraq, in the Southern Corridor depending upon the loosening of sanctions imposed on the country. In the case that all of these source countries are included in the Southern Corridor, the expected volumes will naturally increase, and thus, Turkey may come to host the fourth principle artery of the EU’s energy supply, with the others entering the EU from the North Sea, Africa, and by land from Russia.

Nonetheless, for this to become a reality, the quality of both Turkey and the EU’s relations with suppliers will be of critical important. Overcoming the current political obstacles and achieving a straightforward model of cooperation are directly related to the EU’s success in harmonizing the political will of the member states with Tusk’s concerted principle of the Energy Union.
Is there room for new Russia-EU projects?

The EU’s distrust of Russia and its efforts to develop a new energy strategy have prompted Russia to reevaluate its future energy prospects. A combination of competitive conditions and political factors has come to pose an obstacle to Russia’s access to the European market. In the meantime, Moscow has signed new treaties with Beijing. Thus, while the EU has once again decided to diversify its energy resource suppliers, Russia has begun to hasten the diversification of its market strategy.

Here, when Russia’s expectations about the South Stream project were not met, a rapid turn of events took place. In his visit to Turkey, Vladimir Putin shocked all parties involved by declaring that Russia would cancel the South Stream pipeline project that would have passed through Bulgaria. The second shock came with the Russian leader’s declaration that Russia had decided to construct another pipeline, yet this time through Turkey.

However, some questions remain unanswered and uncertainty as to what strategy will be pursued by Russia have come to the fore. It is proposed that the new pipeline would enter the EU from Turkey via Greece, yet experts question how Russia will overcome the EU legal regulations in Greece that are in fact the same as those that caused problems in the construction of the South Stream that was to enter the EU via Bulgaria. In this regard, President of Gazprom Aleksey Miller has indicated that the energy giant could establish a new company called Gazprom Russkaya charged with constructing the new pipeline, yet exactly how the Kremlin will overcome these constraints outlined in the EU’s Third Energy Package is still unclear. Nonetheless, the establishment of such a company could actually allow Russia to pursue different methods in selling its gas to Europe. Here, it can be said that Gazprom, and the Kremlin, are working on formulas that bypass existing legal regulations of the EU.
What’s next?

Putin’s statements have given credence to analyses that argue Moscow is determined to bypass Ukraine in sending gas to the EU. On the other hand, current uncertainties have triggered many debates as to whether or not Russia’s behavior constitutes a political maneuver to halt the West’s efforts to isolate the country.

The question of “how Russia will realize this new multibillion dollar project in an environment in which oil prices are plummeting” should not be understated. Yet, Putin’s assertion that Turkey could become an energy transport hub of Russian gas to the EU has aroused excitement. Nonetheless, he also stated to the press that Greece could assume this role if the EU so allows, thus causing a whirlwind of confusion. Here, although the name Turkish Stream has been thrown around for the new pipeline, it can be said that Russia is trying to develop new political leverage by instrumentalizing the possibility of Greece’s inclusion in the game.

Moreover, before the hopes of Turkish Stream become any stronger, it should be noted that the route of the new pipeline actually remains unclear. Firstly, Putin has mentioned Southern Europe, naming Turkey-Greece-Macedonia-Serbia and Austria. In this respect, it seems that Russia has not given up on the Eastern Europe market, and that it is in reality trying to set a new balance by way of political maneuver.

Considering the current state of affairs, pipeline routes will be evaluated differently in 2015. Turkish Stream is sure to occupy the agenda this year, and sooner or later it will be seen if Russia is serious about creating a new route in order to debilitate Ukraine. However, it should be remembered that, in order to achieve this, there are many meetings that still need to be set, a sizeable amount of money that still needs to be found, and legal obstacles that still need to be dealt with.

Furthermore, Turkey and Azerbaijan need to start constructing TANAP by the spring of 2015. If this happens, TANAP, one of the most important elements of the Southern Corridor, will be completed by 2020. However, security considerations in the Caucasus and changes in the oil market must also be taken into consideration. Lastly, it should be noted that while Russia moves at a rapid pace to diversify its market strategy, as seen in the agreement it struck with China, the EU still needs to develop concrete steps that go beyond being flash strategies jotted down on paper. The EU’s performance will surely show the extent to which the new faces of the EU such as Donald Tusk, Jean-Claude Juncker, and Federica Mogherini prioritize a comprehensive energy security strategy that simultaneously manages EU-Russian relations.

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