Is it possible the EU’s shifting priorities from Russian to Turkish dependence for gas supply?

 Agshin Aliyev Ph.D. in Economics, BSU

 

Abstract

In contemporary period, the EU’s current concern is to reduce dependency on Russian gas that its whole gas supply and over the region increases political and economic threats for member countries. The EU’s concern about Russia’s dominance in its gas market make consider non-Russian gas projects through Turkey – the closest neighbor after Russia. The EU sees Turkey as a crucial partner to diversify routes for the EU’s energy security. From this perspective, the purpose of this paper is to define possibility and geopolitical reasons behind changing EU’s shifting priorities from Russian to Turkish dependence for gas supply.  Key words: The EU, Turkey, Russia, energy security

1. Introduction

Energy security is the key issue in contemporary period for any state’s prosperity those are highly industrialized country and mainly depend on cheap, reliable and consistent energy supplies. Within union, a situation becomes even more difficult because of many players having different interests on energy issues that complicate decision-making process to sign a common agreement. As a union of many developed countries, the European Union (EU) is heavily dependent on external energy supply, especially gas supply from neighboring Russia. The EU’s current concern is to reduce dependency on Russian gas that its whole gas supply and over the region increases political and economic threats for member countries. However, the EU also is well aware that a new supply will not be as cheap as Russian gas to diversify its gas supply by signing several agreements with different countries. On the other hand, Russia tries to maintain its market share highly demanded for this reason by initiating several projects including South Stream, Turkish Stream, Nord Stream 2. From this perspective, the paper will define possibility and geopolitical reasons behind changing EU’s shifting priorities from Russian to Turkish dependence for gas supply.

1. EU’s high dependence on Russian gas

Russia is well aware of the fact that EU’s high developed countries have a lot of concerns in terms of the energy issues within themselves. In such complicated situation, Russia’s ultimate goal is benefit from this diversity among member states in terms of energy supply. The EU’s total gas consumption supplied by Russia is very high; however, this is not same and/or common for all member states, if look at case by case.

1. First, some member states do not import Russian gas. These “neutral” countries do not have formal relations with Gazprom. Therefore, Russia’s energy manipulation has less impact on this group of
2. Second group of countries are more secure in terms of Russian supply. This security mainly is related to different arguments, including economic alliance with Russia, having less dependency on Russian gas, having quite a diversified energy supply system in case of something goes wrong with Russia.
3. Third group of countries are heavily and/or completely dependent on Russian gas. These countries do not have enough storage capacity as well. Therefore, they might be called as “fragile members” in terms of energy dependency.[1]

According to the Gasprom statistic, company supplied a total of 194.4 billion cubic meters of gas to European countries, 192.2 bcm being supplied under Gazprom Export contracts in 2017. Western European countries accounted for approximately 81% of the company’s exports from Russia, while Central European states took 19%.[2] Figure 1 and Figure 2 indicate each country’s consumption per Russian gas in 2017.

Figure 1. Gas consumption of Western European countries

                                                 Source: Gasprom 2017, Delivery statistics

 

Figure 2. Gas consumption of Eastern & Central European countries

 

Source: Gasprom 2017, Delivery statistics

 Zeyno Baran, the director of the Center for Eurasian Policy at the Hudson Institute in Washington, claims that “Russia, the European Union’s primary oil and gas provider, has deliberately taken advantage of this lack of cohesion to gain favorable energy deals and heighten European dependence on Russian supplies. Moscow is pursuing a divide and conquer strategy of amassing bilateral deals with member states. This disunity has also allowed Moscow to preemptively block European attempts to construct transport routes for Caspian and Central Asian oil and gas that do not involve Russia.” [3] Figure 3 indicates how each member state depends on Russian gas in a given percentage.

Figure 3. Share (%) of Russia in national extra-EU imports of each Member State, 2017

Source: Eurostat database 2017

According to the IEA’s 2014 report, Russian gas supply will be the biggest portion of the EU market for at least a few decades from now on. Figure 4 precisely shows that Russia was the largest supplier of natural gas to the EU in 2016 and 2017. 

Figure 4. Extra-EU imports of natural gas, 2016 and 2017

Source: Eurostat database 2017

 “The EU is set to be dependent on Russian gas for some time and that’s the reality” says, IEA executive director Maria van der Hoeven. [4] The EU’s concern about Russia’s dominance in its gas market make consider non-Russian gas projects through Turkey – the closest neighbor after Russia. One of the projects proposed by the EU was Nabucco gas project. “The Nabucco gas pipeline is one of the central infrastructure projects for the diversification of Europe’s natural gas supplies that would decrease EU dependence on Russian gas imports. By demonstrating a more flexible and constructive approach towards Turkey’s EU accession efforts, Brussels would honor the country’s geo-strategic importance and enhance European energy security overall.”[5]

In terms of the EU and Turkey relations, energy issues are stable and Turkey seems a key partner for future cooperation. Energy is one of the key interest in the EU-Turkey relations. Turkey seems crucial partner to diversify routes for the EU’s energy security. Both sides welcome the ongoing preparations for High Level Energy Dialogue Meeting held on 28th January 2016 in Turkey.[6] “Given its strategic location as transit country in the region, Turkey is a key partner for Europe’s energy security and diversification. With the launch of the High-Level Energy Dialogue, Turkey and the EU are injecting renewed political momentum to our energy cooperation. This will lead to concrete actions and projects to our mutual benefit” added Cañete Arias, the EU Commissioner for Climate Action and Energy. [7]

To define possibility and geopolitical reasons behind changing EU’s shifting priorities from Russian to Turkish dependence for gas supply, the following chapter will discuss 3 hypotheses:

1. Turkey seems more reliable partner than Russia, because of its intention to be member of the EU.
2. Turkey can play “bridge” role to transport Central Asian gas through direct pipelines Caspian Sea-Azerbaijan-Turkey-Europe for prospect projects
3. Turkey does not have enough energy resources to use “manipulation tool” as Russia did in the future.

III. Discussion

Depending on energy imports, predominantly of oil and gas causes policy concerns relating to the security of energy supplies. There are two main sources of the energy insecurity of the EU faces: (a) gaps in the integration of the EU energy market; and (b) import disruptions.[8]

In response to the possible import disruptions, the EU has fortified its supply law with the adoption of the new Security of Gas Supply Regulation in 2017. [9] Russia is still main supplier of crude oil and gas to the European counties. To reduce dependency on Russia gas, the EU seeks new alternative sources for following reasons:

1. Russia will not be able to satisfy both internal and external needs for oil and gas in the long-run.
2. As major exporter, Russia might get monopoly over oil and gas business by suppling to the EU.

 

Finding alternative sources might seem realistic for the EU; however, the EU needs to solve several economic and political challenges to import gas from following alternative sources:

• Import from the Middle East and North Africa;
• Intensify completion of the Southern Gas Corridor project though Azerbaijan and Turkmenistan and Kazakhstan in future
• Import LNG from the U.S, Australia, and Eastern Africa. [10]

Turkey might play significant role on this issue to become route of the major pipeline projects to Europe and reliable political and economic partnership with the EU. The efforts to get non- Russian gas from Middle and Central Eastern countries through Turkey is realistic and beneficial (although the combined amount of gas the project countries can supply is less than 10% of EU’s overall consumption); however, this scenario might intensify recent Russia-Turkey conflict. Security is the key issue. High cost, economically less rational (less beneficial), but politically very important project may cause a bad decision due to the escalating political tensions between Russia and Turkey. The recent conflicts between Turkey and Russia escalated energy security issues rather quickly. Many parties from demand side concerned about the consequences of the clash between the countries that might have impacts on their energy supply security. In addition, this clash increased risks in Turkish energy supply route and created additional contradictions.

In the Middle East, particularly Iraqi Kurdistan with massive oil and gas resources might be considered as a potential supplier; however, regional critic political situation that also involves Turkey, might create major challenges for large-scale investment in developing production and export capacities in order to supply the EU with its energy.

Turkey, as a very important regional transit country has implemented successful energy policy by securing immense volumes of hydrocarbons and attracting large number of investments to the prospective energy transportation projects of the country. After failed South Stream project there were discussions on the possibility of a building new route called Turkish Stream that would bring Russian gas to Europe. However, recent changes in Russia-Turkey relations affected to their partnership particularly on future oil and gas projects.

However, there are several risks in Turkey’s involvement to reduce the EU’s dependency on Russian gas. Turkey might become an energy hub and a main transit country for Europe; however, main question is that can the EU accept Turkey with several domestic challenges, including refugee crisis. Domestic factors might prevent the EU’s preferences to shift from Russian dependence to Turkish dependence for suppling gas. Although, Turkey is not preferred to Ukraine for transiting Russian gas to Europe, it still holds upmost importance for Azerbaijani and possibly, Central Asian gas transportation. To improve the security and diversity of EU’s energy supply, the Southern Gas Corridor is being built which combines three pipelines:

• South Caucasus Pipeline (SCPX) – Azerbaijan, Georgia
• Trans Anatolian Pipeline (TANAP) – Turkey
• Trans Adriatic Pipeline (TAP) – Greece, Albania, Italy[11]

The corridor is intended to bring natural gas from Caspian Sea (Azerbaijan) to Europe. The overall length of corridor is 3.500 km which 1.850 km of the pipeline go through Turkey.[12] This is the possible shortest route from Caspian to Europe in existing conditions. In this project, Turkey’s location plays an important role in EU’s energy security. The possibility of transit of Turkmenistan gas in the future increases the importance of the SGC and involved countries.

Secondly, gas transportation from any country is not main subject for the EU, as long as it is cheap. Despite sanctions on Russia, the EU imported more gas in 2015 than the previous years.[13] It seems that reducing of the EU’s energy dependence on Russia side will be difficult in short term. The EU indeed wants to involve Ukraine in energy politics rather than Turkey because of close relations with the EU countries in terms of religion, geography etc. Ukraine gets 2 billion USD annually for the transiting gas from Russia to Europe.[14] The gas transit contract between Ukraine and Gazprom (Russia) will expire in 2019. Russia will extend the contract by the pressure of Europe since approval of Nord Stream-2 may increase Gazprom’s monopoly of European gas supply and distribution.

Obviously, the European Union and Turkey are mutually interested in routing more Azerbaijani gas to Europe through Turkey as an alternative. Even though Azerbaijan has a lower transit capacity, indeed it plays an important role in the EU’s diversification efforts and is rather realistic partner among others.

Among other alternatives, even though the Northern Iraq fields and Iran have potential gas reserves, both seem fairly unrealistic because of security challenges, internal and external threats.  After lifting sanction, Iran would become another important source for energy supply of the EU. However, Iran does not intend to join South Gas Corridor because Iran does not want to be dependent on Azerbaijan or any other country for gas transit and plans to sell its gas as LNG. Although the production of LNG is costly and, Iran still prefers this option as the production cost of Iranian gas is cheap since the gas fields are onshore.

It seems, the EU’s all efforts to find other sources of oil and gas supply clearly indicate that it aims at decreasing Gazprom’s monopoly over the EU gas market. Briefly it includes increase in purchases from Central Asia, Azerbaijan through Southern Gas Corridor, EU’s diplomatic initiatives in the Middle East region to create stable, as well as secure environment for gas projects that runs through Turkey to Europe. According to the Gazprom’s statistics, there was 9% decline in demand for Russian gas in the EU after Russian-Ukraine crisis. In comparison with 2013, there was 15 bcm reduction in the volumes of exported natural gas from Russia to Europe in 2014 (in 2013-162 bcm, in 2014- 147.2 bcm).[15] On the other hand, the EU states have several times showed their high interest in the Central Asian fields to encapsulate this reduction in natural gas import. Cooperation with other regional states, particularly with Turkmenistan through Southern Gas Corridor might be less costly for Europe. However, several political factors say that Turkmenistan’s presence in the European energy market through Southern Gas Corridor does not seem realistic. Russian factor has to be regarded quite important, as one of the largest energy market Gazprom’s revenues are dependent on European market and it will continue to block all alternative projects in this direction.

 Conclusion

 To sum up, significantly diversifying away from Russian supply and transit is very challenging in the short term, it is not impossible in the long term. The main challenge of this ambitious desire is uncertainties of non-Russian gas supplies options. In the long run, these uncertainties could be shifted up by the EU’s ability to negotiate and the political will of giants such as Russia, China, US and etc. To find the reliable alternative source is not easy itself because of regional insecurity in the neighborhoods of the EU, as well as the EU does not want to jeopardize its relations with Russia since it will always need to Russia’s supply of natural gas due to high level of demand for gas in the region. Furthermore, partner countries of the EU also are sensitive in this issue because of Russia, even sometimes regional partners of Russia reject energy projects in favor of Russia. To conclude that the EU’s shifting priorities from Russia to Turkish dependence for gas supply will make including economic, political challenges among member states and/or within EU itself.   

 References:

Baran , Z. (2007). EU Energy Security: Time to End Russian Leverage. The Washington Quarterly , 131–144. Retrieved from https://www.hudson.org/content/researchattachments/attachment/616/07autumn_baran.pdf

 

Chyong C., Slakova L., Tcherneva V. (2015) “Europe’s alternative to Russian gas”. European Council on Foreign Relations.

Davidovic, S. (2009). Turkey is key to Europe’s energy diversification . Retrieved from http://www.eurodialogue.org/energy-security/Turkey-Is-Key-To-Europe-s-Energy-Diversification

 

Energy Policies of IEA Countries 2014 Review European Union Executive Summary. (2014). Retrieved from http://www.iea.org/Textbase/npsum/EU2014SUM.pdf

EU and Turkey strengthen energy ties. (2016, January 28). Retrieved from https://ec.europa.eu/energy/en/news/eu-and-turkey-strengthen-energy-ties

Gas supplies Europe . (n.d.). Retrieved from http://www.gazpromexport.ru/en/statistics/

Mammadova S. (2015). The Southern Gas Corridor: political interests and key players. Azerbaijan’s Economic Development and State-Building in International Relations System, 34-39.

Mammadova S. (2015) “Changing market dynamics in Central Asia: Declining Russian Interests and an emerging Chinese presence”. Natural Gas Europe

Market Observatory for Energy, DG Energy (2015). Quarterly Report on European Gas Markets, European Commission, 8 (1). Retrieved from https://ec.europa.eu/energy/sites/ener/files/documents/quarterly_report_on_european_gas_markets_q1_2015.pdf

New Security of Gas Supply Regulation . (2017, October 28). Retrieved from http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32017R1938&from=EN

Pinchuk, D., & Baczynska, G. (2014, October 31). Gazprom to resume gas supply once Ukraine pays $2.2 billion. Retrieved from https://www.reuters.com/article/us-ukraine-crisis-gas/gazprom-to-resume-gas-supply-once-ukraine-pays-2-2-billion-idUSKBN0II0XQ20141031

“Turkey – EU High Level Energy Dialogue” Meeting. (2016, January 28). Retrieved from https://ec.europa.eu/energy/sites/ener/files/documents/ing%20son.pdf

Why TANAP . (n.d.). Retrieved from http://www.tanap.com/tanap-project/why-tanap/

[1] Chyong C., Slakova L., Tcherneva V. (2015) “Europe’s alternative to Russian gas”. European Council on Foreign Relations.

[2] Gas supplies Europe . (n.d.). Retrieved from http://www.gazpromexport.ru/en/statistics/

[3] Baran , Z. (2007). EU Energy Security: Time to End Russian Leverage. The Washington Quarterly , 131–144. Retrieved from https://www.hudson.org/content/researchattachments/attachment/616/07autumn_baran.pdf

[4] Energy Policies of IEA Countries 2014 Review European Union Executive Summary. (2014). Retrieved from http://www.iea.org/Textbase/npsum/EU2014SUM.pdf

[5] Davidovic, S. (2009). Turkey is key to Europe’s energy diversification . Retrieved from http://www.eurodialogue.org/energy-security/Turkey-Is-Key-To-Europe-s-Energy-Diversification

[6] “Turkey – EU High Level Energy Dialogue” Meeting. (2016, January 28). Retrieved from https://ec.europa.eu/energy/sites/ener/files/documents/ing%20son.pdf

[7] EU and Turkey strengthen energy ties. (2016, January 28). Retrieved from https://ec.europa.eu/energy/en/news/eu-and-turkey-strengthen-energy-ties

[8] Chyong C., Slakova L., Tcherneva V. (2015) “Europe’s alternative to Russian gas”. European Council on Foreign Relations.

[9] New Security of Gas Supply Regulation . (2017, October 28). Retrieved from http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32017R1938&from=EN

[10] Chyong C., Slakova L., Tcherneva V. (2015) “Europe’s alternative to Russian gas”. European Council on Foreign Relations.

[11] Mammadova S. (2015). The Southern Gas Corridor: political interests and key players. Azerbaijan’s Economic Development and State-Building in International Relations System, 34-39.

[12] Why TANAP . (n.d.). Retrieved from http://www.tanap.com/tanap-project/why-tanap/

[13] Market Observatory for Energy, DG Energy (2015). Quarterly Report on European Gas Markets, European Commission, 8 (1). Retrieved from https://ec.europa.eu/energy/sites/ener/files/documents/quarterly_report_on_european_gas_markets_q1_2015.pdf

[14] Pinchuk, D., & Baczynska, G. (2014, October 31). Gazprom to resume gas supply once Ukraine pays $2.2 billion. Retrieved from https://www.reuters.com/article/us-ukraine-crisis-gas/gazprom-to-resume-gas-supply-once-ukraine-pays-2-2-billion-idUSKBN0II0XQ20141031

[15] Mammadova S. (2015) “Changing market dynamics in Central Asia: Declining Russian Interests and an emerging Chinese presence”. Natural Gas Europe