Too many "streams"

Gas transit is becoming an increasingly important factor in global and regional politics. The agreements between Ukraine and the EU on modernizing the Ukrainian gas transport system have prompted a redoubling of Russia's energy diplomacy efforts not only in Europe, but in Turkey and the Middle East too.

At the end of March a Gazprom delegation, led by the chairman of the board Aleksey Miller, paid a working visit to Turkey and met Turkey's minister of energy and natural resources, Mehmet Hilmi Guler. The sides discussed the prospects for the development of bilateral collaboration in supplying Russian gas to Turkey, primarily the possibility of implementing the Blue Stream-2 project, which envisages construction of a new gas pipeline line in parallel with Blue Stream and of gas transport infrastructure in Turkey and beyond, with an underwater gas pipeline to Israel.

Bluestream-2 is known to be a priority for Ankara. It is important both as an additional route to import Russian gas into Turkey and as another lever in the complex relations on gas transit issues with the EU, and with Azerbaijan and Iran, and as an important element in the strategic game of rapprochement with Russia. Russia and Turkey stopped negotiations on expanding the gas pipeline two years ago, at the exact time that the alternative gas pipeline project from Russia via the Black Sea bed to Europe, South Stream, was born. Turkey persisted in trying to bring discussion of the project back onto the agenda - the last attempt was made during President Abdullah Gul's official visit to Moscow on 13 February this year, but Russia again refused, saying that South Stream was the priority. The text of the final Russian-Turkish Joint Declaration, signed at the end of the visit, included the watered-down phrase that "the energy sphere in Turkish-Russian relations is of strategic significance and has the potential for further development".

At the end of the talks the sides did not give the capacity of the new pipeline or dates for its construction. They simply agreed that the preliminary technical and economic assessments show the technical feasibility and economic viability of the project and decided to return to its discussion and start talks on supplying Russian gas to Israel after the formation of the new Israeli government.

The fact that the project was in demand during the height of the Russian-Ukrainian gas conflict only highlights its political, and not commercial, significance. The current capacity of Blue Stream (16 billion cubic metres per year) is not being used to its limits: in 2008 just 10.1bn cu.m. of gas were pumped through the two branches of the pipeline which have an annual  capacity of 8bn cu.m. of gas each. Experts consider it effective to bring into play a third branch with an annual throughput of 8bn cu.m. only after 2015. Based on Gazprom's current estimates on the construction of underwater gas pipelines, the gas pipeline would cost around $2.7bn. This is money that the company does not have in its budget.

Both sides do have compelling political motives for "reviving" discussions on the project. Russia will show Ukraine that it has yet another alternative to the Ukrainian gas pipeline network for exporting to Europe. But most important, this project would deal a knock-out blow to Nabucco, which Russian analysts acknowledge. "This is a better and cheaper way to stop Nabucco, as Blue Stream-2 will join the Turkish gas transport system not far from Nabucco's planned starting point," the director of East European Gas Analysis, M. Korchemkin, said. Turkey needs an alternative to South Stream which bypasses its territory, thereby depriving it of transit income and political dividends, and another lever to reinforce its regional role. 

But the question arises here - has the Turkish side weighed all this up? Does it realize that its attempts to use Nabucco to put pressure on Brussels over European integration have seriously annoyed the major European capitals, which are tired of Ankara's contradictory statements about the project? And now there's a new game, this time Blue Stream-2 in tandem with Moscow. And one more question - has Ankara considered the limits of the patience of Baku, which, it seems to us, is as tired as the EU of the current Turkish government's abuse of its transit role.

The results of the recent visit of SOCAR President Rovnaq Abdullayev to Moscow and his talks with Gazprom's head office show that the more Turkey plays the gas transit card, the less trust there will be in this partner, the lower its value for other participants in the Nabucco project and the greater the interest of its participants in conducting their own "gas game" in the region.

In Moscow SOCAR and Gazprom signed a memorandum on mutual understanding. Under the memorandum, agreement has been reached on beginning negotiations to agree terms for the purchase and sale of Azerbaijani gas, with deliveries beginning in January 2010 with the stipulation of "supply to the Azerbaijan-Russia border". Options and the economic viability of natural gas swaps will be worked on too. In the near future, Gazprom and SOCAR will conduct a technical inspection of the Baku - Novo-Filya section of the gas pipeline system with a view to upgrading it. Azerbaijani gas will be supplied to Russia via this section.

Does this mean that the game is still on?