Putin and Erdogan Meeting: Implications for Gas and Nuclear Projects

Following a failed coup attempt on July 15 in Turkey, the country’s leader, President Recep Tayyip Erdogan, signaled that he may be willing to threaten the long-term energy stability of the European Union (EU) by reentering into a partnership with Russia to ship massive amounts of Siberian-produced gas into the West, which could foil EU plans to create greater energy diversity.

After a joint declaration on Tuesday, August 9 that called for resuming construction of the stalled Russian-backed TurkStream pipeline project, Turkish and Russian officials the following day indicated that they may also make a major change to the EU-backed $10 billion Trans-Anatolian gas pipeline (TANAP) project. Initially intended to facilitate shipments from Azerbaijan’s Shah-Deniz gas field to Europe through Turkey, it may be combined with the reauthorized TurkStream pipeline. If this happens, Russia’s state-owned Gazprom will exercise high levels of control over both projects.

Competition for Gas Sources and Delivery Routes

Muddying the waters even more, just before Erdogan met with Vladimir Putin on Tuesday, the Russian president was in Baku, Azerbaijan, meeting with his Azeri and Iranian counterparts to discuss new ways these nations could work together to produce and ship gas supplies. Those reserves, however, are also coveted by the West, which hopes to ship them into the EU as a hedge against Russia.

If the TANAP and TurkStream projects are combined and both come under the influence of Gazprom, along with future eastern gas supplies, it could potentially create a greater opportunity to ship U.S.-produced liquefied natural gas (LNG) gas into Europe to ensure future energy diversity.

News conference following talks between Turkey’s President Recep Tayyip Erdogan and Russia’s President Vladimir Putin on August 9, 2016. Courtesy: kremlin.ru

News conference following talks between Turkey’s President Recep Tayyip Erdogan and Russia’s President Vladimir Putin on August 9, 2016. Courtesy: kremlin.ru

Though in the past Putin and Erdogan have been anything but civil to each other, particularly following Turkey’s shooting down of a Russian warplane last November, today Russia is reeling from harsh western sanctions following its annexation of parts of Ukraine as well as low oil and gas prices. Nevertheless, by having a lock on the majority of the gas coming into Europe, it could easily set favorable terms. Russia, which supplies a third of the EU’s natural gas overall—though a much higher percentage to Germany and other northern EU nations—is expected to continue using energy as a political weapon.

With the majority of Ukraine now firmly under western control, Putin is also keen to find another nation through which to transit Russian gas to Europe and continue controlling the spigot. Many existing Russian gas contracts are scheduled roll off in 2019, roughly the same time as TANAP and TurkStream could come online. In Erdogan, Putin may have found an ally willing to push back against the arrogance both feel emanates from Brussels—as well as Washington.

Following the bilateral meeting, state-controlled Russian media outlet TASS reported: “construction of the first line of the Turkish Stream gas pipeline project should end by December 2019 in accordance with the work schedule,” said Russian Energy Minister Alexander Novak. “Construction will be completed at that time,” he continued.

Gazprom, which will likely be ordered to prioritize TurkStream and may be involved in a newer version of TANAP, already has its hands full with the Nord Stream 2 pipeline now being built across the Baltic Sea. With an annual capacity of 55 billion cubic meters, this pipeline’s major customer is expected to be Germany—already Russia’s largest purchaser of natural gas (followed by Turkey, which received about 27 billion cubic meters in 2015).

However, following the meeting with Putin, Turkish Foreign Minister Mevlut Cavusoglu offered to connect the TurkStream pipeline to TANAP, according to TRT Haber news channel and reported in Azernews . Cavusoglu said Ankara will buy only 16 billion cubic meters of Russian gas per year via the TurkStream, while the remaining volume of Russian gas can be exported through Turkey via TANAP by connecting it to the TurkStream. The minister underlined that TANAP is a priority project for Turkey.

Currently, TANAP is one of several eastern pipelines being developed to diversify Europe’s gas supplies away from Russia. In this regard, TANAP has received political and financial support from several international organizations and western countries. As currently envisioned, TANAP gas will reach Turkey in 2018 and then connect to Europe via a pipeline under the Adriatic to Italy around early 2020. The initial capacity of TANAP will be 10 billion cubic meters of gas per year, which can be expanded to 20 billion cubic meters.

An Opening for U.S. LNG?

As was previously reported by POWER, Cheniere bullishly estimates that the U.S. will become the third-largest LNG exporter by 2020, with a production capacity of 60 million metric tons per year. Though vessels are slowly arriving in Europe—just two this year following a lifting of export regulations—Cheniere is also developing its own LNG terminal in Greece.

As reported last December in The Oil and Gas Year, working with the Public Gas Corp. of Greece, Cheniere is planning to build an LNG terminal off Alexandroupolis and export U.S. gas to Greece and the Balkans. Reportedly, the facility would have an estimated annual capacity of 6.1 bcm (215 bcf) and supply gas through the planned Interconnector Greece-Bulgaria natural gas pipeline. Like most of Europe, Greece and the surrounding region currently rely on Gazprom as the sole natural gas supplier.

As this and other U.S. LNG moves continue, analysts at Bloomberg New Energy Finance (BNEF) see a key role ahead for American shale gas. Prioritizing diversity of supply “features heavily into the European Commission’s 2030 Energy Strategy and in recent contract renegotiations with Gazprom,” said Meredith Annex, a natural gas analyst at BNEF in London in an exclusive interview with POWER. “LNG has and continues to be an important market for achieving these aims. The buyers’ market in LNG means that the contract terms are tending to favor the offtaker.”

Cheniere, as well as other new LNG exporters, have featured pricing terms that link to gas hubs in their offtake agreements. “This means there is a role for LNG in Europe even if TurkStream goes forward, both to ensure diverse supplies and to put competitive pressure on Gazprom,” said Annex. U.S. producers can and will become a swing supplier into Europe, “especially if they can take advantage of the spot markets,” she continued.

Turkish Nuclear Project Moves Forward

Russia is also a key partner for Turkey’s nuclear power plans, and this week’s rapprochement cleared the way to continue moving forward with the Akkuyu nuclear power plant, according to Russian news agencies. However, even in December, after Turkey shot down the Russian plane, Putin made it clear that his country would not hurt its own economic interests by halting work on that four-unit, $22 billion project—Turkey’s first nuclear plant. In a post-meeting press conference this week, Erdogan, who repeatedly called Putin “my dear friend,” called the Akkuyu project “a strategic investment project.”

A member of the press implied that this was a new status for the project and said, “as far as I know, its continuation requires the adoption of several laws in Turkey and the acquisition of a number of permits. When will practical steps be taken to this end?” Putin replied first, saying that “three Turkish laws have been amended. We raised the issue of designating it a strategic investment project, which met with a positive response today.”

Turkey, which has few domestic energy resources, has pursued partnerships with multiple countries to add nuclear capacity in order to diversify its power supply. Previous failed military coups and economic challenges have long delayed Turkey’s efforts to introduce nuclear power to the mix.

The Kremlin’s site noted that restoring “multifaceted ties” between the two countries was urgent because “just in the first five months of this year Russian-Turkish trade fell by 43 percent. Considering that last year the decline was 23 percent, 26 percent, this trend is very regrettable.”

Lee Buchsbaum (www.lmbphotography.com), a former editor and contributor to Coal Age, Mining, and EnergyBiz, has covered coal and other industrial subjects for nearly 20 years and is a seasoned industrial photographer currently living in Germany. Editor Gail Reitenbach, PhD contributed to this story (@GailReit, @POWERmagazine)