The idea of ​​a gas hub Russia-Turkey ran into the “wall” of the European Union

Negotiations between the Russian and Turkish delegations on the creation of a “largest gas hub” in Turkey will start next week. According to diplomats in Ankara, the meeting place of the parties has yet to be determined. Meanwhile, it is obvious that the project loses its meaning without the consent of the European Union, with which, as Kremlin spokesman Dmitry Peskov noted, Moscow “has no contacts.”

Putin presented the idea of ​​a new gas hub twice: first at the Russian Energy Week forum in Moscow on October 12, then at a meeting with his Turkish counterpart Recep Tayyip Erdogan on the sidelines of the Astana summit on October 13.

According to Putin, “the lost volume of transit through Nord Stream, along the bottom of the Baltic Sea, we could move to the Black Sea region, creating the largest gas hub for Europe in Turkey.” Of course, if she is interested in this, the President of the Russian Federation added a key phrase. The proposal came as a complete surprise to Turkish Minister of Energy and Natural Resources Fatih Donmez, who offered to “discuss in detail” its legal, trade, economic and technical aspects.

The issue has not yet been discussed with potential end buyers of gas, the EU countries, Kremlin spokesman Dmitry Peskov told reporters in Astana. “European countries are not partners, but opponents. And while they do not want to contact,” he said.

Recall that the word “hub” has long been used to refer to such concepts as a distribution hub or center. For the gas industry, it was introduced relatively recently. Hubs play a role not only in the redistribution of raw material flows, but also in the formation of their prices, allowing the use of flexible, hybrid pricing mechanisms. Here, as if in pairs, the prices of long-term contracts and spot “short” agreements of the hubs themselves operate, which sell gas volumes as lots at auction, without taking into account the costs of transportation and storage. Plus, it is a safe storage of a large volume of liquefied gas with an extensive network for pumping.

But such nodes need gas pipelines, large ports and, of course, sources of supply – reliable and several at once, which will avoid the monopoly of any one supplier. Finally, a strong consumer base with competing buying interests is key.

Russian gas goes to Turkey through two pipelines across the Black Sea – the Blue Stream, with a capacity of 16 billion cubic meters per year, and the Turkish Stream, the first line of which (15.75 billion cubic meters) is used to supply only the Turkish market, the second ( almost 16 billion) – to supply the countries of Southern and South-Eastern Europe (Bulgaria, Greece, Macedonia, Romania, Serbia, Hungary, Bosnia and Herzegovina).

“The main question is whether the Europeans will be ready to buy additional volumes of gas from us,” says Igor Yushkov, an expert at the Financial University under the Government of the Russian Federation. Let’s say they agree. But then it will be necessary to expand the gas transmission system from Yamal to Anapa, create an offshore section of the pipeline (parallel to the current Turkish Stream) for deliveries through Turkey to the EU countries. If it is possible to return to the pumping volumes of the unrealized South Stream project with a total capacity of 63 billion cubic meters, then there is logic. It will take billions of dollars and several years. The Europeans will hardly wait.”

Previously, Gazprom has always said that gas must first be sold and then produced, meaning that guarantees of return on investment are needed. And in the case of a new hub, there are no such guarantees. In the new geopolitical realities, Russia is changing its strategy: before it delivered raw materials to every end consumer in Europe, so to speak, “to the door”, and today it intends to leave it near the EU borders, in this case, on the territory of Turkey. And then let the capricious buyers themselves… But since Brussels intends to completely abandon Russian gas within two to three years, there is a great risk that when Russia builds pipes (spending a lot of money), no one will use them. In Yushkov’s opinion, in any case, replacing both Nord Streams with a total capacity of 110 billion cubic meters by the Turkish route will not work.

“The underwater section of the Turkish Stream was laid by the vessels of the Swiss marine contractor Allseas, but in December 2019 the United States imposed sanctions prohibiting the construction of new gas pipelines from Russia to Europe,” recalls Yushkov. – The Allseas company, which also carried out work in the Baltic, dealing with Nord Stream-2, has left the game. And it took us a year to prepare our ships, and another year to complete the construction of SP-2. And it is not yet known whether they (primarily the Fortuna and Akademik Chersky pipelayers) will be able to carry out work in the Black Sea, which is much deeper than the Baltic Sea.”

Of course, the creation of the entire infrastructure will take a lot of money. For example, Nord Stream 2 cost Gazprom at least 5 billion euros, and European businesses spent about 5 billion euros more. It will probably take the same amount to build a pipeline of the same capacity as SP-2, says Artem Deev, head of the analytical department at AMarkets.

As for the political and legal issues, Ankara is unlikely to ask Brussels for permission to build. For Erdogan, who plays his political game with everyone, this is another chance to strengthen the position of his country. Having a powerful gas hub, Turkey can become the main supplier of energy resources to Europe in three or four years.

“The initiative announced by Putin is economically beneficial, and besides, this route is potentially safer than both Nord Streams, since it will be completely controlled by Turkey and Russia,” said Nikolay Vavilov, a specialist in Total Research’s strategic research department. “The project will allow the EU countries to buy gas again at normal prices, but its implementation requires the political will and common sense of European officials to begin with.”