Russia’s Trojan Stream under the Black Sea

DISCLAIMER: All opinions in this column reflect the views of the author(s), not of EURACTIV Media network.

Turkish President Recep Tayyip Erdogan (C-R), Russian President Vladimir Putin (C-L) and Serbian President Aleksandar Vucic (4-R) and Prime Minister of Bulgaria Boyko Borissov (C-L) attend the opening ceremony of the TurkStream Project in Istanbul, Turkey, 8 January 2020. [Kremlin pool/EPA/EFE]

The EU’s tacit acceptance of TurkStream is a serious and dangerous misjudgement of the perils this diversionary pipeline presents, writes Olga Bielkova.

Olga Bielkova is Director on Government and International Affairs, Gas TSO of Ukraine.

Energy-rich authoritarian states use their energy exports for economic gains but also as a tool of foreign policy leverage,” reads the opening sentence of a report commissioned by the European Parliament. TurkStream, which is championed by Russia’s gas transit monopoly Gazprom, is a textbook example of just that – an attempt to deploy a pipeline in pursuit of geopolitical objectives. Europe can and should act to halt this project, or, at a minimum, demand the full compliance of all parties with EU’s keystone regulation known as the Third Energy Package.

Emptying an existing pipeline to build a new one that will supply the same customers with the same gas makes zero sense, if your business objectives are profitability and efficiency. Yet, Gazprom is splashing billions of dollars on this commercially meritless project. For decades, the countries in south-eastern Europe were supplied with natural gas via the Trans-Balkan pipeline. It is now running effectively idle (operating at ~5% of its 27 bcm per year capacity), whereas the gas flows via TurkStream (31 bcm per year capacity) continue to grow.

Bulgaria has already switched to TurkStream. Serbia has completed the ~400 km of pipe laying and is expecting to bring its compressor station online in the coming months. Hungary, which has direct access to Ukraine’s massive transit network – five times the size of TurkStream – is planning to start taking deliveries of Russian gas at the Serbian border instead.

The EU’s tacit acceptance of the TurkStream is a serious and dangerous misjudgement of the perils this diversionary pipeline presents. The continued operation of an alternative gas route must not be taken for granted. As countries in south-eastern Europe switch to gas imports via TurkStream, caving to Gazprom’s pressure, the Trans-Balkan corridor will inevitably be phased out. And Europe will find itself a hostage in an unpredictable geopolitical situation.

We must not underestimate the risk of volatility in the Black Sea region and the pitfalls inherent to the offshore gas transit infrastructure. Russia has demonstrated time and again its willingness to use energy as a weapon. With TurkStream, those risks will compound further yet, given the turbulent Moscow-Ankara relations or the recent elevation of tensions between Greece and Turkey.

The cost savings argument, too, quickly falls apart when closely examined. TurkStream’s ultimate destination is Baumgarten energy hub in Austria. At present, the natural gas from Russia reaches Austria via two countries: Ukraine and Slovakia. Switching up the route isn’t just a matter of lengthening it and needlessly burning the transmission fuel. If Gazprom achieves its goal and makes TurkStream a primary gas artery for south-eastern Europe, it will layer several cross-border connections on top of a hazardous submarine pipeline. On a long journey to Baumgarten, Russia’s natural gas will have to pass under the Black Sea onto Turkey, Bulgaria, Serbia, and Hungary.

The geopolitical rather than commercial motivation behind TurkSteam is blatantly apparent when we consider the fact that Gazprom has pre-booked with Bulgaria the full capacity of the Trans-Balkan pipeline until 2030. The contract is structured such that Bulgaria will get paid regardless of the pipe’s utilization. Gazprom’s willingness to pay twice makes perfect sense when we acknowledge that the objective here is to shut Ukraine out of transit no matter the expense. But make no mistake, after the infrastructure lock-in takes root, the European end-users will have to bear all those costs.

Gazprom zealously invests in the construction of pipelines all over Europe. Be it the submarine infrastructure in the Baltic and Black Seas or overland pipelines in Bulgaria and Serbia. But let us not be fooled. These investments will be handily recouped overtime via Gazprom hallmark contracts, opaque and exclusive, when Europe’s dependence on Russian gas increases despite the EU’s stated commitment to the opposite.

A derivative risk that Brussels must account for is the further militarization of the Black Sea. As we’ve seen time and again, the presence of strategic infrastructure will serve as a pretext for Russia’s increased military presence. This will impact commercial shipping and, worse yet, could further strain the already tense NATO-Russia relations.

This situation is dire, but not without redress. EU already has a potent remedy at its disposal. It’s called the Third Energy Package – a framework designed to assure fair competition. Europe must insist on the full compliance of the new gas pipelines, sponsored by Gazprom, with a key provision that guarantees third-party access. Specifically, the certification of the Serbian section is where Europe must hold its ground.

The Energy Community Secretariat has publicly expressed its concerns with the certification of the Serbian gas transit operator. “With this, the pipeline is actually …not covered by the Third Energy Package and we regret that,” is how the deputy director and legal counsel Dirk Buschle characterized the state of affairs. And that does not inspire much confidence in the TurkStream pipeline and the value it promises to deliver.

If the goal is to bring more gas to the region, as the EU is working to phase coal out of the electricity production, the best way to achieve it is to revisit the antitrust probe into Gazprom that was settled out of court in 2018.  EU would be right to demand that Gazprom relinquishes its stronghold on transit infrastructure and grants access to the hundreds of Russia’s own energy companies (e.g. Novatek, Rosneft, and Lukoil) as well as the gas producers from Central Asia, which supplied Europe in the early 2000s. Such remedy, applied universally to all pipelines controlled by Gazprom, will help deliver on two objectives: accelerate decarbonization and ensure fair market competition.

The government of Bulgaria and Hungary must carefully consider the pros and cons of switching its gas imports completely to TurkStream. A balanced approach, where a part of the demand is met via the trans-Balkan route and the other part via the Black Sea, would be a way to maintain a strong negotiating position vis-a-vis Gazprom. And perhaps more importantly, this will be the best way to conserve the security of supply if one of the two routes becomes unavailable.

The trans-Balkan corridor allows for bi-directional gas flows. Its costs have already been amortized. This strategic infrastructural asset affords direct connectivity between the nations of Central and Eastern Europe as well as access to Europe’s largest gas storage in Western Ukraine. One couldn’t invent a better guarantee of regional energy security, and yet, Gazprom is actively working to undermine it while the EU is looking the other way.

When thinking about TurkStream, the tale of a Trojan Horse comes to mind. It looked quite appealing to the defenders of an ancient city. A marvel of craftsmanship, the wooden horse inspired curiosity and admiration. But we all know how the story ends. The Trojan Stream at the bottom of the Black Sea is no different. Its promise alluring, but its true intentions detrimental.

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