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Russia Presses Ahead With Plan for Gas Pipeline to Turkey Russia Presses Ahead With Plan for Gas Pipeline to Turkey
(about 6 hours later)
LONDON — President Vladimir V. Putin surprised the world in December when he aborted long-laid plans for a natural gas pipeline under the Black Sea to Europe, saying Russia would run pipes to Turkey instead.LONDON — President Vladimir V. Putin surprised the world in December when he aborted long-laid plans for a natural gas pipeline under the Black Sea to Europe, saying Russia would run pipes to Turkey instead.
Many in the West thought it might be merely a bluff, to make the European Union reconsider its opposition to the pipeline project, known as South Stream. But in recent weeks, the Russian state-owned company Gazprom has shown signs that it is serious about proceeding with what it calls Turkish Stream.Many in the West thought it might be merely a bluff, to make the European Union reconsider its opposition to the pipeline project, known as South Stream. But in recent weeks, the Russian state-owned company Gazprom has shown signs that it is serious about proceeding with what it calls Turkish Stream.
Gazprom quickly bought out its European partners in South Stream Transport, the Amsterdam company that was to build the Black Sea leg of the pipeline. And the chief of that Dutch company has petitioned the Netherlands government to let it keep working with Gazprom, despite European sanctions against Russia over the invasion of Ukraine.Gazprom quickly bought out its European partners in South Stream Transport, the Amsterdam company that was to build the Black Sea leg of the pipeline. And the chief of that Dutch company has petitioned the Netherlands government to let it keep working with Gazprom, despite European sanctions against Russia over the invasion of Ukraine.
On the Turkish front, Gazprom is actively negotiating with government officials — who are said to be driving a hard bargain — while trying to buy into a leading Turkish gas distribution company.On the Turkish front, Gazprom is actively negotiating with government officials — who are said to be driving a hard bargain — while trying to buy into a leading Turkish gas distribution company.
And all the while, Gazprom is continuing to pay to keep two big pipe-laying ships and their combined crews of 200 people on standby in the Black Sea.And all the while, Gazprom is continuing to pay to keep two big pipe-laying ships and their combined crews of 200 people on standby in the Black Sea.
As if to dispel any lingering doubts about its intentions, Gazprom’s chief executive recently made it clear that Turkey is its new focus — and that if Europe wants more Russian gas then it will need to find its own way to tap into it.As if to dispel any lingering doubts about its intentions, Gazprom’s chief executive recently made it clear that Turkey is its new focus — and that if Europe wants more Russian gas then it will need to find its own way to tap into it.
“Turkish Stream is now the only pipeline,” Gazprom’s chief executive, Aleksei B. Miller, told reporters in Moscow last week. “There are no other variants possible. Our European partners have been notified of this, and their task now is to establish the necessary gas-transporting infrastructure from the borders of Turkey and Greece.”“Turkish Stream is now the only pipeline,” Gazprom’s chief executive, Aleksei B. Miller, told reporters in Moscow last week. “There are no other variants possible. Our European partners have been notified of this, and their task now is to establish the necessary gas-transporting infrastructure from the borders of Turkey and Greece.”
Rather than bluffing, Gazprom may be simply accepting the current geopolitical realities.Rather than bluffing, Gazprom may be simply accepting the current geopolitical realities.
Some European countries along South Stream’s planned route — including Bulgaria, Hungary and Serbia — had initially welcomed the proposed project as a source of transit fees and an alternative source of gas. But the European Union had long been wary of the idea, and its opposition stiffened last year after Russia’s intervention in Ukraine.Some European countries along South Stream’s planned route — including Bulgaria, Hungary and Serbia — had initially welcomed the proposed project as a source of transit fees and an alternative source of gas. But the European Union had long been wary of the idea, and its opposition stiffened last year after Russia’s intervention in Ukraine.
Brussels feared that South Stream would increase Russia’s dominance of the European gas market and that Gazprom’s plan to shift the large volumes of Russian gas that now flow to Europe through Ukraine to the new pipeline would further weaken Kiev in its struggle with Moscow.Brussels feared that South Stream would increase Russia’s dominance of the European gas market and that Gazprom’s plan to shift the large volumes of Russian gas that now flow to Europe through Ukraine to the new pipeline would further weaken Kiev in its struggle with Moscow.
European Union officials had insisted that South Stream could not bring gas into Europe unless it conformed to European energy competition rules, which would include allowing other suppliers to put gas into the pipeline. They also successfully put pressure on Bulgaria — where South Stream would first enter the European Union after crossing the Black Sea — to block it.European Union officials had insisted that South Stream could not bring gas into Europe unless it conformed to European energy competition rules, which would include allowing other suppliers to put gas into the pipeline. They also successfully put pressure on Bulgaria — where South Stream would first enter the European Union after crossing the Black Sea — to block it.
With European negotiations at an impasse, and expensive work on South Stream contractually scheduled to commence, Mr. Putin turned to Turkey.With European negotiations at an impasse, and expensive work on South Stream contractually scheduled to commence, Mr. Putin turned to Turkey.
Energy economics played a role, too. The price of natural gas has not plummeted the way that the cost of crude oil has fallen. But slow industrial demand is expected to mean sluggish growth for the European gas market. And Russia’s finances have been hit by falling oil prices. So a new pipeline estimated to cost as much as $40 billion to deliver gas mainly to small European countries like Hungary and Serbia made little sense. Energy economics played a role, too. The price of natural gas in Europe has dropped along with the cost of crude oil, and slow industrial demand is expected to mean sluggish growth for the European gas market. Russia’s finances have been hit by falling oil prices. So a new pipeline estimated to cost as much as $40 billion to deliver gas mainly to small European countries like Hungary and Serbia made little sense.
Industry analysts estimate that the cost of Turkish Stream would be about $10 billion for Gazprom, which so far has spent an estimated $4.7 billion on the Black Sea project.Industry analysts estimate that the cost of Turkish Stream would be about $10 billion for Gazprom, which so far has spent an estimated $4.7 billion on the Black Sea project.
The South Stream cancellation fits with other recent moves by Gazprom. The company and the German chemical giant BASF in December scrapped their agreement for Gazprom to take full control of their trading and distribution joint venture. And earlier last year Gazprom signaled a shift toward Asian markets by signing two big pipeline deals with China, with one of them worth an estimated $400 billion.The South Stream cancellation fits with other recent moves by Gazprom. The company and the German chemical giant BASF in December scrapped their agreement for Gazprom to take full control of their trading and distribution joint venture. And earlier last year Gazprom signaled a shift toward Asian markets by signing two big pipeline deals with China, with one of them worth an estimated $400 billion.
While some analysts doubt the feasibility of Turkish Stream, others say a route to Turkey makes strategic and economic sense. Russia would solidify its position in that country, a fast-growing gas market that is already Gazprom’s second-largest gas customer in the European region after Germany.While some analysts doubt the feasibility of Turkish Stream, others say a route to Turkey makes strategic and economic sense. Russia would solidify its position in that country, a fast-growing gas market that is already Gazprom’s second-largest gas customer in the European region after Germany.
“This makes far more sense than South Stream,” said Jonathan Stern, chairman of the gas program at the Oxford Institute for Energy Studies. “What Russia needs to do is nail this market down; everything else is not growing.”“This makes far more sense than South Stream,” said Jonathan Stern, chairman of the gas program at the Oxford Institute for Energy Studies. “What Russia needs to do is nail this market down; everything else is not growing.”
The pipeline to Turkey would also partly cut Gazprom’s dependence on Ukraine as a transit route. About half of the gas Turkey imports from Russia now comes through Ukraine and would be replaced by Turkish Stream.The pipeline to Turkey would also partly cut Gazprom’s dependence on Ukraine as a transit route. About half of the gas Turkey imports from Russia now comes through Ukraine and would be replaced by Turkish Stream.
As it proceeds, Gazprom is revamping its Amsterdam venture. The Dutch company had already assembled an armada of skilled personnel and billions of dollars of equipment to build the 930-kilometer, or nearly 580-mile, Black Sea portion of South Stream.As it proceeds, Gazprom is revamping its Amsterdam venture. The Dutch company had already assembled an armada of skilled personnel and billions of dollars of equipment to build the 930-kilometer, or nearly 580-mile, Black Sea portion of South Stream.
To avoid wasting years of preparation and lengthy contract negotiations, Gazprom has quickly secured control of the Dutch company. In late December Gazprom said it was buying out its Western partners: Italy’s oil giant, Eni; the French utility Électricité de France; and BASF’s Wintershall oil and gas subsidiary. The companies said they would be compensated for their cash outlays so far, an estimated $750 million.To avoid wasting years of preparation and lengthy contract negotiations, Gazprom has quickly secured control of the Dutch company. In late December Gazprom said it was buying out its Western partners: Italy’s oil giant, Eni; the French utility Électricité de France; and BASF’s Wintershall oil and gas subsidiary. The companies said they would be compensated for their cash outlays so far, an estimated $750 million.
In addition, Gazprom is paying Saipem, the big Italian oil field engineering company, to keep two huge pipe-laying vessels and at least 200 people ready to begin work in the Black Sea. The ships were poised to start when Mr. Putin’s surprise announcement called off the South Stream project. Saipem has 2.5 billion euros, or $2.9 billion, in contracts with South Stream Transport.In addition, Gazprom is paying Saipem, the big Italian oil field engineering company, to keep two huge pipe-laying vessels and at least 200 people ready to begin work in the Black Sea. The ships were poised to start when Mr. Putin’s surprise announcement called off the South Stream project. Saipem has 2.5 billion euros, or $2.9 billion, in contracts with South Stream Transport.
The Dutch company is also seeking support from its home government for the change of mission. Because of the sanctions imposed by the European Union on Russia to punish Moscow’s actions in Ukraine, companies now require permission to export oil and gas equipment to Russia.The Dutch company is also seeking support from its home government for the change of mission. Because of the sanctions imposed by the European Union on Russia to punish Moscow’s actions in Ukraine, companies now require permission to export oil and gas equipment to Russia.
On Dec. 19, Oleg Aksyutin, who is South Stream Transport’s chief executive and a Russian, wrote to Lilianne Ploumen, the Dutch minister for foreign trade and international development. The letter discussed a license the company had previously obtained to provide €1.5 billion in pipelines and technical assistance for South Stream.On Dec. 19, Oleg Aksyutin, who is South Stream Transport’s chief executive and a Russian, wrote to Lilianne Ploumen, the Dutch minister for foreign trade and international development. The letter discussed a license the company had previously obtained to provide €1.5 billion in pipelines and technical assistance for South Stream.
In the letter, which a person involved in the discussions shared with The New York Times, Mr. Aksyutin notified the Dutch official of the possible change of route from Bulgaria to Turkey. He wrote that, in the company’s view, the switch “does not impact the continued validity of the license,” though it was willing to discuss the matter.In the letter, which a person involved in the discussions shared with The New York Times, Mr. Aksyutin notified the Dutch official of the possible change of route from Bulgaria to Turkey. He wrote that, in the company’s view, the switch “does not impact the continued validity of the license,” though it was willing to discuss the matter.
South Stream Transport declined to comment on the letter. A Dutch Foreign Ministry spokeswoman said that the government was “still studying the matter.”South Stream Transport declined to comment on the letter. A Dutch Foreign Ministry spokeswoman said that the government was “still studying the matter.”
Another potential sticking point is Turkey itself. For one thing, the country obtains about 60 percent of its gas from Russia, a dependence the government is not necessarily eager to increase.Another potential sticking point is Turkey itself. For one thing, the country obtains about 60 percent of its gas from Russia, a dependence the government is not necessarily eager to increase.
Talks between Russian and Turkish officials on matters like the precise route and financial terms of a deal are said to be proceeding slowly. That is partly because the Turkish government appears to be trying to use Gazprom’s need for a face-saving alternative to South Stream as leverage to negotiate lower prices for Russian gas, according to a Turkish official, who spoke on the condition of anonymity because of the sensitivity of the negotiations.Talks between Russian and Turkish officials on matters like the precise route and financial terms of a deal are said to be proceeding slowly. That is partly because the Turkish government appears to be trying to use Gazprom’s need for a face-saving alternative to South Stream as leverage to negotiate lower prices for Russian gas, according to a Turkish official, who spoke on the condition of anonymity because of the sensitivity of the negotiations.
Turkish officials also presumably have leverage because they know that if Gazprom cannot proceed quickly with the Turkish route and continues to pay idle contractors, a lot of the potential cost savings may be lost.Turkish officials also presumably have leverage because they know that if Gazprom cannot proceed quickly with the Turkish route and continues to pay idle contractors, a lot of the potential cost savings may be lost.
Mr. Putin already publicly offered a 6 percent reduction to Turkey. But Ankara, which pays substantially more for Russian gas than Germany does, is pressing for a better deal.Mr. Putin already publicly offered a 6 percent reduction to Turkey. But Ankara, which pays substantially more for Russian gas than Germany does, is pressing for a better deal.
“Nothing is being discussed while we have not achieved a desirable discount on gas prices,” the Turkish official said.“Nothing is being discussed while we have not achieved a desirable discount on gas prices,” the Turkish official said.