The year 2017 set a record in Turkey that only a few people noticed: namely, a historic peak in Russian gas deliveries. Gazprom sales to Turkish customers shot up by 17.3 percent and hit 29 billion cubic meters (bcm). This was partly due to an exceptionally harsh winter. On January 7, the cold wave sweeping down from Eastern Europe had the Bosphorus Strait closed for shipping. Heavy snow all but shut down Istanbul’s Ataturk Airport, grounding more than 650 flights. Not only did the freeze spike households’ heating bills, it also increased by a quarter the volume of gas burned by power stations. So there was Turkey, braving the elements, and there was Russia, pumping gas to keep people’s houses warm and the electricity running.
Record-level usage brings home the fact that Turkey is currently Gazprom’s second largest customer after Germany. Interdependence puts bilateral ties on a more solid footing than all the Putin-Erdogan summitry. Economic growth in Turkey has resulted in a surge of gas consumption, from 25 bcm in 2005 to a staggering 55.2 bcm in 2017. Russia supplies more than half of that volume. Moscow and Ankara are working side by side on strategic infrastructure projects as well. On April 29, the state-run Anadolu Agency reported that the TurkStream gas pipeline, crossing the Black Sea, has reached Kiyikoy on the Turkish coast, north of Istanbul. As soon as the end of 2019, Turkey is set to receive directly from Russia the gas that travels via Ukraine, Romania, and Bulgaria over the so-called Transbalkan Pipeline.
TurkStream adds to a partnership that has been growing since the late 1990s. In December 1997, Prime Ministers Viktor Chernomyrdin and Mesut Yilmaz wrapped up the first deal to build a submarine gas pipeline connecting Russia to Central Anatolia, including the Turkish capital of Ankara. Blue Stream became a reality eight years later, with Putin and Erdogan at the helm. In November 2005, the power duo inaugurated the venture in the Turkish Black Sea port town of Samsun, along with one Silvio Berlusconi, then Prime Minister of Italy. ENI, Italy’s energy champion, had formed part of the Blue Stream consortium. It was a landmark project. Blue Stream provided the blueprint for even more ambitious endeavors undertaken by Gazprom with major European firms, such as the highly controversial Nord Stream running through the Baltic Sea all the way to Germany. With Nord Stream 2 now in construction and Turk Stream nearing completion, Russia is edging closer to fulfilling its long-standing goal of bypassing Ukraine as a transit country. Erdogan, who otherwise enjoys a fairly positive relationship with Kyiv, is definitely playing along.
Except that it is not so simple.
Firstly, what is being completed is only one of the two parallel lines of TurkStream. Line 2, bound for the EU market, is still in question. The dispute between the European Commission and Gazprom over the application of EU rules is still unresolved. Brussels demands that Russia’s competitors should have access to newly built infrastructure inside the Union. Disagreement over the so-called “Third Energy Package” effectively put an end to South Stream, TurkStream’s predecessor, which was supposed to run through Bulgaria and the former Yugoslavia to Central Europe and Italy (ENI was involved in that project too). Russia’s annexation of Crimea in the spring of 2014 destroyed all good will in Brussels to work out a compromise. Now Gazprom is vowing that TurkStream’s second line will be laid down in the last quarter of 2018. But the timeline might prove elusive without an agreement with the European Union. It is worth noting that Turkey has still not granted the permits for the onshore sections of the second line.
In addition, there is no clarity where Russian gas will be heading if and when it crosses Turkey’s borders with the European Union. Bulgarian Prime Minister Boyko Borisov is keen to bring it to the Balkan Gas Hub, a project he has been pushing before Jean-Claude Juncker and the European Commission. A more realistic alternative would be the Transadriatic Pipeline (TAP) connecting Northern Greece and Italy. The pipeline, which is now being built by a group of companies including BP and Azerbaijan’s SOCAR, will bring Caspian gas to Europe and make the much discussed Southern Gas Corridor a reality. To meet Europe’s conditions, in other words, Russia will need to piggyback on players that are striving to wean away some of its market share.
This is where Turkey comes into the picture again. It is a central player in the Southern Gas Corridor. In another piece of recent news, Ankara announced that the Transanatolian Pipeline (TANAP) would come online on June 30. That is an event that has implications for the European Union too, in that TAP is an extension of TANAP. Long story short, Caspian gas is finally coming to both Turkey and Europe. Though initial volumes are small (10 bcm) there is a new export route which, over time, might bring in more gas from Central Asia and the Middle East, boost competition in the European Union, and give the Russians a run for their money.
Turkey has not abandoned its goal of diversifying its energy imports away from Russian gas. Even if it set a record in absolute terms, Russia’s relative share on the Turkish market shrank in 2017, by 1.1 percent. Turkey is investing into liquefied natural gas (LNG). It commissioned two floating storage and regasification units (FSRU) in recent years: one close to the city of Izmir in December 2016, and another off the shore of the southeastern province of Hatay in February 2018. Turkey also has one onshore storage facility on the Marmara Sea coast. There will be more such facilities coming. The growth of LNG (currently about 12 percent of the imported gas, with Algeria and Nigeria as the main sources) provides Turkey with a buffer in cold winters like the one in 2016-2017. More importantly, it increases Ankara’s leverage in future negotiations with the Russians once current long-term contracts expire between 2021 and 2025, as well as with Iran, the second most important supplier. Last but not least, LNG will further consolidate Turkey’s alliance with Qatar, a major gas exporter. And who knows, Ankara might start buying U.S. gas, rekindling ties that have recently hit rock bottom.
Ironically, Russia can end up undercutting Gazprom too. When the Akkuyu nuclear power plant built by Rosatom starts working—the projected date is 2023, the centennial of the Turkish Republic—it may displace gas used in electricity production.
Turkish policymakers, including Erdogan’s son-in-law and heir apparent Berat Albayrak, who serves as energy minister, are fond of talking up their country as a rising power in energy geopolitics. Some of that talk is substantiated: The new pipelines running through Turkey will add to its influence and generate income from transit fees. There is a good amount of grandstanding too. For instance, the aspiration to set up a trading hub and have Turkey buy gas from producer countries and resell to consumers in Europe has always been far-fetched.
Ankara’s Achilles heel remains the economy. With inflation spiraling out of control, energy imports are getting ever more expensive. Private companies, burdened by dollar and euro-denominated debt, need to sell at regulated prices to domestic consumers. That creates uncertainty in the market and puts pressure on the government to step in as guarantor of investment by the business sector, robust economic growth notwithstanding. But if Turkey succumbs to a crisis such as the one in 2001 that propelled Erdogan to power, its grand energy plans might fall apart. Then dependence on Russia will be the least of its problems.