Blue Stream 2: Maybe Not a Pipe Dream…

Via Stratfor (subscription required), interesting analysis of the latest natural gas project proposals signed by Europe, Turkey and Russia in recent weeks. As the article notes, while most of the proposed projects likely are little more than pipe dreams, the Blue Stream agreement between Russia and Turkey is by far the most politically and logistically realistic:

“…The Europeans and Russians are competing over a slew of natural gas projects, all of which center around the Black Sea area and all of which are closely related to Turkey. Turkish Ambassador to the United States Nabi Sensoy said in an op-ed piece published in The New York Times on May 20 that his country strongly supports being a part of a natural gas network that would diversify east-west lines of supply, adding that this “has long been and remains one of Turkey’s most pressing national policy priorities.” Sensoy specifically mentioned Ankara’s interest in moving forward with the proposed Nabucco pipeline, which would circumvent Russian territory, and referred to the agreement Turkey and the European Union signed May 8 to get the project off the ground. Indeed, in response to numerous claims that Turkey is stalling the project, Sensoy claimed that Ankara is the project’s biggest proponent and is ready to launch Nabucco as soon as possible, but the Europeans are “hobbled by a lack of consensus” on the prospective pipeline.

Map - FSU Middle East and Europe - Potential Pipelines

A pact on another large prospective natural gas project that would diversify the east-west system, known as South Stream, was signed May 15, only this agreement involved a different set of players. Russia’s Gazprom and Italy’s ENI were the primary signatories on this project, which would move Russian supplies directly across the Black Sea into the Balkans and then on to the heart of Europe.

Though Nabucco and South Stream have been discussed for many years, the vigor of those discussions has increased since a series of natural gas imbroglios between Russia and Ukraine in recent years, which have led to cutoffs across much of Europe. These cutoffs highlighted the risks of relying on Ukraine as a transit state (more than 80 percent of Europe-bound Russian natural gas traverses Ukraine) and thus made bypassing Ukraine a preferred option for future energy projects.

The Europeans and the Russians are looking to Turkey, which is seen as a much more stable and reliable transit country and which is on the rise geopolitically, to help resolve their energy uncertainties. Europe would like its natural gas imports to flow uninterrupted and without excess politicization, while Moscow would like to keep Europe hooked into its energy system without the complications involved in dealing with Ukraine. The Europeans’ and Russians’ interests have led to a showdown between the South Stream project, led by Russia, and the Nabucco project, which avoids Russia.

Both pipelines have routes that circumvent Ukraine, but they share another, less-appealing characteristic: They are both extremely difficult and expensive projects. Nabucco would have to traverse thousands of miles of terrain that is difficult to navigate, including the Caucasus, the mountainous landscape of Turkey, Southeastern Europe and possibly even Central Asia or the Middle East. South Stream would have to go through the depths of hundreds of miles of the Black Sea just to reach the eastern frontier of the Balkans. Each project would require the development of technologically-challenging infrastructure, which would cost tens of billions of dollars — and cost will certainly be a point of contention, especially during the ongoing economic recession. And that is not even considering the question of which countries have the ability and political will to provide the large volumes of natural gas these projects call for.

Chart - Pipeline Capacities

As the vociferous debates regarding Nabucco and South Stream continued, Russia and Turkey signed a deal for another project, called Blue Stream 2, on May 17. This proposed pipeline would be an extension from the existing Blue Stream pipeline that runs directly from Russia to Turkey along a relatively shallow and short distance (less than 250 miles) of the Black sea. Essentially, Blue Stream 2 would run parallel to Blue Stream 1. Compared to Nabucco and South Stream, the required technology would be much less challenging (the pipeline has basically already been constructed once, with Blue Stream 1) and it would be much less costly, as the original Blue Stream cost a relatively small sum of $3.2 billion to build. It should be noted, however, that the original Blue Stream was still technologically difficult to build, since it is an underwater pipeline, and the project was stalled for years over who would provide the financing. So while the cost of Blue Stream 2 is only a fraction of the other projects, financing will still be an issue — particularly as Russia is mired in its own recession and has a number of other priorities on its list. Turkey is also facing a serious downturn and is engaged in talks with the International Monetary Fund for a multibillion dollar stand-by line of credit.

From a political perspective, Blue Stream 2 theoretically would be relatively simple to negotiate, as it involves merely a bilateral deal between Russia and Turkey; negotiations for South Stream involves Bulgaria, Greece, Italy, Serbia, Hungary and Austria (and Nabucco’s list of participating countries is even longer). And theoretically, Blue Stream could eventually replace the ambitious South Stream project as a means of getting Russian energy supplies to Europe. Moscow is well aware of all the constraints that could keep South Stream from materializing, but it continues supporting the project and signing agreements — for mainly political purposes — to derail Nabucco. Blue Stream 2, however, could eventually send more than the agreed-upon 10 billion cubic meters annually, with the option of sending the extra gas westward from Turkey on to Europe or even eastward to the Middle East.

According to STRATFOR sources in both Russia and Turkey, Ankara took the initiative in making energy project proposals during a recent meeting between the two countries in Sochi, and it will continue to do so in an upcoming meeting in June between Russian Prime Minister Vladimir Putin and Turkish Prime Minister Recep Tayyip Erdogan in Turkey. Erdogan is also expected to make an announcement about Nabucco on June 26 — one that will be made primarily for political purposes (to demonstrate how Turkey is entertaining all options and does not wish to become overly dependent on Russian supplies), with the knowledge that the pipeline is still very much a pipe dream.

The expansion of Blue Stream into Europe is by no means a certainty, as it would involve complex negotiations between the Turks and Europeans on pricing and volumes. But it is technically feasible — much more so than South Stream would be. Furthermore, the ability to pay $3 billion rather than South Stream’s roughly $25 billion to get the same supplies to their destination makes Blue Stream the more desirable option.

This is not to say that Blue Stream 2 will assuredly be built, or that it will necessarily replace South Stream or Nabucco. But the details and realities of each project indicate that Blue Stream 2 is — by far — the most politically and logistically practical.

This entry was posted on Thursday, May 21st, 2009 at 11:23 am and is filed under Uncategorized.  You can follow any responses to this entry through the RSS 2.0 feed.  Both comments and pings are currently closed. 

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