More Pipe Dreams? Russian & Turkey Thoughts On Blue Stream 2

Via Energy Daily, an interesting article on the continued impact that January’s natural gas dispute between Russia and Ukraine has had throughout European energy markets:  Europe, alarmed by the vulnerability of its supplies, is sounding out new possibilities for transmission of natural gas, including the proposed Nabucco pipeline. Russia, in its turn, is seeking bypass routes around its increasingly nationalist southern neighbor.  This has led to renewed discussions around the Blue Stream natural gas piplines.  As the article notes:

“…A solution to the two conundrums may be found on the southern shores of the Black Sea, in Turkey. Turkey and Russia are already connected by the twin Blue Stream natural gas pipelines laid across the bottom of the Black Sea. Moscow and Ankara are now talking about increasing deliveries through the network, which in 2008 carried 10 billion cubic meters of Russian gas to Turkey.

More importantly, following a meeting on March 26 in Ankara between Turkish Energy Minister Hilmi Guler and Gazprom chief Alexei Miller, discussions are underway about the Blue Stream 2 project. The new proposal envisages the construction of a new gas pipeline, running parallel to Blue Stream, in addition to the construction of a gas transportation system in Turkey by expanding Blue Stream to interlink with the proposed Samsun-Ceyhan line, from which a spur line would proceed under the Mediterranean to Ashkelon in Israel.

For Turkey, which currently imports 90 percent of its energy needs, the project would not only provide increased energy security but, in the case of the Samsun-Ceyhan-Ashkelon pipeline, generate significant transit revenues. Discussions have also looked into the possibility of extending Turkey’s gas lines across its Thracian territory to supply the neighboring Balkan nations Bulgaria, Serbia, Croatia and western Hungary. In such an event, Moscow will have achieved one of its cherished goals, lessening its dependency on the Ukrainian pipeline network for transit. In such a case, Moscow’s and Ankara’s aspirations are in close accord; should the lines be built, the loser would be Ukraine.

As things currently stand, the existing capacity of the Blue Stream is not being fully used. Last year, only 10 bcm of gas was pumped through the two pipelines, which have an annual capacity of 8 billion cubic meters apiece. In 2006, the first full year of Blue Stream’s operation, the lines delivered 7.5 bcm of gas; in 2007, 9.5 bcm.

Forming the impetus for Blue Stream more than a decade ago were some of the same issues that caused the recent Russian-Ukrainian dispute. In 1997, when Blue Stream was first discussed, Turkey’s sole natural gas import pipeline for Russian gas ran from Russia through Ukraine, Moldova, Romania and Bulgaria. Not only did the four nations collect transit tariffs, making the gas more expensive for end user Turkey, but there were well-founded suspicions in both Moscow and Ankara that significant amounts of gas were being pilfered along the route. A direct binational line running under the Black Sea from Russia to Turkey, despite its cost, would obviate such concerns. Accordingly, construction of Blue Stream began in 2001 and, despite some initial deliveries in 2003, pricing disputes kept the line from being officially inaugurated until November 2005. Taking care to ensure a reliable supply of gas even before construction began, in 1997 Turkey’s state-owned crude oil and natural gas pipelines and trading company Boru Hatlari ile Petrol Tasima A.S., known as BOTAS, signed a 25-year contract for supplies with Gazprom.

Blue Stream is an impressive feat of engineering. The $3.2 billion, 754-mile pipeline begins at Russia’s Izobilnoye natural gas plant in Stavropolskii krai before crossing 246 miles of the Black Sea underwater to end at Turkey’s Durusu terminal, 40 miles from Samsun. The line was constructed by the Gazprom-ENI joint venture Blue Stream Pipeline B.V. The underwater sections of the line were built by Saipem, Buig Offshore S.A. and Katran K, along with a Japanese consortium of Mitsui, Sumitomo and Itochu. At its deepest section, Blue Stream lies at a depth of 1.3 miles. Besides pressure issues, designers also had to contend with the Black Sea’s hydro-sulfuric environment, forcing engineers to develop special technical solutions, including the use of high-quality corrosion-resistant steel pipes with external and internal polymer coatings.

Moscow and Ankara intended the Blue Stream pipeline to lay the foundation for an enhanced strategic energy partnership between the two nations, to serve as a precursor to joint participation in energy and transport projects. As noted above, Ukraine would be the ultimate loser should all the various project details be implemented, but in the great regional energy chess match, Kiev is not taking the threat to its pipeline network lying down, and ironically, they are being aided and abetted by EU bureaucrats, whose energy concerns were heightened by last January’s events.

On March 23, Ukraine and the European Union signed a declaration in Brussels that could see Europe give Ukraine $2.57 billion to modernize its gas pipeline network, on the condition that Kiev guarantee transparency of transshipments of gas along with equal access to pipelines for all interested exporters. The arrangement was immediately criticized by Russian Prime Minister Vladimir Putin, who threatened to review his nation’s energy relationship with the European Union should Russian interests be ignored, labeling Ukraine’s plan “ill-considered and unprofessional.”

Applying Putin’s adjective of “ill-considered” to its dealings with Ukraine is apt. The European Union wants to have its natural gas as well as its cake, dangling NATO membership in front of Kiev, a gesture that infuriates the Kremlin, while simultaneously attempting to diversify its energy supplies at a time when Russia supplies more than a quarter of its natural gas. For Russia, an upgraded Blue Stream would be insurance against the vagaries of Ukraine’s policies, while Turkey clearly sees the benefit of becoming an energy corridor. As Russia turns increasingly toward Turkey and, by extension, the Middle East market, Brussels bureaucrats might question the wisdom of their eastward policies of enticing Ukraine while antagonizing Russia and make some serious course corrections, lest next winter they again find themselves experiencing the big chill.

This entry was posted on Monday, April 6th, 2009 at 8:14 am and is filed under Gazprom, Russia, Turkey.  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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