Turkey & Russia: A Relationship Out of Gas?

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The barometer just went through the floor between Turkey and Russia. The temptation for Putin now must be to show Erdogan that a deep freeze in relations can be more than just a figure of speech and cut off gas supplies. Baby, it’s cold outside.

Turkey relied on Russia for 27.4 Bcm of its 47.6 Bcm gas imports in 2014, or 57%. Turning off the taps would be an easy way of punishing Ankara for shooting down Moscow’s Su-24 bomber this morning.

The problem is, it would play into many waiting hands. As the Oxford Institute for Energy Studies (OIES) noted in a typically excellent report recently:

The political nature of Europe’s desire to diversify away from Russian gas is a clear source of bargaining weakness for Gazprom, and is being exploited by future exporters of US LNG who are actively lobbying potential customers in the EU via groups such as LNG Allies, whose stated mission is to “support our NATO and other allies…with enhanced fuel diversity and energy security.

With US LNG exports to start by January from Cheniere’s Sabine Pass plant and LNG regasification capacity being developed across Europe, American project developers – who have signed up in absolute droves to get permission from the DoE to export gas – will be rubbing their hands and hoping Gazprom pulls the triggers.

(Hell, with a Turkish market waiting, maybe even Alaska’s $60 billion LNG plant might have a sniff at final investment decision in future. It could probably get there faster than the elusive TANAP pipeline to carry gas from Azerbaijan’s Shah Deniz II gas field across Turkey to Europe; the lynchpin of the so-called Southern Corridor…)

Russia now has a massive problem on its hands. It was hoping for Turkey – with whom it has been planning a new 63 Bcm pipeline under the Black Sea – to prove a handy new transit country for gas supplies to Europe as it looks to circumvent troubled Ukraine, as well as a rapidly growing market in its own right.

Putin’s scrunched up body language during his press conference today and comment that Moscow had been “stabbed in the back” said a lot. If he starts stabbing at Russia’s pipelines in return, it’s Russian revenue that will be bleeding out along with a host of plans for restructuring gas exports to Europe; plans for which Turkey was so central.

(Besides, there are large future customers in China to consider; Chinese fears that energy supplies could be wielded as a geopolitical weapon would go down like a ton of bricks in Beijing. And Russia, to be fair, has only ever turned off the taps for one reason: customers in Kiev consistently not paying their bills…)

While chatter about a proxy war between Russia and the US has focused on Syria, the one for future European gas market share is just as intriguing, if, thus far, less explosive.

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