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Implications of the Demise of South Stream for Southern Gas Corridor
Though, Nabucco was not beginning of energy history in the region, but everything started with Nabucco. Nabucco appeared as a main project of East-West energy corridor, which is planned to be merged with South Caucasus and Trans-Caspian gas pipelines and to be laid down across Turkish and Balkan territories to Central Europe. Nabucco aimed to deliver Azerbaijani and Turkmen gas toward Europe to decrease the EU’s gas dependence on Russia, policy that oriented to bypass Russia and break down its hand over transportation of energy resources of region as a single supplier, where Russia considered its traditional backyard.
However, gas supply agreements of Turkmenistan with Russia, China and Iran; US sanctions over Iran; lack of sufficient gas to fill Nabucco; uncertainty of potential gas contributors; withdrawal of some stakeholders from Nabucco; pressure by Russia over Nabucco transit countries; matter of costs; lack of political support, huge investment, coordination among companies etc. paralyzed Nabucco project. Therefore, upon those developments, Azerbaijan and Turkey jointly initiated Trans-Anatolian Pipeline, which consequently modified ‘Nabucco’ as a ‘Nabucco-West’. When, Shah Deniz consortium opted for Trans-Adriatic Pipeline for the continuation of TANAP, the Nabucco-West is totally buried. In order to keep its influence over pipelines and to say final word on transportation of gas, SOCAR remain as a key shareholder of TANAP project with 58% and with 20% in TAP. In this context, South Stream was Russian-led project to fill vacuum left after Nabucco and compete with construction of alternative pipelines to Europe. 
On 1st December, Putin announced suspension of South Stream by blaming the EU for its unconstructive position, whereas actually realization of pipeline was no more realistic because of political and financial issue. During Putin’s visit to Turkey, Turkish BOTAS and Russian Gazprom signed Memorandum of Understanding to construct new offshore natural gas pipeline through Turkish territories across the Black Sea with 63 bcm annual capacity. The 14 bcm of this volume will be supplied to Turkey and remaining 50 bcm is considered for new hub that will be constructed at the Turkish-Greek border in Turkey, which might be further transported to South-East Europe. 
Actually, South Stream experienced same fate that Nabucco pipeline did. Though, both pipelines are considered as rivals to each other before, some common features united them in terms of cost of construction, feasibility studies, political will and lobbying, coordination etc. Robert Cutler writes that, South Stream was originally intended to block Nabucco, while this initiative is failed even when Nabucco was replaced by TANAP/TAP. Therefore, there is no longer any raison d’être for South Stream. Steve LeVine writes that, “The world’s first pipeline war [between Nabucco and South Stream] has officially come to an end [with lose-lose results]”, when Putin closed final chapter by suspension of South Stream. So, who will be winner? 
Some media reports portrayed the construction of new pipeline to Turkey as a new rival and challenge for TANAP and TAP pipelines, which is planned to be operational by 2018 and deliver 16 bcm Azerbaijani gas to Europe. Similar case of competition had been already observed in Nabucco project by South Stream. Because, when Azerbaijan opted for TAP instead of Nabucco-West it was considered a mitigation of Russian concern for its pipeline monopoly over Central Europe. Whether Russian gas will compete with Azeri, Turkmen, Iraqi or Mediterranean gas, which is considered for Southern Gas Corridor, is a matter of time and should not be misinterpreted in advance. 
The “14 bcm gas” means, Turkey de-facto will be able to receive entire volume, which it imports that of through Trans-Balkan pipeline that comes through Ukraine, Moldova, Romania and Bulgaria. Russian Energy Ministry already works on transit route and financing issues for planned new pipeline under the Black Sea. If this pipeline is constructed, then Gazprom will need to use Greek gas transmission system DESFA (60% shares which owned by SOCAR) to transport its gas to Southeastern Europe. With its 60% shares in DESFA, SOCAR will automatically receive stake in the Interconnector-Greece-Bulgaria, where DESFA is shareholder too. This will enable Azerbaijan to deliver its gas (maybe in the future Russian gas too) to Bulgaria as well. While Russia (Gazprom) may need TANAP/TAP to deliver its gas to Europe, which will enhance economic efficiency of the Southern Gas Corridor for its stakeholders, notably for SOCAR, since Trans-Caspian pipeline (the main gas contributor for SGC) is temporally shelved. However, as SOCAR also plans to increase its gas supply up to 50 bcm by 2025 from Azeri-Chirag-Guneshli, Shafag-Asiman, Zafar-Marshal, Umid, Absheron, Araz-Alov-Sharg and Nakhichevan fields, official Baku may face price competition of Russian gas in the future. 
One of the main reason that South Stream failed is the EU’s “Third Energy Package” rules, which require that the companies [Gazprom] that supply gas, should not own/control the pipeline, which the gas goes through. This what Moscow could not agree with as it is intended to break the monopoly of Gazprom. Moreover, let’s not neglect the fact that, though TAP had already received “Third Party Access” exemption from the European Commission for 50% of total capacity, other 50% left for “Third Party Access”, which means Russia (Gazprom) can have an access to “Third Party Access” portion of project. Even without joining TAP, Russia may sell its gas to TAP stakeholders at the border, which does not contradict “Third Energy Package” rules at all, as it states that a single [energy] company should not own, produce and transport oil and gas at the same time. In this context, Russia will not own any infrastructure or transport it through that, while only will sell it at the border. Regulation also says that, “TAP AG will have the obligation, upon request of a third party to construct additional entry and exit points in the territory of Greece, [where] all costs related to the construction and operation of such entry and exit points will be borne by the third party who made the request.” This provision also enable Russia to request construction of additional entry/exit points either in the Turkish-Greek border or in Greece itself. 
Upon these developments, Turkey’s Energy Minister also stated that, TANAP will not be affected from Turkey-Russian MoU. [Natural Gas Europe, 2014] Official statement came from SOCAR as well “Replacing any project with South Stream wouldn’t change our approach, we have a 25-year agreement to supply Shah Deniz Stage 2’s gas towards the west”. “The 16 bcm of gas that TANAP will carry has already been sold and related long-term agreements with European companies. Accordingly, the button has already been pressed. At this stage, any direct impact is out of question” told Murat Lecompte, Director of Communications for BP Turkey. Elnur Soltanov from Caspian Center for Energy and Environment says that, “If Russia decides to join TANAP, it will be revolutionary decision and it can ease financing of the Shah Deniz II for Azerbaijan and will enhance efficiency of TANAP and Southern Gas Corridor as well”. In this regard, Russia may cooperate with Shah Deniz consortium, precisely with Azerbaijan and Turkey, which are the main shareholders, to deliver its gas to Southern-Eastern European markets.
Now question is who will involve in new consortium, which is already determined to be called “Gazprom Russkaya”? Only Russia and Turkey or new partners, or previous partners of South Stream pipeline (Italy’s ENI, France’s EDF and Germany’s Wintershall), which disappointed of course, since they invested billions in South Stream along with Russia, which spent 4.66 billion USD to project itself. Aleksey Miller said that, “While the pipeline will be registered as a Russian company, Gazprom will consider offers from Turkish partners if they express an interest in buying into the project.” However, who will own majority stake in pipeline and whether third parties will be allowed to join new pipeline project or not, that is big question mark. Third party might be SOCAR as well in order to have voice over alternative pipeline and maybe to receive additional gas for Southern Gas Corridor or buy remaining Russian gas in the gas hub to sell as its own or SOCAR may allow Russia’s participation in TANAP by receiving share in turn, in a new pipeline to Turkey. Numerous options exist. Let’s hold ‘wait and see’ mode.
Ilgar Gurbanov, Analyst, Strategic Outlook
10.12.2014 - Hit : 2504

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