- Europe will continue to pursue a unified energy market by building up its internal infrastructure and regulatory environment.
- Europe will not block the construction of TurkStream as long as Russia adheres to the Third Energy Package and finalized Energy Union Package regulations.
- To protect Ukraine from Russian influence, Europe will try to fully integrate Ukraine into a European energy market.
Stratfor closely monitors the ebbs and flows of world energy. Aside from production, the transportation of crude oil, natural gas and petroleum products is of paramount concern for oil-producing nations. For energy consumers, transit routes are indispensible lifelines. A huge amount of the world's energy is transited through pipelines, across the Eurasian landmass in particular. In this periodic series we will examine some of the most geopolitically significant pipelines running through Europe and Asia. In this installment, Stratfor examines TurkStream, the successor to South Stream, from the Western and Turkish perspective.
For more than a decade, Europe has tried to counter Russia's attempts to spread its influence across the Continent through an intricate network of pipelines. To that end, Europe's primary aim has been to create its own integrated energy market and an expansive pipeline network that offers several different routes for natural gas supplies heading to European consumers. Russia's TurkStream project, formerly known as Turkish Stream, would in many ways promote Europe's energy security goals. However, it would also give Russia greater sway over Ukraine — something neither Europe nor the United States is willing to accept.
Loosening Russia's Grip
The European Union has long sought to model its energy market after that of the United States. Its goal is to create a unified market with consistent laws and sufficient transit capacity to prevent large pricing differences across the bloc. In practice, such a market would enable European consumers that manage to secure a favorable price for Russian natural gas, such as Germany, to then sell that natural gas to other EU members that are unable to get a good deal, such as Bulgaria. By integrating the energy networks of each member state, the European Union would both improve its overall energy security by increasing access to physical supplies and create more robust trading mechanisms throughout the Continent. The more connectivity between members, the more flexibility each member has in adjusting its imports alongside changes in supplies and politics.
The lack of both a physically and legally unified energy market in Europe has given Russia the space to extend its pipeline presence deep into the Continent over the past decade, leveraging its substantial natural gas supplies to try to influence European policies. In response, Europe has tried to counter Russia's growing clout by building up the infrastructure needed to transport natural gas from non-Russian suppliers to Europe. For example, the European Union has tried to use its Southern Gas Corridor project and several LNG import terminals to diversify its natural gas supplies away from Russia, instead turning to Central Asian producers such as Azerbaijan or LNG exporters such as Qatar, Algeria and Nigeria for its imports. The bloc has also linked more internal pipelines and interconnectors, encouraging vital trade between member states where possible. It has hindered Russian state-owned natural gas company Gazprom from charging different countries different prices, essentially eliminating Russia's ability to use natural gas as a political bargaining chip.
The Continent has also taken steps to build a regulatory environment conducive to the new energy market it envisions. The Third Energy Package has played a key role in coordinating the European energy market and eroding monopolistic tendencies plaguing the natural gas networks. Among other things, the package's regulations prevent pipeline operators from supplying natural gas and prevent suppliers from operating the pipelines. These rules have blocked Gazprom from owning or heavily investing in any European pipelines, with a few notable exceptions, such as the Ostsee-Pipeline-Anbindungsleitung pipeline. Europe has applied equal scrutiny to deals involving non-Russian companies, including Azerbaijani national oil company SOCAR's proposed purchase of Greek pipeline operator DESFA.
TurkStream: For the West, a Mixed Bag
TurkStream, which would route Russian natural gas supplies to Europe through Turkey and Greece, would enhance the Continent's energy security because it would enable natural gas flows to Europe to continue uninterrupted in the event of a fallout between Ukraine and Russia. The pipeline project would also incentivize European Union-based companies to invest in infrastructure in Southeastern Europe, integrating countries such as Romania and Bulgaria, which at present are greatly disconnected from the rest of the Continent, into the more mature natural gas markets in Central Europe. New infrastructure erected to support TurkStream could also eventually carry Iranian or Central Asian natural gas to Europe, further diversifying European energy supplies away from Russia.
Despite these potential benefits, TurkStream also presents a real problem for Europe. By providing an alternative route for Russian natural gas heading to Europe that circumvents Ukraine, TurkStream would give Russia's threats to stop using Ukraine as a transit state greater substance. The Kremlin would have a way to cut off supplies to Ukraine without cutting off the rest of Europe, lowering the political cost to Moscow of leveraging natural gas to gain sway over Kiev. For the West, which has seen its competition with Russia for influence in Eastern Europe play out on the Ukrainian battlefield for the past two years, the threat of Ukraine becoming more vulnerable to Russian heft is a serious concern.
In response to this concern, the Energy Union Package the European Union unveiled in February clearly laid out plans to involve Ukraine in any future European energy market. From the perspective of most Europeans, Russia has made it clear that it will not abandon its efforts to build a pipeline route that bypasses Ukraine; therefore, the only way to protect Ukraine from falling prey to Russia's attempts to translate its energy supplies into political power is to fully integrate Ukraine into a European energy market.
This would effectively entwine the fates of the European and Ukrainian energy sectors. By increasing the infrastructure connecting Ukraine to Europe and placing Ukraine under the umbrella of EU legislation, the Continent would be able to send natural gas piped through TurkStream on to Ukraine. At the same time, it would make it more difficult for Russia to single Ukraine out for natural gas cutoffs without affecting Europe, raising the cost of any attempt by the Kremlin to use natural gas as a political tool against Ukraine. Thus, although Brussels probably will not seek to incentivize TurkStream, it also likely will not stand in the way of the pipeline's construction, so long as Russia adheres to the Third Energy Package and finalized Energy Union Package rules restricting Russian control over the TurkStream project.