Turkey gave Russia permission on Wednesday to build the South Stream pipeline through its territory, supplying the missing piece needed by Moscow to secure markets for its gas in Europe at the possible expense of Brussels-backed rivals.
The South Stream project could jump ahead of the European Union-backed plan for the Nabucco pipeline to cut Europe's dependence on Russia by bringing gas from Azerbaijan and central Asia. It also would allow Russia to bypass Ukraine, in the past a pinch point for Russian gas on its way to Europe. South Stream must pass through the territorial waters of Turkey, which is also a Nabucco participant, to reach south-east Europe.
"I would like to thank the government of the Turkish republic for its decision to permit construction of the South Stream pipeline in Turkey's economic zone," Russian Prime Minister Vladimir Putin said at a ceremony in Moscow. It was an unexpected move by Turkey, one of Russia's biggest gas customers, which in November appeared to turn away from Russia when it announced it would not extend a contract with Gazprom, Russia's gas export monopoly for 6 billion cubic metres of gas per year. In what appeared to be a package deal, Turkish Energy Minister Taner Yildiz provided the permission required to build the pipeline through Turkish territorial waters, while Gazprom Chief Executive Alexei Miller said the company would extend two longstanding gas deals that would effectively boost supplies to Turkey by 2 billion cubic metres (bcm) from 25 bcm.
That will include 3 bcm to be supplied via the Western Line pipeline, which passes through Ukraine, Romania and Bulgaria. Turkey had been planning to reduce supplies via the Western Line. Miller had met Yildiz in Ankara on Tuesday. It was unclear whether Gazprom made concessions in exchange for South Stream.
After overestimating its gas needs in previous contracts, Turkey has been drawing far less than it had contracted under long-term take-or-pay deals. At the same time, it has been one of a growing number of consumer countries asking Gazprom to cut its prices. Analysts say the project, for which Gazprom allocated around 10 billion euros ($13.1 billion) in its investment programme for 2012-2014, is too costly and motivated by the desire to win political influence over Europe through supply links with strategic countries. Gazprom owns 50 percent of the South Stream project, which is designed to carry 63 bcm per year of Russian gas to Europe. Italy's Eni has 20 percent, and France's EDF and Germany's Wintershall each own 15 percent.