Is a Turkish gas hub politically acceptable for Europe?
Last month, world media reported that Russia and Turkey were discussing setting up a gas hub in Turkey. The country, being one of the biggest buyers of Russian gas, made a natural choice for rerouting some of the gas that was now gone from Europe.
Yet doubts immediately emerged whether that would be a good idea, what with Europe showering Russia with sanctions, including on its energy industry, and shunning Russian oil and coal, with talk about sanctions on gas, too.
According to some analysts, the idea of a new gas hub in Turkey is pointless because the biggest gas market in the vicinity of Turkey is Europe, and Europe doesn’t want to buy Russian gas.
European purchases of Russian LNG hit a record this year, and there seems to be a consensus that without the continued flow of Russian gas via Ukraine, Europe will have a hard time surviving winter on storage and LNG imports alone.
Since the start of the year, Russian gas exports to Europe have fallen by more than 40 percent, Reuters reported this week in a piece analyzing the viability of a new gas hub in Turkey.
Yet most of that decline was not a result of European buyers turning their back on Russian gas. The decline was a result of the turbine problems with Nord Stream 1, the closure of another pipeline that goes through Ukraine, and, ultimately, the sabotage of Nord Stream 1 and 2.
In the immediate future, Europe simply cannot survive without Russian gas. Over the longer term, however, the continent has ambitions to eliminate this uncomfortable dependence by switching to other sources of the commodity, chiefly in the form of liquefied natural gas.
Germany made a historic step this week in this direction by closing a long-term deal with Qatar for the supply of 2 million tons of LNG annually beginning in 2026 for a period of 15 years. The amount, however, represents a fraction of Germany’s gas demand, so it would need to keep looking for new sources of LNG.
Some, however, believe that the Turkey gas hub would be a convenient way to continue selling Russian gas to Europe without calling it Russian, therefore making it politically palatable for the European political elite.
Reuters quoted a source from Gazprom as saying that “That will not be Russian gas, but gas from the hub,” and another from European trading circles, who noted that Europe is already buying Russian LNG from China and calling it Chinese.
“Europe is unlikely to want to enter into direct contracts with the Russian Federation, and buying free volumes on the spot market in Turkey will be politically acceptable,” said Alexander Gryaznov, an S&P Global Ratings director, noting that the EU has stopped short of imposing an embargo on Russian gas.
For Turkey, the hub would be an opportunity to increase its regional influence in energy matters, potentially becoming a major gas artery for an energy-starved Europe that should soon recognize the fact it cannot subsist on LNG imports alone because there is no LNG in the world for it and everyone else who needs it.
It is still early days. A hub of the size that Russia and Turkey are discussing would be an expensive undertaking, and investment has yet to be lined up, most likely without the participation of Western capital because of Russia’s role in the project.
It may never move beyond the planning stage, as happens with so many grand-sounding projects. The fact remains, however, that Europe needs gas, will need gas for the observable future, and, as evidenced by Germany’s latest LNG deal, is ready to reconsider its political priorities when energy security is under threat.
By Irina Slav for Oil Price