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Nordstream and Turkstream can help improve relations between Russia and its neighbors

June 24, 2019
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Purpose of Turkstream and Nord Stream:

Russia has two major natural gas pipelines either finished or still under construction that will provide a substantial amount of energy for its customers in Europe. The Turkstream pipeline stretches 680 miles from near Anapa, Russia to Kiyikoy, Turkey. This pipeline will pump 31.5 billion cubic meters of natural gas annually when operational in December 2019. The Nord Stream pipeline currently holds the record for the largest underwater natural gas pipeline in the world. It stretches 759 miles from Vyborg, Russia to Greifswald, Germany. A plan has been set into motion to start the second phase of Nord Stream, called Nord Stream II. With the completion of Nord Stream II, the pipeline capacity of natural gas will increase to a total of 110 billion cubic meters annually for European customers. The successful completion of Turk Stream and the final phase of Nord Stream will allow Russia to provide a combined total of 141.5 billion cubic meters of natural gas annually. The success of these pipelines will help to meet the energy needs for the European population in the future. However political controversaries can put these projects on hold which can negatively impact relations.

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Source: oilcapital.ru

Nord Stream:

According to the Nord Stream website, domestic production of natural gas in Europe will continue to decline. Many European states wants to invest in renewable energy sources such as wind farms and solar power, but European customers will still need a steady supply of natural gas to meet their energy demands. Phase II of the Nord Stream project will bring a continuous supply of natural gas through the shortest routes possible. Before Nord Stream II, European customers had received natural gas through central corridors. These corridors consist of pipelines that stretched 6,400 kilometers from natural gas fields in Russia to central Europe. With the completion of the Nord Stream II pipeline, the routes for natural gas will be significantly shorter at just 3,100 kilometers. The shorter routes will provide two major benefits for Europe. The first benefit for European customers will be lower prices for natural gas. According to the Nord Stream website, even with higher availability of liquid natural gas (LNG) sources, natural gas prices can still be 13% lower with the completion of Nord Stream II. It will save an estimated 8 billion Euros for customers. Savings can be even greater with lower availability of LNGs, with prices lowering as much as 32% and saving up to 24 billion Euros. By receiving a larger portion of energy from natural gas, European companies can save money by not having to invest in LNGs. Investments in LNGs also will include tax financed subsidies or incentives provided by European taxpayers. Therefore, the Nord Stream project can save an additional amount of money for taxpayers in European states. The second benefit of the Nord Stream project relates to the impact on the environment. By using the Nord Stream pipeline to receive a steady stream of natural gas, it is estimated that two hundred thousand tons of CO2 emissions can be avoided during this project. Ships and other modes of transportation would not be needed to bring in natural gas for customers, Nord Stream II will take over this role instead.

One of the major concerns over Nord Stream II relates to its potential use as a political weapon by Russia. Is this pipeline an attempt to make Europe more energy dependent on Russia? Is the Nord Stream project designed to weaken Ukraine’s economy? The answer relates to free market economies. In free-market economies, Russian companies need to develop strategies and innovate so they can compete with rival energy companies. In recent years many European states have received a greater portion of their energy supplies from non-Russian sources. 90% of Poland’s energy resources come from states other than Russia. Will Russia gain any political influence with European states through Nord Stream? The answer is no. Many energy companies compete for a share in European markets so it would be difficult for Russia to exert political pressure on European states through energy diplomacy. The construction of the Nord Stream II pipeline allows Russia to stay competitive in European markets by shortening pipeline routes, lowering transportation costs, and lowering prices for European customers. That is what Russia gains by constructing the pipeline.

Turkstream

The other major pipeline Russia has launched for its European customers is the Turk Stream project. This pipeline starts near Anapa, Russia and travels underwater in the Black Sea before reaching landfall at Kıyıköy, Turkey. Once operational this pipeline will bring natural gas to Turkey and other European states in southeastern Europe. Turk Stream is expected to be operational at the end of 2019. From the total 31.5 billion cubic meters of natural gas, Turkey will receive 15.75 billion cubic meters of it while other states in southeastern Europe will receive the remaining amount. Turkey has growing energy demands and the Turk Stream project will help Turkey in meeting these energy demands for the foreseeable future.

In a recent forum in St. Petersburg, Russian President Vladimir Putin mentioned how the Turk Stream project will bring natural gas to other customers beyond Turkey’s border. The pipeline will provide natural gas for customers in Bulgaria, Serbia, and Hungary as well. In addition, Russia has undertaken plans to incorporate Slovakia into its Turk Stream network. The government of Slovakia has already agreed to provide storage for natural gas from the Turk Stream project and there are additional plans to incorporate Slovakia into the Nord Stream project as well.

The Russian gas company, Gazprom has been involved in the construction of the Turk Stream project and the Nord Stream project. Gazprom has expanded into Eastern Europe to meet a growing demand for natural gas which explains the need for expanding the Turk Stream pipeline in Eastern Europe. In Hungary for example, Gazprom has already invested heavily, providing a significant amount of natural gas for customers there. In 2018, Gazprom increased the amount of natural gas to Hungary by 9.3% from the previous year. By June 2019, Gazprom increased its supply of natural gas to Hungary by 57.5% from the previous year. Therefore, to meet a growing demand for natural gas in countries like Hungary the continued construction and expansion of the Turk Stream pipeline remains critically important.

Effects of U.S. Sanctions against Nord Stream for European customers:

Threats of sanctions by the U.S. have threatened to derail Russia’s pipeline projects. If sanctions are carried out, then projects like Nord Stream II will come to an end. It must be determined what effects could U.S. sponsored sanctions have and reexamine the benefits if these Russian sponsored projects can operate in the future. Countries in Western Europe have been involved in financing the Nord Stream II project. Major European companies like Royal Dutch Shell and Engie have invested, along with other companies, 50% of financing for the new pipeline, valued at 9.5 billion euros. If Nord Stream II ends, billions of euros of investments will be lost hurting major European energy companies like Royal Dutch Shell. In addition, using Nord Stream II allows European customers to save money and pay less for energy, so U.S. led sanctions would have a negative impact on European cost of living expenses. In fact, a spokesman in Germany’s Ministry of Economy and Energy has already made it known that Germany was against sanctions because of the potential loss in investments and savings. While U.S. policy makers warn the Nord Stream II project is really an attempt by Russia to make the EU more energy dependent, there could be deeper more underlying reasons for the U.S. to support sanctions that are purely economic. If Nord Stream II is halted, European customers would need to find an alternative source of energy. Cancelling Nord Stream II will open European markets to U.S. liquid gas companies. However, this will be a more costly alternative for European customers as transportation costs from the U.S. will be higher than with using Nord Stream II. Therefore, the consequences of cancelling Nord Stream II will mean not only will Europeans lose money from investing in the project, but they will have to pay higher premiums, more money, from alternative source of energy. Either way, the cancellation of Nord Stream II will turn public opinion against U.S. sponsored sanctions.

The benefits from these Russian sponsored pipelines far outweigh any fears of political fallout in Europe. If projects like Nord Stream II are completed, then European customers will pay lower prices for natural gas. Use of this new pipeline will also cut carbon emissions and improve the environment which is very important to many Europeans. The pipeline would also allow Gazprom to remain competitive and profitable in European markets. Gazprom can use its profits to continue investing in other countries like Slovakia and Hungary that are involved in the expansion of the Turk Stream pipeline in that region. If the Nord Stream II project ends, many local European economies will be affected. Cost for energy will go up since European customers will not be able to buy natural gas from Nord Stream II. U.S. liquid gas companies would end up selling to European customers at a higher cost. This will sour relations between the U.S. and Europe. Therefore, it would be in the interests of the U.S. not to support sanctions against projects like Nord Stream II and Turk Stream.

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Poll conducted

  1. In your opinion, what are the US long-term goals for Russia?
    U.S. wants to establish partnership relations with Russia on condition that it meets the U.S. requirements  
     33 (31%)
    U.S. wants to deter Russia’s military and political activity  
     30 (28%)
    U.S. wants to dissolve Russia  
     24 (22%)
    U.S. wants to establish alliance relations with Russia under the US conditions to rival China  
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