Turkey seeks to separate talks with Russia over gas pipeline, pricing

By SELCAN HACAOGLU and ELENA MAZNEVA
Bloomberg

Turkey said its natural gas price talks with Russia should proceed separately from negotiations on a pipeline proposed by President Vladimir Putin last year, signaling a risk of further delays in the deal.

While Russia had expected a package accord after waiting for Turkey to set a new government, the Black Sea nation’s energy minister said the two shouldn’t be linked. Turkey is ready to discuss an out-of court price deal with Russian energy company Gazprom after filing an arbitration claim earlier this month, Ali Riza Alaboyun said in a recent interview.

“If they say let’s sit down and talk over the previously agreed 10.25 percent discount, there may be a discussion,” Alaboyun said. “But this issue must be handled separately” from the proposed Turkish Stream pipeline, he said.

Last December, Putin offered to make Turkish President Recep Tayyip Erdogan’s country a new linchpin in Europe’s energy supplies by 2020. He proposed to build a Black Sea gas pipeline to supply Turkey and the European Union, which relies on Russian gas for about a third of its needs, amid political tensions with the 28-nation bloc. Talks on the deal stalled in July after Erdogan’s party lost its parliamentary majority for the first time in more than a decade, and Turkey failed to form a coalition government.

Erdogan’s party regained a majority in the Nov. 1 election. While Russia’s officials have been saying the deal is possible once Turkey forms a new cabinet after the vote, Putin’s military buildup in Syria contributed to disputes with Turkey last month. The planned capacity of the so-called Turkish Stream pipeline was halved after Russia agreed in September to send more gas to Europe through a Baltic Sea pipe that connects Siberian fields directly with Germany.

Arbitration Claim

Gazprom agreed to provide the 10.25% discount to Turkey’s state-run energy company, Botas Boru Hatlari Ile Petrol Tasima, as part of the pipeline deal before the capacity cut. Botas filed the arbitration claim last month, seeking price revisions dating back to December 2014.

Putin will visit Turkey to attend this weekend’s Group of 20 leaders summit in Antalya. Russian and Turkish officials may discuss the Turkish Stream project on the sidelines of the G-20 summit, Russian Deputy Energy Minister Anatoly Yanovsky said by phone Thursday.

Russia hasn’t received Turkey’s feedback on a proposed draft of the intergovernmental agreement, Yanovsky said, declining to elaborate on a possible time frame.

Turkish Use

Gazprom's CEO Alexey Miller said Oct. 6 that a “realistic” annual capacity for Turkish Stream is 32 billion cubic meters (1.1 trillion cubic feet) given the agreement on the link with Germany, with half to go to Turkey’s domestic market. The first line of the link designed for Turkey’s consumption was due to start in 2016 before the delays in talks.

The countries must clarify “an important issue” on how the pipeline could be integrated into the Turkish network, Alaboyun said. “We want it to be connected to our grid,” he said.

Turkey relies on Russian gas for more than 50% of its consumption with about half of the volumes imported through an existing Black Sea pipeline, known as Blue Stream, and the rest through Ukraine and the Balkans.

“Given Turkey’s heavy reliance on Russian energy, Ankara is unlikely to escalate with Russia,” said Naz Masraff, an analyst for the Eurasia Group in London. The countries will likely put “aside their differences on Syria and continue cooperating on the energy sector,” she said.

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