Turkish-Russian energy cooperation

Jun 28, 2007 02:00 AM

by Maria Beat

A decade and a half ago 11 countries in the Black Sea region jointly came together to form a business cooperation alliance.
On June 25, 1992, the leaders of the 11 countries -- namely Albania, Armenia, Azerbaijan, Bulgaria, Georgia, Greece, Moldova, Romania, Russia, Turkey and Ukraine -- signed the Summit Declaration and the Bosporus Statement in Istanbul, giving birth to the Black Sea Economic Cooperation (BSEC). In doing so the member countries pursued the idea of creating a platform for multilateral cooperation, supplementing ties of bilateral development.

With the entry into force of its charter on May 1, 1999, the BSEC acquired an international legal identity and was subsequently recognized as a full-fledged economic entity known as the Organization of the Black Sea Economic Cooperation. Membership increased to 12 with the arrival of the then-confederated union of Serbia and Montenegro in April 2004, with the latter country leaving the BSEC after formally declaring independence in 2006.
In general the BSEC region covers an area of cooperation of almost 20 mm sq km located on two continents. It is a region in which some 350 mm people live and it has a foreign trade capacity of over $ 300 bn annually.

Geographically it enjoys a unique location: In the west it touches Western Europe; its eastern borders stretch as far as Central Asia; while in the north it encompasses Russia; and in the south, via Turkey, it rubs up against the Middle East. After the Persian Gulf, the BSEC region is the second-largest source of oil and natural gas, along with its rich proven reserves of minerals and metals. It is in the process of becoming Europe’s major transport and energy transfer corridor.
As a prime country of the BSEC region, during the past 15 years Turkey has been expanding its role from a pure energy consumer into a regional energy centre. Energy cooperation is the backbone of Turkish-Russian relations, successfully in effect since the 1970s when the first gas export pipeline from Russia to Turkey became operational.

Entering Turkey through the north-western Bulgarian border and passing on its way through Ukraine, Romania and Bulgaria, the pipeline delivered 15 bn cm of natural gas in 2006 alone. For the Turkish economy, the energy sector is of strategic importance: While having sufficient oil-refining and electricity-generating capabilities, Turkey totally depends on imports of natural gas. For electricity generation alone Turkey consumes 70 % of all imported gas.
Natural gas imports account for two thirds, or 70 %, of total Russian exports to Turkey -- making it the third-largest natural gas market for Russia. On the other hand natural gas is the basic component of Turkish imports from Russia, and last year alone the country received some 20 bn cm.

The state-of-the-art Blue Stream pipeline, inaugurated in 2005, delivered 8 bn cm of gas to Turkey in 2006. By 2010 -- when the Blue Stream pipeline is to reach full operational capacity of 16 bn cm -- the overall volume of Russian natural gas deliveries is due to reach 35 bn cm per year, increasing Turkish dependence on Russian gas to 80 %.
This expected development is set to make Turkey heavily dependent on Russia as a source of natural gas exports. Commissioned in March 2007, the Baku-Tbilisi-Erzurum (BTE) pipeline, which will deliver natural gas to Turkey from the Shah Deniz offshore natural gas block in Azerbaijan, has the potential to diminish this reliance, though it is insufficient to relieve Turkey from an overall dependence on Russian gas.

It means that for the foreseeable future Turkey will remain a major consumer of Russian gas. Still it will also raise Turkey’s added value as an impressive buyer of Russian gas: As a comparison, the whole of Western Europe currently imports around 50 bn cm of gas from Russia each year. With Blue Stream reaching its full operational capacity, the Turkish share in Russian gas exports will increase sharply, making Turkey a first-class partner for Russia’s natural gas monopoly, Gazprom.
Turkish-Russian energy cooperation has great potential, as prominent Russian government officials believe. At the end of the 1990s, when Turkey and Russia decided to build the state-of-the-art underwater Blue Stream sceptics and ill-wishers dubbed it a “blue dream.”

Nevertheless Blue Stream was successfully constructed and commissioned. Its construction involved advanced technology combined with the financial structure of a sophisticated project, making Blue Stream one of the major achievements in the natural gas sector in recent years. The pipeline, starting in the vicinity of Novorossiysk on the Russian Black Sea coast, arrives in Samsun in Turkey having run 200 km by crossing the bottom of the Black Sea at a depth of 2,140 meters -- recognized as a world record.
Besides becoming another channel for transportation, the pipeline established a direct link for Russian gas deliveries to Turkey without passing through third countries, saving it from potential delivery disruption andbottlenecks.

The 2005 Russian-Ukrainian and 2006 Russian-Belarus gas crises highlighted the real added value of the Blue Stream pipeline, i.e., its security for energy transportation. Thanks to Blue Stream Turkey is the only Russian gas importer today that remains reasonably safe from fluctuations in relations between Russia and its neighbours in the Commonwealth of Independent States (CIS) -- the 11-member alliance of former Soviet republics.
Russia supports enhancing cooperation with Turkey. In 2006 Turkish-Russian foreign trade volumes reached a record high of $ 20 bn (EUR 11.5 bn). Russia is interested in energy cooperation, primarily in supplying gas to Turkey. Russian government officials believe that the increasing volume of gas supply offers Russian companies the opportunity to take part in distributing gas in certain areas of Turkey, and in the construction of major pipelines, underground gas storage facilities, gas thermal power plants and petrochemical facilities.

Despite the importance of energy cooperation, Russia is very interested in greater industrial cooperation with Turkey, such as expanding its non-commodities exports; taking part in modernization and overhauling industrial facilities built with Russian assistance in Turkey in the past; supplying high-tech products and machinery to the Turkish market; attracting Turkish capital to Russian investment projects; and increasing Turkish companies participation in Russian special economic zones.
“Our energy policy is oriented towards increasing the processing of hydrocarbons and raising the share of quality petrochemicals and gas products in our exports. Therefore the construction of refining and petrochemical facilities in the zone of export trans-shipment would be reasonable. It is also important to acquire and develop refining facilities in the markets to which Russian companies now export crude,” announced Russian Industry and Energy Deputy Minister Andrei Demetiev in Turkey, December 2006. Turkish-Russian energy cooperation creates a sound basis for expansion and an increase in Russian business involvement in Turkey, which is a logical and healthy development.

The first Turkish-Russian intergovernmental agreement on natural gas deliveries, signed in 1984 and entering into force in 1987, opened the Russian market for many Turkish goods and services, providing the first Turkish contractors with the opportunity to enter the Russian market. Since then Russia has become a business paradise for private Turkish companies; primarily contractors whose market involvement there exceeds $ 2.5 bn (EUR 1.8 bn).
By 2005 the subtotal of Turkish direct investment in Russia had reached $ 157 mm (EUR 114 mm), while indirect investment and reinvestment into projects in Russia jointly amounted to $ 1.5 bn (EUR 1.09 bn).

Turkish companies were among the first foreign businesses to come to the Russian market with the launch of perestroika some 20 years ago. Since then they’ve built numerous business and trading centres, residential compounds, factories and plants to produce electronic equipment, home appliances, construction materials, textiles and finished clothing, shoes and leather goods, as well as food products and soft drinks. Among the names now associated with business prosperity in both Turkey and Russia are ENKA Holding, Anadolu Group and Sisecam, to name just a few.
At the same time established economic cooperation relations between Turkey and Russia are still in the process of gaining maturity and stable continuity, both vitally important for their progressive development. In the course of this demanding process they urgently require the overall support and assistance of Turkish and Russian government agencies.

Turkish and Russian national interests and energy policy priorities could be different, which is also true with regard to the Black Sea countries in general. Once again this became evident during the 2006 BSEC energy ministers meeting held in Sochi, Russia. Regional cooperation, oil and gas pipelines, development of power generation (including nuclear power) and other issues were covered within the framework of both bilateral and multilateral discussions. Regardless of differing opinions on certain matters, the participating energy ministers agreed that awareness of “sometimes incompatible priorities” helps to make the situation in the energy sector more stable, and thus encourages the parties to look for compromises even in the “most complicated cases.”
In connection with this the ministers confirmed diversification in energy transportation and distribution as a major goal of regional cooperation, while stressing the necessity of creating efficient mechanisms for further development of the transportation networks and interstate power grids, as well as of new energy projects. Naturally a multilateral institutional framework established by the BSEC would be highly instrumental in assisting them to succeed in this demanding and challenging process.

Maria Beat is an international journalist and writer who specializes in the CIS countries. Her email address is mbeat2000@yahoo.com

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