The Russian Pipeline Waltz

By Simone Tagliapietra, a Senior Researcher at the Fondazione Eni Enrico Mattei in Milan and Visiting Researcher (Non-residential) at the Istanbul Policy Centre at Sabanci University in Istanbul and Georg Zachmann, a member of the German Advisory Group in Ukraine and the German Economic Team in Belarus and Moldova. Originally published at Bruegel

This is an eventful period for EU-Russia gas relations. Six months ago Russian President Vladimir Putin surprised the energy world by dismissing the long-prepared South Stream project in favour of Turkish Stream. Like South Stream, Turkish Stream is intended to deliver 63 billion cubic metres (bcm) of gas per year through the Black Sea to Turkey and Europe by completely bypassing Ukraine from 2019.

Yesterday, during the St. Petersburg International Economic Forum 2015, Gazprom unexpectedly signed a set of Memorandums of Intent with the European gas companies E.ON, Shell and OMV. These plan for the construction of two additional gas pipeline strings along the Nord Stream pipeline system that connects Russia and Germany through the Baltic Sea. This project would double the current capacity of Nord Stream from 55 bcm per year to 110 bcm per year.

Both Turkish Stream and an expanded Nord Stream indicate that Russia does not intend to abandon its position in the European market (by for example shifting attention to Asia).

As illustrated in the figure below, current EU-Russia gas trade is based on three key axes: the Nord Stream pipeline, the Yamal-Europe pipeline through Belarus and the pipeline system crossing Ukraine. Of these three routes, only the Ukrainian gas transportation system is not controlled by Gazprom.

EU-Russia existing gas connections

Russia pipeline

Source: Bruegel based on BP Statistical Review of World Energy 2015, IEA Gas Trade Flows in Europe, Nord Stream website.

Gazprom has asserted several times that it will cut off gas transits through Ukraine by the end of the decade. The current alternative routes (Nord Stream + Belarus), however, only present a capacity of 86.5 bcm per year. To maintain the current level of Russia’s exports (119 bcm in 2014) at least 35 bcm of additional pipeline capacity would be needed.

In fact, current capacities are not being fully exploited due to disputes over the access regime to the OPAL pipeline in Germany which connects Nord Stream to European markets. Gazprom would like to make full use of the pipeline, but the European Commission, the German regulator and Gazprom have not yet reached a decision on the conditions for an exception from the EU’s Third Energy Package that would allow Gazprom to control more than 50% of the capacities.

Either Turkish Stream (with its 49 bcm per year devoted to the European market) or an expansion of Nord Stream (55 bcm per year) alone wouldallow Russia to circumvent Ukraine. Both lines together would result in significant over-capacity. So there seems to be a trade-off between Turkish Stream and an expanded Nord Stream.

So, how should the most recent evolutions of the Russian waltz of pipelines be interpreted? There are three possible scenarios:

i) Turkish Stream for Turkey only & Nord Stream for the EU. In this scenario Russia would target the construction of the first string of Turkish Stream to divert the 14 bcm per year currently supplied to Turkey via the Trans-Balkan pipeline (crossing Ukraine, Moldova, Romania and Bulgaria) by 2016, as recently agreed in Ankara. This would allow Russia to capitalize on the massive investments already made in the “Russian Southern Corridor” and to make use of the South Stream pipes already delivered at the Varna harbor and of the pipe-laying ships already placed in the Black Sea. Considering the regulatory and financial barriers to the development of new infrastructure to deliver Turkish Stream gas to EU destination markets, Russia would abandon its plan to supply the EU market via Turkish Stream and rather invest in the expansion of Nord Stream to cover this market.

ii) Nord Stream expansion as a bargaining chip to advance Turkish Stream. In this scenario Russia would propose the expansion of Nord Stream, in order to have another bargaining chip in the negotiations with Turkey (and Greece), and to quickly advance the full Turkish Stream project and ensure better commercial conditions. This would allow Gazprom to avoid further controversies around the OPAL pipeline and to deliver gas directly to southern European markets. This way Gazprom’s ability to sell gas to southern Europe would not depend on additional north-south pipelines under EU rules, and some price-differentiation between the northern and southern market for Gazprom gas could be maintained.

iii) No pipelines, just politics. In this scenario Russia does not intend to develop either the full Turkish Stream (but at most the first string for the Turkish market) or the expansion of Nord Stream. The proposals are thus intended to create political cleavages within the EU, at a moment when the EU is toughening its stance against Russia due to the Ukraine crisis. They create cleavages between northern and southern EU countries (Germany favoured by Nord Stream; Italy and Greece favoured by Turkish Stream); between the EU and Member States (for example Member states’ actions that counteract the Brussels strategy to diversify away fro m Russia); and within EU countries (by causing the interests of governments and energy companies to diverge). In such a scenario, this waltz of pipelines thus represents a new chapter in Russia’s enduring divide and rule strategy vis-à-vis the EU energy market.

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  1. Gaylord

    Does anybody know what Russia’s plans are to try to prevent runaway climate change? Or is Russia’s government oblivious to the catastrophic effects of continued greenhouse gas emissions? Their aggressive plans for oil drilling in the Arctic indicate the latter.

    1. Barry Fay

      “Or is Russia’s government oblivious to the catastrophic effects of continued greenhouse gas emissions?” Sounds like a typical cheap shot against Russia to me. The country most oblivious to the catastrophic effects, and one of the two the biggest contributors (with China), is the good ole USA. Russian is at 6%, USA at 20%! Your propaganda driven prejudice is showing!

    2. Nick

      With Russia’s utter dependence upon oil and gas, plus lack of FDI, they have no alternative but to drill baby drill. Eventual regime change may increase their long term prospects.

      1. Gio Bruno

        Careful now. This could encourage blow-back from Barry Fay.

        Let me just say that Russia is not a static society (education is prized). They can, and likely will, create a more diversified/un-stratified economy going forward. As for regime change, that’s an habitual fantasy of folks who read only MSM propaganda. Putin, despite the grandstanding of American representatives (98% return rate) has the support of 80% of the Russian population. Russians are not stupid (See USA for comparison.)

    3. Externality

      1. Russian- – unlike some Western nations – has submitted a detailed carbon-reduction plan to the upcoming climate conference.

      2. At a time when China and parts of Eastern Europe remain dependent on highly polluting coal-fired power plants, Germany is returning to coal following its phase-out of nuclear power, cash-strapped EU countries are phasing out renewable energy subsidies, and many Eastern European nuclear plants are overdue for retirement, natural gas remains a necessary – and environmentally friendly – energy alternative. The only question then is where the gas to come from. The UK’s oil and gas industry is in terminal decline, large-scale imports from North America and the Middle East are a decade or more away, and efforts to promote fracking-related gas production in Europe has failed for a variety of reasons. To borrow a favorite line of the neo-liberals, “there is no alternative” (TINA) to Russian gas.

      3. Since the end of the Cold War, the West has aggressively used the WTO, investor-state dispute tribunals, sanctions, propaganda campaigns, and “regime change” to punish resource-exporting nations who limit, or attempt to limit, exports for environmental reasons. To the WTO, for example, environmental laws in countries outside of Western Europe, the US, and Canada are illegal “non-tariff trade barriers.” Russian attempts to protect its old growth forests against timber exporters and Chinese attempts to limit the environmentally disastrous (and often illegal) mining of rare earth ores were both struck down by the WTO at the request of the West. If Russia were to limit oil and gas exports for environmental reasons, the resulting legal, political, and military confrontation with the West would dwarf the Cuban missile crisis.

      1. Rex

        Burning any hydrocarbon produces carbon dioxide, so natural gas is not “environmentally friendly.” There is clear evidence, too, that natural gas exploration and production release huge quantities of methane into the atmosphere. EPA has proposed rules on that for producers (late and weak, of course). Methane in atmosphere is over 20X as damaging as CO.

        Russian scientists contribute much to Climate Mayhem knowledge, especially in the rapidly changing arctic and on the threat of methane release.

        Russian Academy of Sciences, Far Eastern Branch, Pacific Oceanological Institute, 43 Baltiiskaya Street, Vladivostok 690041, Russia
        Natalia Shakhova, Igor Semiletov, Anatoly Salyuk, Denis Kosmach & Denis Chernykh

        Russian Academy of Sciences, Far Eastern Branch, Institute of Chemistry, 159, 100-Let Vladivostok Prospect, Vladivostok 690022, Russia
        Valentin Sergienko

        To name a few.

        One wonders if Russian climate scientists are censored and hounded as much as are U.S. and U.K. researchers, especially in the US government (USGS, NOAA, NASA, etc.). Persecution and censorship of US scientists is above McCarthey-esque proportions today.

      2. Ian

        What about thorium reactors. I am aware that at least China is investing in the technology.

    4. Lune

      Just like the War on Drugs is most successful when it focuses on reducing demand (drug users) rather than fighting/bombing the suppliers (Mexico, Colombia, etc), the War on greenhouse gases is best fought by reducing demand. If the Europeans find a way to no longer need so much natgas, then Russia wouldn’t be selling it to them. Otherwise, someone else will sell it to them regardless.

      That doesn’t completely exonerate Russia, of course, and given their history with the Aral Sea, I’m not sure that they would put environmental concerns very high on their list of priorities (certainly not higher than their economic security). But right now, the problem with greenhouse gases is on the other end of all these pipelines.

      1. Linda Filkins

        When has the Drug war ever been successful at anything (that it will admit to trying to do) ? ..When did the drug war ever reduce demand for drugs ?

    5. Oregoncharles

      Like Canada, Russia sits uncomfortably far north, hence would plausibly benefit from warming. Granted, they also have a huge coastline and would lose a lot of land and some cities.

      1. Yves Smith Post author

        There are a lot of erroneous assumptions on that front. The common mistake is that warming will lead to more agricultural production.

        Plants get energy from the sun. Global warming does not change how much energy plants in a particular region get for photosynthesis.

      2. McKillop

        Your comment is empty of current significance. Most of the population of Canada squats along the Canada-U.S.A. border. The people in the country have become accustomed to its climate – or moved elsewhere. Canadians who are aware of the situation are aware of the dangers and only as a somewhat goofy joke refer to the benefit of warming.
        Methane is difficult to breath and wet muskeg, now ‘permafrosted’, makes for muddy “gardening” (pace Lambert).
        Russia and Finland and Greenland, etc., I assume, are similar.

  2. Otter

    The abandonment of South Stream was not much of a surprise to anybody with even a passing interest in the energy politics.

    Brussels and Washington were both adamant that it would never pass through Bulgaria.
    I suppose some people were surprised at how quickly negotiations progressed with Turkey. Possibly there is some quid pro quo regarding Iranian and Kurdish hydrocarbons.

    Serbia and Hungary are anxious for access. The Austrians are even talking money. Greece of course needs gas and transit fees. Italia, Slovakia, Czech would welcome shares. The only problem is some people have suddenly taken an interest in organizing a colour revolution in Makedonia.

  3. Jackrabbit

    I questioned the author’s perspective as soon as I saw this (in the second sentence):

    Six months ago Russian President Vladimir Putin surprised the energy world by dismissing the long-prepared South Stream project in favour of Turkish Stream.

    Russia re-routed South Stream to Turkey (now called “TurkStream”) because Bulgaria rejected South Stream under pressure from US/EU. OIFVet, a frequent commentator at NC, has written loads of good and inciteful comments with respect to this farce (he is Bulgarian).

    The author refers to a “Russian Waltz” which casts aspersions on Russian intentions. Their intentions are clear. To by-pass a Ukraine that is hostile to Russia. Period. Their efforts to do so are being blocked (first by pressuring Bulgaria, now with a color revolution in Macedonia). Russia’s ‘waltz’ partner is the EU which created the rule that pipeline ownership must be independent of supplier. This rule has dubious value when applied to large suppliers like Russia/Gazprom.

    The author artfully guides us to three possibilities but ignores the most logical and intuitive one. Russia is likely to be taking this move now to hedge against the developing brinkmanship whereby Russia is blamed for causing European suffering by refusing to transit gas through Ukraine – despite the US/EU’s irresponsible blocking of South Stream / Turk Stream as a delivery platform.


    I believe that one must be very careful about sources when dealing with issues that are sensitive to the US/EU establishment.

    Brugel is nominally an independent think tank but it is governed by, led by, and staffed with establishment figures and technocrats. From their annual report:

    The idea to set up an independent European think tank devoted to international economics stemmed from discussions involving economists, policymakers and private practitioners from many European countries. The initiative subsequently found support from 12 EU governments and 17 leading European corporations, who committed to the project’s initial funding base and participated in the election of its first Board in December 2004. Operations started in 2005 and today Bruegel counts 18 EU governments, 33 corporations and 10 institutions
    among its members.

    It is difficult to trust “experts” that have a vested interest in culling favor with the establishment. This article proves that such skepticism is very much warranted.

    1. Toivos

      Jackrabbit wrote Brugel is nominally an independent think tank but it is governed by…

      What is Brugel and what does it have to do with this article? I can’t see what you are referring to.

    2. John Jones


      Don’t forget the chairman of Bruegel is former ECB president Jean-Claude Trichet

      1. Yves Smith Post author

        Brugel has plenty of anti-orthodoxy posts. Ashoka Mody, for instance who has been very critical of the creditors. posts regularly at Bruegel.

        Your comment is an ad hominem attack. That’s a logical fallacious as well as being a violation of our comments policy. You need to argue against the post on its merits.

  4. David in NYC

    Putin’s plan, to maintain a chokehold of the distribution of gas, mimics John Rockefeller’s strategy for Standard Oil to control the distribution of oil in the late 19th century.

  5. susan the other

    Syria has really taken a hit for Russia. Until the conflict there is resolved the the Saudis/Arab natgas cannot build their pipeline. And by the time it is resolved Russia will have already established its network. It looks like this leaves the Saudis and other MidEast natural gas suppliers at the mercy of China and India. The BRICS.

    1. Raj

      You already know this, but Israel wants to send the gas production from the Levantine Basin to the Europe market and Assad stands in the way for the time being. Once Assad is toppled and a new puppet regime is put in place, I think we’ll see the construction of the pipeline through Syria. Qatar & Saudi Arabia will connect through the same artery to reach the Europe market…and then Russia finds itself with competition. This is the key for the West to gain greater control of the Russian economy, and eventually profit from Russia’s resources. So, in the short term (~10 yrs), Russia may have its infrastructure in place (whether via Nord, Turkish or South stream), but in the long term (~20+ yrs), we’ll see Israel, Saudi Arabia and Qatar enter the Europe market and Russia will no longer be the only game in town. We think we’re seeing the squeeze put on Russia now, but it will only get worse with time. The West looks at Russia’s resources and sees dollar signs.

      1. Yata

        Yes. And there also might be the possibilty of other finds in the Levantine basin to which Syria may have a claim. If I’m not mistaken Lebanon and Palestine forewent their offshore mineral claims in this field.
        It’s sometimes struck me as odd that Egypt, which isn’t as wealthy in petro-resources, has suddenly managed to instill order in a region fife with sectarian violence. Syria obviously doesn’t seem to be fairing as well.

  6. Gerard Pierce

    In the current political situation, there should be a natural alliance between Russia and Greece, but it can’t be a declared alliance – that leads to retaliation that neither one wants to deal with right now.

    A covert alliance with Russia could put Greece in a position to obtain finance through China. Without any overt declarations, the European countries might figure out “on their own” that continued sanctions against Russia are counter-productive.

    Even in default, if Greece can maintain any kind of economy, the wily Varoufakis gets to sit back and smile while the EU ministers try to explain to southern Europe why their policies are necessary and correct.

    The US gets to continue with its unprofitable wars in the mid-East while trying to avoid major embarrassment from the fascists in DonBass. The major problem for the Russians is watching as Russians in Ukraine are ethnically cleansed.

    If the Russians can avoid a military response all that is needed is someone to maintain the body count. The overall death count would probably be a lot less than a military response.

  7. Susan Pizzo

    An MOU with Greece has been signed, providing significant investment funds, a route around Ukraine, and a potential clinker in the Russian sanction vote on Monday. Further complications for debt negotiations? Greece is also reportedly “drawing up a default plan, which would see the country institute capital controls and nationalize its banking industry” (ibtimes). It ain’t over till it’s over…

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