Analysis: Europe wary of Turkish hub to hide ‘made in Moscow’ gas | Popgen Tech

MOSCOW, Nov 30 (Reuters) – In theory, President Vladimir Putin’s plan to make Turkey a hub for Russian gas could allow Moscow to mask its exports with fuel from other sources, but it may not be enough to convince Europeans to persuade to buy, analysts and sources said.

Russia supplied 40% of the European Union’s gas market until Moscow sent tens of thousands of troops into Ukraine on February 24 in what it calls a “special military operation”.

Since then, the West has imposed wide-ranging sanctions, including against Russian oil and gas, reduced its purchases of the Russian-made fuel and sought alternatives.

After explosions – the cause of which is under investigation – damaged the Nord Stream Russian gas pipeline system to Europe under the Baltic Sea, Putin proposed in October to set up a gas hub in Turkey, building on a southern route for exports.

Without being specific, Putin said a hub could be set up relatively quickly in Turkey, and predicted that customers in Europe would want to sign contracts.

So far there have been no public commitments to do so, and analysts say investment as well as time will be needed.

“Does Europe need the project, given the determination of the EU countries to abandon Russian gas in the near future?” asked Alexei Gromov of the Moscow-based Institute for Energy and Finance Foundation.

He also said it would be impossible to reconfigure gas flows within the European Union, as there are no existing links that would connect to the proposed hub of northwest Europe, which used to get gas via Nord Stream 1.

GAS TO SAVE

However, gas and pipeline capacity is available.

Russia’s exports to Europe have fallen 43.4% this year and the TurkStream pipeline to Turkey is running well below its 31.5 billion cubic meter (bcm) annual capacity.

Zongqiang Luo, senior analyst at Rystad Energy, estimated that around 60% of the pipeline capacity was unused after exports this year of around 10.6 bcm of gas by 21 November.

Rystad’s Luo estimated that it would take at least three to four years to build the expensive new infrastructure needed.

“Even if a new pipeline can be built, who is going to buy that gas?” he asked.

Others thought buyers would be found.

A source in Russia’s pipeline gas export monopoly Gazprom ( GAZP.MM ) said the hub was believed to facilitate sales.

“It will not be Russian gas, but gas from the hub,” says the source, who does not want to be named due to the sensitivity of the matter.

A trade source in Europe said China, which overtook Japan to become the world’s top importer of liquefied natural gas (LNG) in 2021, is already selling Russian LNG, which is not labeled as “made in Moscow”.

He said it was possible that buyers in Southern and Eastern Europe might not care where the VNG originated.

Noting Europe has not imposed an embargo on Russian gas, unlike oil, Alexander Gryaznov, director at S&P Global Ratings, said Europe may be willing to buy via intermediaries from Moscow.

“It is unlikely that Europe wants to enter into direct contracts with the Russian Federation, and buying free volumes on the spot market in Turkey will be politically acceptable,” he said, adding that time and money would be added to set up the hub .

Alexei Grivach of the Moscow-based National Energy Security Fund said the hub offers trade opportunities.

“If the hub starts working, great possibilities will open up for all kinds of exchange operations,” he said.

TURKISH TIRES

Putin and Turkish President Tayyip Erdogan have forged close relations in recent years despite a checkered past marred by the 2016 assassination of Russian ambassador Andrei Karlov in Ankara and Turkey’s downing of a Russian jet on a mission to Syria a year before.

Turkey said it would also be possible to include the Trans Anatolian Natural Gas Pipeline (TANAP), which carries Azeri natural gas to the Turkish border, in the proposed hub.

Turkey and Azerbaijan agreed last month to double the pipeline’s capacity from the current 16 bcm “in the short term”, and on November 23 the heads of Russia’s Gazprom and Azeri state energy company Socar, Alexei Miller and Rovshan Najaf, met in Moscow.

Neither Gazprom nor Socar provided details of the meeting, but Russia agreed this month to supply Azerbaijan with 1 bcm of gas under a new short-term contract.

The agreement “raised some concerns in the market” about a possible gas swap deal with Russia to export more gas to Europe, Luo said.

With the Turkish gas hub proposal, Russia has returned to a long-standing idea of ​​adding two lines to the existing TurkStream pipeline to double its annual capacity to 63 bcm.

This corresponds exactly to the combined volumes that Russia sold via various routes to Austria, Bulgaria, Hungary, Italy, Serbia, Slovenia and Turkey in 2020, according to Gazprom data.

Russia supplies pipeline gas to Europe mainly via Ukraine at a rate of more than 40 million cubic meters per day, less than half the amount it used to sell to the European Union.

It also delivers gas to the southern end of Eastern Europe, including Hungary, via the TurkStream.

The existing TurkStream cost $3.2 billion and the never-launched Nord Stream 2 gas pipeline via the Baltic required another $11 billion shared between Gazprom and its western partners.

Neither Gazprom nor the Kremlin provided a cost estimate for the Turkish hub idea. Kremlin spokesman Dmitry Peskov declined to comment this week when asked by Reuters on a daily conference call how Azeri gas could be used in the hub.

Gazprom and Socar did not respond to Reuters requests for comment.

Additional reporting by Tsvetelia Tsolova in Sofia, Francesca Landini in Milan and Oksana Kobzeva in Moscow; editing by Barbara Lewis

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