Thursday, July 20, 2017

Gazprom starts TurkStream 2 natural gas pipeline preparations - PLATTS

London (Platts)--20 Jul 2017 1106 am EDT/1506 GMT
Stuart Elliott, Rosemary Griffin, Siobhan Hall

Russia's Gazprom has begun carrying out preparations for the laying of the second string of the two-line TurkStream natural gas pipeline to Turkey, a company spokesman said Wednesday, but he denied a report in a Russian newspaper that pipe-laying in the Black Sea for the second string had started.

TurkStream -- whose two lines will each have a capacity of 15.75 Bcm/year -- is designed to supply the Turkish domestic market and markets in southeast Europe, bypassing the traditional transit route via Ukraine.

Any accelerated work on laying the pipeline comes as the US continues to consider new sanctions that would target companies investing in or building new Russian energy pipelines.

Russian newspaper Vedomosti Wednesday reported that the Allseas vessel Audacia had begun laying pipes in shallow water near the Russian port of Anapa.

According to the report, some 20-25 km (12.4-15.5 miles) of pipe has already been laid by contractor Allseas.

Asked whether Gazprom had started laying pipes for the second line of TurkStream, a spokesman said: "No, so far we are carrying out preparation work."

Allseas could not immediately be reached for comment.

Gazprom has yet to conclude the details of the line's onward route after making landfall in Turkey so it would seem premature for the company to begin laying the second line.

Gazprom has also not secured the necessary commercial or governmental agreements on gas offtake.

The first line is set to be completed in 2018 and the second in 2019 for gas to start flowing through both by the end of 2019.

Gazprom has said the line could split into two after landfall in Turkey , with one branch headed for Italy via Greece and the other moving gas northward via Bulgaria and Serbia to Hungary.


The second string also remains under political scrutiny.

Commenting on the Vedomosti article, analysts at VTB Capital said Wednesday that investors could be concerned that Gazprom had reportedly started to construct the second line of TurkStream before all the negotiations with the participant countries were concluded.

"Political risk remains one of the project's key risks," they said.

The European Commission could also have concerns about Russian gas coming to Europe via TurkStream, as this would undermine Ukraine 's role as a transit country.

The EC has repeatedly said it supports Ukraine as a reliable transit partner and it is helping Ukraine reform its gas markets in line with EU rules.

The EC is also pushing to diversify supply sources to southeast Europe by supporting the Southern Gas Corridor link to Azerbaijan and an East Mediterranean gas hub, both of which would compete with Russian gas.

South Stream, which was the forerunner of TurkStream, was ultimately abandoned in part because of alleged breaches of EU law for the planned onshore section.

EU law applying to offshore pipelines starting outside the EU is currently limited mainly to permitting and environmental issues.

Russian President Vladimir Putin has repeatedly said that the realization of the second TurkStream line would depend on whether there was European interest in the project.

Last year, Putin said Moscow needed a "clear, understandable, and unambiguous position" on TurkStream from the European Commission.


Pipe-laying for the first line -- which will serve the Turkish domestic market and therefore falls outside of the scope of European Commission influence -- began in May.

Laying of the deepwater section of TurkStream began in late June as momentum on realizing the Ukraine bypass link continued to gather pace.

While Gazprom has denied starting to lay the pipe for the second string, the threat of new US sanctions against investments in Russian pipelines could have added to the urgency of building it.

The US Senate last month proposed measures that would put in place a framework for introducing future sanctions on investments in Russian export pipelines, including the planned Nord Stream 2 gas link and TurkStream.

While the sanctions are currently stalled in the US legislative process, there could be concern that companies developing TurkStream -- including Allseas -- would be penalized by the sanctions if they were formalized.

Germany and Austria already slammed the US Senate's proposals, saying that threatening to punish companies in Germany, Austria and other European countries for participating in or financing gas projects such as Nord Stream 2 brought a "completely new and very negative quality to European-American relations."