Nicholas Watson in Prague -

Turkey highlighted its growing geopolitical clout in Europe's energy sphere as, less than a month after agreeing a deal over and hosting the signing ceremony for the EU-backed Nabucco gas pipeline, it agreed to allow its territorial waters to be used for Russia's rival South Stream gas pipeline.

On August 6, visiting Russian Prime Minister Vladimir Putin met with his Turkish counterpart, Recep Tayyip Erdogan, and agreed to embark on an environmental study in Turkish waters for the €8.6bn South Stream pipeline, which when completed at the end of 2015 will transport up to 63bn cubic metres of Russian gas per year (cm/y) from Russia's Black Sea coast, through Bulgaria, Greece and Serbia, and on to Italy and Austria.

South Stream, a joint Gazprom-Eni project, is a key part of Russia's strategy to bypass troublesome transit states like Ukraine, with which it is in almost continuous dispute over energy supplies, and send its gas to Europe via alternative routes. The other key plank in this is the planned Nord Stream pipeline, which will carry up to 55bn cm/y of Russian gas to Germany under the Baltic Sea. The two pipeline routes on the map resemble a pincer movement, which is why the EU has been pushing hard to get the challenging €7.9bn Nabucco pipeline off the drawing board, which is designed to break Russia's stranglehold on gas exports to Europe by importing up to 31bn cm/y of gas from the Caspian region and Middle East without crossing Russian territory.

Turkey, a key member of the consortium building the 3,300-km Nabucco, along with Bulgaria, Romania, Hungary and Austria, insists that the two pipelines aren't rivals and together will offer Europe diversity of supply. A deal signed by the five Nabucco transit states was signed in Ankara on July 13. However, western policymakers and analysts (and, indeed, the Russians themselves) take a different view. "It is assumed in Ankara that growing European energy demand will accommodate both projects, but this ignores the competition between both projects over the same downstream markets. Moreover, the Turkish side fails to appreciate the challenges Russia is facing in investing in its domestic gas industry, and acts on the assumption that 'Russia has enormous reserves', while failing to realize that Russia is also planning to tap into the same upstream producers, namely Central Asian and Caspian gas, just as the Nabucco project envisages," says Saban Kardas of the Political Science Department at the University of Utah.

Oil on troubled waters

While news of the South Stream deal grabbed most of the headlines in Europe, perhaps of greater importance to Turkey was getting Russia to join the Samsun-Ceyhan oil pipeline that will be built by Italy's Eni and Turkey's Calik Holding, which will connect the Turkish Black Sea city of Samsun with its Mediterranean oil terminal of Ceyhan, thus bypassing the congested Bosporus Straits. Turkey has regarded getting Russian crude for this pipeline as essential to raise Ceyhan, which is also the termination point for the BP-led Baku-Tbilisi-Ceyhan oil pipeline, into a regional oil hub. However, until now, Moscow has proven reluctant, instead promoting another Bosporus-bypass option, the Burgas-Alexandroupolis pipeline which will run between Bulgaria and Greece.

Eni's chief executive officer, Paolo Scaroni, told reporters in Ankara that securing Russia's involvement in the pipeline is "an important opening." But given Putin's comments in Ankara over the importance of the Burgas-Alexandroupolis pipeline and that Russian companies own the majority of shares in that project, analysts question whether Moscow's involvement will be anything other than symbolic.

Turkey also got a 20-year extension on its contract to buy Russian gas, which runs out in 2011. Turkey is Russia's third-largest gas customer after Germany and Italy, buying 24.5bn cm/y last year, according to Gazprom data. Turkey has complained about the high price it pays for this gas; Putin said the contract was renewed on favourable terms to Turkey, but the details remain unclear.

One area of the countries' energy relations that was left unresolved was the status of Turkey's planned nuclear power station at Akkuyu, on Turkey's east Mediterranean coast, which Russia's Atomstroyexport, together with partners Inter RAO and Turkey's Park Teknik, won a tender to build almost a year ago. The tender was hugely controversial as the Atomstroyexport consortium ended up being the only party to ignore the deepening economic crisis and actually offer a bid. However, the €0.21 a kilowatt hour (kWh) electricity price the consortium offered caused consternation in the media given that private-sector power companies sell electricity to Turkey's slowly liberalising power market for just €0.04-0.14/kWh. Energy Minister Taner Yildiz said on CNN Turk on July 14 that Turkey is reviewing a revised bid by Atomstroyexport, which offered to lower the price of power from the planned nuclear station by 27% to $0.1535 per kilowatt hour, and the government's decision would be made within the next two months.

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