Russia shelves pipeline plan as it cozies up to Turkey

By bne IntelliNews April 24, 2013

bne -

The Samsun-Ceyhan oil pipeline project looks to have been shelved, after a Russian minister told Turkish media it would be uneconomic. The move appears to be part of a push by Moscow to cement ties with Turkey - a strategic lynchpin in the tussle between the EU and Russia over oil and gas from the Eurasian region.

It doesn't make economic sense to build Samsun-Ceyhan, Russian Energy Minister Alexander Novak told Turkish newspaper Today's Zaman, claiming that shipping crude via the narrow Bosphorus channel is up to 40% cheaper. "It depends on whether this project will be competitive enough to survive," Novak said. "However, it does not seem so at the time being."

The 550-kilometre Samsun-Ceyhan pipeline was planned to carry as much as 1.5m barrels of oil per day, reports UPI, primarily to ease the dangers involved in shipping crude through the congested Bosphorus. The route would run across central Turkey to link the Black Sea with the Mediterranean. However, it has been stuck on the drawing board for some time.

It returned to the front of many minds in late March, when Turkey announced it was blacklisting Italian energy major Eni - a partner in Samsun-Ceyhan alongside Turkey's Calik and Russian state-controlled giants Rosneft and Transneft. Eni's sin is its participation in tenders to explore offshore deposits off the Greek part of Cyprus.

Turkey claims activity around the divided island is illegal because the resources belong to all Cypriots. The Italian company shrugged and pointed out in response to the blacklisting that, apart from the stalled Samsun-Ceyhan, it could not see which of its projects in Turkey might be disrupted due to the strategic nature of its other interests.

Russia's Gazprom had earlier applied to compete in those same Cypriot tenders. However, Novak said on April 20 during a high-profile visit to Turkey, in which the pair also spoke of boosting trade, that Moscow will not put its relations with Turkey at risk. The move to pull out from partnering Eni in the pipeline looks to confirm that stance. Russia is hardly known for running energy infrastructure projects on strictly economic grounds, least of all in the highly politically charged "southern corridor" - a route that aims to bring gas from the Caucasus and Central Asia to Europe while circumventing Russia, which currently dominates transit routes out of the region.

Turkey is key to realizing that "southern corridor". The plan to build the TANAP pipeline, which runs from the giant Azerbaijani Shah Deniz gasfield, through Turkey to the Bulgarian border, is the likely first route to achieve that ambition. And with Turkey the clear lynchpin in all such efforts, Russia now appears to be trying to cement relations, and is telling Turkey so in no uncertain terms, despite the pair being at loggerheads over Syria.

"Turkey will include all the companies that will cooperate in the energy sector with Greek Cyprus in the eastern part of the Mediterranean Sea on to the 'black list'. Russian companies, being aware of this practice will not agree to such cooperation with Nicosia," Turkish Energy Minister Taner Yildiz said last week.

It's also tempting to speculate that Russia's change of heart could suggest that Cypriot deposits may not be so promising, despite positive reports thus far. During the elongated crisis concerning a bailout for its banks, Greek Cyprus approached Moscow to appeal for help. It was widely reported that a share in the offshore gasfields was put on the table, Russia failed to hand over any cash.

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