Out Of Gas: Gazprom Cuts Off Ukraine, Will Turkey Be Next?

Tyler Durden's picture

Last month in "Pipeline Politics: Russia, Turkey Clash Over Energy As Syria Rift Shifts Focus To German Line," we revisited Russia's recent deal with Shell, E.On and OMV to double the capacity of the Nord Stream pipeline, the shortest route from Russian gas fields to Europe.  

The MOU, signed earlier this year, angered the likes of Ukraine and Slovakia. In short, the more gas that can transported via the Nord Stream, the less needs to go through Eastern Europe and that means less revenue for the countries through which the pipelines are built. "They are making idiots of us. You can’t talk for months about how to stabilize the situation and then take a decision that puts Ukraine and Slovakia into an unenviable situation," Slovak PM Robert Fico exclaimed a few months back. 

For those who may need a refresher, here, coutesy of Bloomberg, is a look at the routes by which Russian gas reaches end customers:

Obviously, the conflict in Ukraine has made for a rather awkward situation when it comes to Russian gas supplies. Long story short, Ukraine wants to cut its dependence on Russian gas and if everyone's telling the truth, Gazprom would probably just as soon not deal with a country that, i) owes Moscow $3 billion on a defaulted bond, and ii) is effectively at war with Russia. 

Nevertheless, a couple of months ago the two countries signed an deal ensuring supplies through Q1 of 2016 and guaranteeing Ukraine comparable prices to its neighbors. Well, that looks to have fallen apart, because on Wednesday, Gazprom decided to stop shipments to Ukraine citing a lack of prepayments. Optically, that looks bad for Kiev and so, in the energy equivalent of "you can't fire me because I quit", Ukraine announced today that it would stop buying Russian gas. 

"The government has decided to order (state energy firm) Naftogaz to stop buying Russian gas. It is not that they are not delivering us gas, it is that we are not buying any," Prime Minister Arseny Yatseniuk said. 

Kiev says it can get cheaper prices elsewhere. "Gazprom CEO Alexei Miller on Wednesday warned Ukraine and Europe of possible gas disruptions following the cut-off," AP notes, adding that "Russia uses Ukraine's pipelines to transport a part of its gas deliveries to other European countries."

"Ukraine's refusal to buy Russian gas threatens a safe gas transit to Europe through Ukraine and gas supplies to Ukraine consumers in the coming winter," Miller said.

But the pettiness didn't stop there. Yatsenyuk went on to announce that Ukraine will be closing its airspace to the Russians due to "security concerns."

Importantly, it's not just Eastern European that will suffer because of strained relations with Moscow and the expanded capacity of the Nord Stream. The deal with Shell, E.On and OMV has also put Moscow in a better bargaining position vis-a-vis Turkey, which is the second largest consumer of Russian gas and which paid Gazprom some $10 billion last year.

Prior to the Nord Stream deal and before Russia got directly involved in Syria, Ankara and Moscow were enjoying a burgeoning trade relationship. However, once Russia began flying combat missions from Latakia, relations between Putin and Erogan began to sour. Turkey is a key player in the effort to supply training, guns, and money to the various rebel groups fighting for control of Syria. Indeed, there's plenty of evidence to suggest that despite Ankara's conveniently timed "crackdown" on ISIS (which began in late July and just happened to coincide with an AKP election setback), Turkey is perhaps the number one state sponsor of Islamic State (see here for more). Indeed, on Tuesday Putin accused Turkey of facilitating the group's black market oil trade. 

Needless to say, once Russia began to conduct airstrikes on anti-Assad elements, Erdogan was not pleased and it was clear from the beginning that it would only be a matter of time before the border disputes began. Sure enough, Turkey shot down a Russian drone last month and subsequently began to complain loudly about alleged Russian incursions into Turkish airspace. Those complaints led directly to a declaration by Erdogan that Turkey may seek to source its gas from someone else. As Sijbren de Jong, an energy security analyst at the Hague Centre for Strategic Studies told Bloomberg, "Putin is betting on Nord Stream, but that bet is risky." 

As the tension continued to build, many began to wonder about the fate of the proposed Turkish Stream pipeline and now that Turkey has shot down a Russian warplane, everyone wants to know whether Russia may decide to retailiate by simply cutting Ankara off, leaving Erdogan to figure out where to source some 53% of his country's energy needs.

Of course you can expect the Western media to say that Putin can't afford to cut Turkey off, but even if the coverage is biased towards the NATO member in the equation, it's still worth taking a look at the commentary. Here's what Bloomberg had to say today: 

Turkey relies on Russia for about half its natural gas supplies, paying state-controlled Gazprom PJSC as much as $10 billion last year. That makes their energy ties an unattractive target for retaliation.

 

With so much at stake for both sides, Russia may look elsewhere in its response to the downing of its warplane by

Turkey on Tuesday. Russian Deputy Energy Minister Anatoly Yanovsky said that supplies to Turkey would continue in line with the contract. Longer term, Turkey could reduce its dependence on Russian gas through alternative supplies.

 

The relationship between Turkey and Russia was already strained before Russia’s warplane was shot down, and talks over a new gas pipeline had stalled, according to Alexander Kornilov, an Alfa Bank analyst in Moscow.

 

Turkish Stream is redundant because there is already existing transfer capacity to Turkey and the rest of Europe, Sberbank PJSC’s investment bank unit said Wednesday in a report to clients.

 

While Turkey can’t turn away from Russian supplies right away, it still has leverage to fight retaliatory moves, including if Russia takes a hard line on prices or threatens cuts, according to Sijbren de Jong, an analyst at the Centre for Strategic Studies in The Hague.

 

The sales volume from Turkey is equivalent of 17 percent of Gazprom’s total exports outside the former Soviet Union, according to company data. 

 

“The bottom line is militarily, strategically they may want to draw a line and say this has gone too far, but it wouldn’t be wise,” said De Jong. “Essentially if you’ve put so much effort into coveting this burgeoning partnership with Turkey from an energy perspective, that’s all going to be for nothing.”

Perhaps, but it's not clear that Turkey has as much leverage here as analysts claim. Consider this for instance: 

“Turkey will probably not want to halt any existing energy arrangements, but it almost certainly means Turkey will start a renewed look at what alternative energy relations it can have,” said John Roberts, an energy security specialist at Methinks Ltd. in Jedburgh, Scotland. “Two obvious choices are becoming a customer for U.S. LNG; the other is Iran.”

Here's a look at the breakdown by country in terms of where Ankara sources its gas:

What analysts seem to be discounting here is that ties between Russia and Iran have strengthened materially over the past six months. Russia's intervention in Syria will not be forgotten in Tehran. As we've detailed exhaustively, ensuring that Damascus doesn't fall to a puppet government of the Saudis is perhaps the most important geopolitical concern for the Iranians. Losing Syria would cut off a supply route to Hezbollah and rollback Iran's Shiite crescent. It's probably not an understatement to say that Tehran will be eternally grateful to Moscow for Russia's participation in Syria on behalf of the government and as we saw when Assad rejected the Qatar-Turkey line but approved the Iran-Iraq-Syria line, these are countries that will, when they feel the situation calls for it, subjegate energy concerns to geopolitics.

Throw in the fact that Russia and Iran are already in talks on a number of energy projects and it seems reasonable to suspect that if Iran believes Turkey is becoming too much of an impediment to the campaign in Syria, Tehran may just decide to drive a harder bargain when it comes to gas supplies. In short: if you're Turkey, you don't really want to put yourself in a position where your fallback plan in the event you anger your biggest energy supplier is to try and negotiate for more trade with that supplier's closest geopolitical ally, especially when you are actively seeking to subvert both of their goals in a strategically important country. As WSJ put it on Wednesday, "diverting the energy trade wouldn’t be easy."

No, it most certainly would not "be easy", and the big question going forward is this: is it realistic to believe, given what's going on in Syria, that Iran will be willing to make it any easier? 

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Francis Marx's picture

I hope turkey freezes their turd stained hands off...

Latina Lover's picture

Gazprom is cutting off the Ukraine because they  failed to prepay for their gas as agreed.  When the Ukraine coughs up the money, then Russia will turn on the tap.

Cognitive Dissonance's picture

Because it's all about the fiat. Always has been and always will be. Control the fiat and you control the world......or at least your little part of it.

Occident Mortal's picture

Turkey will get the money to pay Gazprom, they will get it from the IMF, who will get it from the US Treasury, who will get it from the Fed.

Latina Lover's picture

Turkey's nat gas will not be cut off by Russia unless Erdogan does something really stupid like closing down the Bosphorus straits. If Erdogan plays this card, expect the Turkish economy to further implode, with his family losing billions of dollars literally overnight.  

 

Further, russia will rightly construe this as an act of war, and will respond appropriately.   One approach may be to help the Kurds carve out their own state from Turkey.

Looney's picture

Here’s my humpable observation of the recent change in the Russia-Turkey “relationship”.

Usually, a wife catching the husband fooling around with somebody else would divorce the bastard, but…

A smart wife would stick around AND nag the hell out of the dude “for as long as they both shall live”.

Putin is, rightfully, going to milk Turkey for all it’s got – ISIS, the Turkish Stream, NATO, Azerbaijan’s gas to Europe, Nagorno-Karabakh, etc.

Erdogan has stepped into a huge pile of camel-poo. I hope he’s got a spare pair of white Nikes layin’ around.  ;-)

Looney

WTFUD's picture

Good call Looney, let Russian not renege on Turkey's Gaz contract but send it via Cruise Missiles.

Billy the Poet's picture

Cold Turkey has got me on the run.

strannick's picture

Being the USs bagboy little bitch isn't all CIA peaches and Defence Deptartment cream

Tarzan's picture

Clearly Russia has the leveredge at the moment and the West is poking the Bear with an ever shrinking stick, as the Wests finances begin to look more and more Russia's in the 80s.

The most interesting part is the MSM Propaganda machine in full display, as the wires report that,

 "Russia cust off it's gas to Ukraine",

And The American Press in Large bold Headlines Lie to the American People with,

"Ukraine refuses to buy gas from Russia"

Newsboy's picture

Russia has lots of creative options before doing something so unimaginative as turning off the gas. Rusia will first do things Russia wants to do, which are excused by this bullshit ambush. Then Russia may do things that cost Turkey, but not Russia, or that cost Erdogan, but not his political opponents. The tension of cutting the gas should just hang there...

Wile-E-Coyote's picture

Russia maybe might ram it home by reducing supply pressure in the gas line, reduced pressure will result in lost volume.

Russia could rightly say "We have not reduced pressure everything is fine our end comrad, you must have a leak"

A hard winter is coming to Europe; nearly here. Russia could cause them a lot of pain without cutting them off.

boattrash's picture

Looney, so well put.

May I share the late, great Sam Kinison version...

https://www.youtube.com/watch?v=5SJIh2WLOQA

Blankone's picture

Putin will continue to bitch that it is all so unfair and they are mistreated.  Meanwhile his airliners, fighter jets and maybe soon ships will go down.  Electricty to Crimea cut off and that is just the start.

Concrete actions against his "someday" actions.

Baby Bladeface's picture

More teardrops pouring from this butthurt ukropina.

Somehow quite funny ISIS is now NATO member and Ukraine is not.

finametrics's picture

Blankone why so butthurt bro?

gezley's picture

It's simple. Anglo-America and Israel want Russia to react and hit out. Russia's not doing that, so they keep trying. That just goes to show how insane they are, and how level-headed the Russians are, but don't expect it to last. The Russians have a threshold, and they're getting angrier and angrier at the constant provocation. Perhaps that's exactly what Anglo-Zion wants, but the outcome might not go to plan. If Russia does eventually crack under all this pressure, I think the Anglo-Zionist Empire of Chaos will be on the receiving end of a whole lot more pain than they bargained for.

 

Meanwhile you carry on scoffing at Russia's patience while you can. It just goes to show you're yet another moron who can't read the signs.

Sokhmate's picture

Humpable observation - added to dictionary

RafterManFMJ's picture

Dear Turks;

We're shutting you off indefinitely because we know you don't like our products crossing your borders; however, if you're willing to pay for gas with gold or silver, we will begrudgingly continue to supply you.

Hugs,

Vlad

Winston Churchill's picture

Not going to happen.Iran has a Kurdish issue as well.It will not look kindly on

Russua if they do anything to inflame that problem.

BarkingCat's picture

Turkey already committed an act of war against Russia.

If Turkey closes the straits  they will get the Russian punch though in full force if need be.

Personally I hope they take all of European land from Turkey.

Poland stopped these assholes at Vienna some 3 centuries ago. It would be awesome to see Russia kick their asses back out of Europe completely.

They could make some instant friends also with Greeks and Bulgaria.

Give Greece back their islands, including rest of Cyprus and give Bulgaria most of the European land.

They could keep Constantinople and the straits.

It would also cure the refuge problem and Russia has no problem with mass relocations.

Nero_Hedge's picture

How do you see the BIS's role in all of this? Honest question, trying to figure this out....

Seeing as how even Russia's central bank is a bis member, are all the nationalistic theatrics and wars just their way of keeping the board balanced? Is the US even "in charge," or is our military simply being used to take out remaining non member states("7 countries in 5 years.."), and the conflict with Russia/China being prepped to balance us out when that's done?

FreeNewEnergy's picture

CD, I'm actually surprised at your statement, being that you and Ms. CogDis live in a rural environment. You, more than anybody, should know that (mixing mutiple metaphors here) that food and energy are where the rubber meets the road. Fiat is soley a means to an end, and, while convenient, has limited shelf-life.

I am currently living in upstate NY with my only heat supplied by my ability to cut wood and burn it. I can choose to freeze to death this winter or work hard before everything is frozen and spend December - March at a reasonable level of comfort. I've been sawing for weeks and am not even close. Should have started earlier. Note to self and other newbies or those unprepared. Figure out how much wood you need and double it, then add another 40% just in case it's a really harsh winter.

Russia and Iran, the suppliers, hold all the cards, especially since they have geographical proximity to Turkey and Ukraine - and Europe. If people want to heat with gas and oil, their choice.

For me...

Long timber.

hoyeru's picture

yet you have the time to post on ZH instead of sawing and choping wood. Right. Suuuuuuuuuuuuuure.

FreeNewEnergy's picture

Dude, it's 8:37 here. Pretty dark, though the full moon is nice.

Let me make it crystal clear for you. Working with either a chain saw or an axe at night is not exactly a prudent endeavor.

Besides, I did mention "burning" which is what is happening behind me right now, or, maybe you missed that.

Just a suggestion, but you might want to read a little St. Thomas Aquinas, particularly, Summa Theologica.

BringOnTheAsteroid's picture

Serious question. Do you plant trees to replace the ones you chop down?

detached.amusement's picture

yeah, since the forest doesnt do that naturally or anything

Calmyourself's picture

Its tough to do at night, rain, snow

Cognitive Dissonance's picture

For the average Jane and Joe Blow (and those who manipulate their reality) it IS all about the fiat. I was speaking of the consensus reality, not the minority view of Mrs Cog and I.

FreeNewEnergy's picture

OK, no harm, no foul. Seriously, though, if we are going to endeavor to change things, timber is a key element. Give me a little time. I'm a quick study.

I appreciate your input and your blog (yes, I've read some of it, but, your writing style, well, I'll leave that for when we have an evening or two). If we're ever going to do something other than type stuff on the internet, we need to think well beyond fiat and toward - dare I say it - a more sustainable future.

Now, that may not be for all seven billion inhabitants of planet earth, but for the survivors, I'm thinking back to basics isn't a bad start.

knukles's picture

Oh yeah.  Those pipelines!

Max Steel's picture

'War, war never changes' 

Ukraine will not purchase Russian gas till the end of 2015 - supplies from the West and the reserves in underground storage facilities are sufficient. - Ukrainian Media 

Yttrium Gold Nitrogen's picture

That's something I don't believe. I explained this once here in a comment, but nevertheless, here I go again: Ukraine's underground gas storage facilites need to be filled with gas during the summer, when the consumption of gas is low. They did not do it. As the rate of consumption increases as temeratures drop, total rate of consumption exceeds carrying capacity of the pipe, so some of the gas has to be supplied from underground storage. If the storage is empty, well, someone has to freeze their ass off. Usually it was the Europeans, as Ukraine regularly siphoned gas from the pipeline. Of course, everyone was always blaming Putin and Gazprom, despite the fact that Gazprom does its best to honor contracts. As for Putin, I'm seriously considering he's God himself, as he gets the blame for almost everything. As the Russians joke sometimes: "Your life is going under? Yeah, that's Putin's blunder". I'd also add that the so called DPR and Russia halted the delivery of coal to Ukraine as a reprisal for cutting Crimea off the grid.

HowdyDoody's picture

The last time the bill was due, Ukraine put forward cash for a whole 5 days of gas. 5 whole days! That tells you how much you need to know about the state of the Ukraine economy. The Ukraine oligarchs are milking the IMF loans for all they are worth. When TSHTF, the ordinary Ukrainians are going to find they have been lumbered with the bill.

 

BarkingCat's picture

Ukrainians are very angry at the government right now. They know very well about the corruption. Problem is the unlike with Maidan,  Soros is not financing and directing these individuals so they are not organized. That only last for so long.

OpenThePodBayDoorHAL's picture

LOL like that Nigerian guy who scammed $2B he was given to fight Boko Haram, that didn't get much coverage. Stealing a bil is easy these days, look at Malaysia. Taking the West's money in Kiev is child's play

Still Losing Money's picture

Ukraine should just tap the HUGE gas field that the country sits on and tell Gazprom to pack sand

Baby Bladeface's picture

You in stand-up comedy to earn not tried? The funniest.

That gas field nearby Unicorn Forest and Rainbow Mountain?

finametrics's picture

Hey stilllosingpenis. The only tapping that will happen will be me tapping ur hairy mother and russia tapping turkeys sweet and gentle ass.

sam i am's picture

and you should wake up. Ukraine doesn't have any gas feilds.

sam i am's picture

cheesus!

 

Thank you, Nuland for Banderastan.

Kirk2NCC1701's picture

Russia just needs to close the Syria - Turkey border, and arm the Kurds to the teeth with AA and TOW missiles.

In parallel, Iran needs to support the Kurds on the ground, to break Turkey in half.

Savvy's picture

Turkey is Saddam stupid...

rubiconsolutions's picture

"For every action there is an equal and opposite reaction" - Isaac Newton

StychoKiller's picture

Newton's third Law of Emotion:  "For every male action, there is a female over-reaction."

So It Goes's picture

Erdogan = Hitler?  Malignant narcissists?

SHADEWELL's picture

I believe that the House of Saud, will gladly supply the needed gas. 

 

It appears as though this Putin fellow fashions himself a a Napolean Bonaparte, and Syria may well be his Waterloo

 

As I have previously stated

Rightful liberty is unobstructed action according to our will within limits drawn around us by the equal rights of others. I do not add 'within the limits of the law' because law is often but the tyrant's will, and always so when it violates the rights of the individual.

Thomas Jefferson