Daily Management Review

Russia Stuck with Miles of Abandoned Gas Pipes Worth Billions After Turkey Row


Russia Stuck with Miles of Abandoned Gas Pipes Worth Billions After Turkey Row
As a potent symbol of Russia falling out with Turkey, gas pipes worth 1.8 billion euros ($1.95 billion) are to be left stranded on the shores of the Black Sea.
This decision came after Russia's decision to suspend work on the Turkish Stream pipeline following the row over Turkey allegedly shooting down a Russian fighter jet.
Russia has already imposed trade sanctions and released data it claims proves Turkish President Tayyip Erdogan is involved in illegal oil deals with Islamic State as an attempt of Russia to punish Turkey after it shot down a Russian warplane in Syria last week.
Work on Turkish Stream, a pipeline intended to pump Russian gas into southeastern Europe via Turkey while bypassing Ukraine, had been suspended, Russian Energy Minister Alexander Novak told reporters on Thursday.
As an immediate reaction to the Russian announcement, the head of one of the main buyers of the pipeline’s gas, Italian oil major Eni, said the project was dead in the water.
Miles of pipes only usable in the Black Sea are now left with Russian energy giant Gazprom following the decision.
For the 2,400-kilometre (1,491-mile) South Stream pipeline, originally slated to open in 2018, the company had ordered pipes from as far afield as Japan and Germany. After the South Stream pipeline project was cancelled, the pipes were reassigned to Turkish Stream.
The specialized construction of the pipes is such that they can only be used in the Black Sea and nowhere else, said industry sources. Followiiing the Russian decision to stop work, Gazprom has no option but to put the pipes in storage and wait until tensions between Moscow and Turkey subside and the project restarts.
"These pipes were calibrated for a specific environment, pressure and capacity," said one source in the pipe-making industry. "Accordingly, they are only suitable for underwater pipelines in the Black Sea," the source told the media.
Gazprom was not available for comment.
While the present freezing of work on the Turkish Stream is being viewed largely as symbolic, experts claim that the project had been riddled with delays and doubts over its viability and the overall financial implications for Gazprom which are viewed to be very real.
Gazprom has spent between $12-14 billion on Turkish Stream and its aborted predecessor South Stream, says Sberbank analyst Valery Nesterov. The South Stream project was abandoned last year in the face of European Union opposition and heightened tensions over the Ukraine crisis.
After a group of 10 European governments published a letter saying the planned Nord Stream pipeline project ran counter to European Union interests and risked destabilizing Ukraine, questions have also been raised over the project.
"Again, the company is rapidly building a pipeline which might not be needed," said Nesterov.
Second only to China, Russia is one of the world's largest steel pipe producers, and has the capacity to turn out more than 3 million tonnes of the large-diameter pipes typically used in major energy projects every year.