Balkans, Energy policy, Middle-East

Realpolitik: The Energy Triangle As Game Changer For The Eastern Mediterranean

<img alt><img source="pic.gif" alt="Energy triangle"</img>

The potential “third energy corridor” – the Greece-Cyprus-Israel energy triangle may be the winner of the European energy game.”Third Energy Corridor” into the EU, a development of certainly wider geo-economic proportions.The gas could be a geopolitical game changer especially for Israel as well for the wider region (meaning the Balkans, the Middle East and especially the Eastern Mediterranean).

The Energy Triangle refers to the joint natural gas extraction between Cyprus, Israel and Greece that is estimated to begin in 2015. Officials from all three countries have agreed to the establishment of a gas pipeline from the Aphrodite gas field and the Leviathan gas field to a liquefied natural gas plant in the Vasilikos Power Station by 2019. (Note: here is not referred EU’s energy policy triangle ”emissions-supply-affordability”). So for the Energy Triangle and the EU there is now three projects of common interest: the first is the connection of an electricity cable between the three countries, the second is the feasibility of a pipeline from the East Mediterranean to Europe via Greece and the third one is the gas storage pipeline that will enhance the strategic resources of Cyprus, Israel and other European countries such as Greece.

Russia is the key player – even a game changer – in this triangle too. Future production in the eastern Mediterranean would be too marginal to offset Russia’s dominant market position. Nevertheless, the state-owned gas monopoly Gazprom is seeking a financial stake in the development of local resources. Israel and Cyprus see Russia as a source of both technical expertise and potential political support. Russia has repeatedly affirmed Cyprus’ right to explore offshore deposits in its exclusive economic zone.

Moscow won’t jeopardize its new deeply strategic energy partnership with its Israeli-Greek Cypriot ‘Western’ partners – in particular, its burgeoning relationship with the Middle East’s coming energy superpower, Israel. It is not only energy but geopolitics as Russia’s actions might cause selling out of Russia’s backing for both Iran and Syria for a Stake in Israeli Gas.

<img source="pic.gif" alt="Map credit: Gazprom"</img>

Map credit: Gazprom

Gazprom has also revealed that the company still has plans to link Greece with South Stream. This implies that the Russian strategy is to use Greece as a potential LNG hub, supplied by South Stream. South Stream, as far as its geostrategic role is concerned, is one of the most important projects in Balkans since WWII. Especially Serbia can be the heart of energy transport in the Balkans but also two branches will be built – to Republika Srpska and Croatia. In addition the Serbian side has proposed the construction of branches to Kosovo and Montenegro and Macedonia has also expressed the wish to get a branch of the pipeline from Serbia. On the other side the competitive project, the Nabucco pipeline, is already practically dead. More about background of Nabucco/South Stream battle in my articles Is it time to bury Nabucco? and EU’s big choice – Nabucco or South Stream?

The new opportunity with energy gives also some new political leverage to Israel. There has been a bit uncertainty how Israel will formulate its export policy. Israel’s options for selling the gas include Europe, China or even India. In terms of development, a partnership with Cyprus tying in its gas fields and co-operating on building sub sea gas pipes makes sense. And Greece has proposed becoming a distribution hub for eastern Mediterranean gas throughout Europe. Just how Israel’s vast reserves are to be monetized is yet to be seen. However in the few years since the state’s changeover from oil to gas-powered electricity generating plants Israel is already believed to have saved around $5 billion in revenue.

The new Gulf

<img source="https://i2.wp.com/www.yalibnan.com/wp-content/uploads/2010/11/oilgas-lebanon-israel-400x452.jpg" alt="Levantine basin gas and oil."</img>

Source: Noble Energy

The U.S. Geological Survey says the Levant Basin, encompassing Syria, Lebanon. Cyprus, Israel and the Gaza Strip, contains 123 trillion cubic feet (tcf) of gas and 1.7 billion barrels of oil.

In 2009 and 2010, a pair of U.S.-Israeli consortiumsexploring the seabed near Haifa discovered the Tamar and Leviathan fields, which collectively hold an estimated 26 trillion cubic feet (tcf) of natural gas. Israel has also worked to expand political, military, and economic cooperation with other local stakeholders, particularly Cyprus. But even at a combined total of 25 Tcf, worth some 200 billion euros at today’s prices, Tamar and Leviathan only represent around a fifth of the estimated gas in the Levantine Basin, much of which falls within Israeli jurisdiction. Anyway only this is enough gas to supply Israel’s needs for 150 years.

Since Cyprus signed a maritime border agreement with Israel in 2010, it has become the second main beneficiary of the gas boom. The island straddles Israel’s most likely gas export route to European markets. Cyprus also lays claim to its own gas deposits. The Aphrodite field, which is next to Leviathan, may contain up to seven tcf of natural gas — enough to meet Greek Cypriot domestic consumption needs for decades to come. Yet even that field is contested by others. The breakaway Turkish Republic of Northern Cyprus claims co-ownership of the island’s natural resources.

On the borders of energy triangle one should not forget Syria, which is in the middle of two important energy corridors: It links Turkey and the Caspian See to Israel and the Red Sea and it links Iraq to the Mediterranean. Syria’s civil war is preventing seismic soundings in its waters but there’s every reason to assume they contain similar-sized gas fields.The Eastern Mediterranean gas fields might be the reason the Kremlin has created a military foothold in Syria for the Russian Federation. Moreover, it has been Iran that has agreed to explore and help develop these natural gas fields off the Levantine coast for Beirut and Damascus. Before civil war Syria was seeking foreign investment for three offshore oil and gas concessions. If the present regime in Syria falls the question is who would control these energy routes. If western powers are taking more firm grip from Syria it would also mean that the large natural gas fields off the Lebanese and Syrian coastline in the Eastern Mediterranean would be out of reach for China and instead go to the E.U., Israel, and Washington.

Also Lebanon, whose waters border both those of Israel and Cyprus, is expected to start issuing tenders to international companies to explore its maritime exclusive economic zone.

To its south, Israel has a difficult relationship with Hamas and the Palestinian Authority (PA) over natural gas, and has been obstructive to the PA’s own natural gas exploitation opportunities. Gas was discovered in 2000 by BG in waters that would include Gaza’s EEZ. However, political difficulties made it impossible to tap and transport the gas – not only is the PA not a member of the UN Convention on the Law of the Sea (UNCLOS) and hence has not declared its EEZ, but Israel occupied the Gaza Strip until 2005 and holds de facto control over the waters off Gaza’s coast.

<img source="https://i0.wp.com/farm8.static.flickr.com/7135/7017081555_dc08f6c09b.jpg" alt="Levantine basin gas and oil."</img>

Levantine basin gas

Earlier Egypt’s natural gas sector has expanded rapidly, with production quadrupling between 1998 and 2011. Egypt’s proven gas reserves were estimated at 2.2 tcm in 2011, representing the third-largest reserves in Africa after Nigeria and Algeria. In 2010, Egypt produced roughly 61.3 bcm of natural gas, of which 45.1 bcm was consumed domestically. In 2010, Egypt exported 15.1 bcm of natural gas (of which 9.71 bcm was via LNG and 5.46 bcm via pipeline). Egypt’s proven crude oil and condensate reserves are estimated at 4.5 billion barrels. The recent unrest in Egypt and the overthrow of President Mohamed Morsi is again giving the energy markets jitters reminiscent of the uprising in 2011 that ended Hosni Mubarak’s 30-year rein. Then, as now, most attention is focused on oil markets and possible disruptions of tanker trade through the Suez Canal. But with increased worldwide attention focused on liquefied natural gas (LNG) trade, it’s important to note that about 13-14% of global LNG trade passes through the Suez Canal. Since 2011 Egypt has suffered from gas shortages and has already halted gas exports to Israel and shut down one of its two LNG plants — the SEGAS LNG plant at Damietta — because of a lack of feedstock.


With a newfound focus on maritime security, eastern Mediterranean states are also keen to modernise their navies and coastguards. Israel, for example, announced in July 2012 that it would spend $800 million on acquiring four offshore patrol vessels to protect its platforms and enforce maritime security. Turkey, meanwhile, has a number of naval procurement projects, including 16 Tuzla-class patrol craft for the navy and four Dost-class offshore patrol vessels for the coastguard. The most substantial Turkish procurement is for a $1.7 billion landing helicopter dock, the navy’s first amphibious assault vessel.

Two other claimants, Greece and Cyprus, are hamstrung in procurement efforts by lack of funds. Inspired by the gas finds, however, Nicosia finally gave the go-ahead for the procurement of two offshore patrol vessels in January, with a likely budget of $150m (although it is unclear how the country’s financial crisis will affect this programme). Greece, meanwhile, with a defence budget constrained by a political decision to stick with the purchase of six submarines from Germany, has resorted to unusual deals to bolster its Mediterranean presence. In February, Athens sought to lease two frigates and four maritime patrol aircraft from the French navy to better patrol the eastern Mediterranean.

Volume of gas fields

US firm Noble Energy and Delek Energy, a domestic company, discovered gas off the country’s coast in 1999. The Mari-B field, which began production in 2004, contained about 1 trillion cubic feet (tcf) of gas but is now severely depleted and likely to run dry within two years. Other nearby fields, such as Noa and Pinnacles, are now connected to the Mari-B platform and began production in June 2012 – they are thought to hold a further 1.2tcf of gas.

<img source="https://i0.wp.com/mercury.ethz.ch/serviceengine/Files/ISN/468x351/165677/iresourcemultiple_files/45eab09d-1c3e-4ec0-978c-476f756a2363/en/Gas-Claims-in-the-Eastern-Mediterranean468x351.jpg" alt="Levantine basin: Exclusive economic zones (EEZ)."</img>

Source: IISS

The first well, Leviathan 1, was first drilled to a depth of 5,170 metres where the deposit found was estimated to contain 16 trillion cubic feet (450 billion cubic metres) of natural gas. The second stage of drilling of the Leviathan 1 well was intended to reach a depth of 7,200 metres where the estimated natural gas reserve is an extra 9 trillion cubic feet (250 billion cubic metres) and potentially 600 million barrels of oil.

The Tamar field is considered to have proven reserves of 200 billion cubic metres (7.1 trillion cubic feet) of natural gas and is estimated to contain an extra 80 BCM of probable natural gas reserves. In a related development, natural gas from the offshore Tamar gas field near Haifa started flowing last April 2013.Tamar produces a gross 636 million cubic feet of gas a day.

Karish is Israel’s latest offshore gas discovery northwest of Haifa and the fifth field to contain over 1 tcf of gas. Noble Energy announced on the 22nd of May 2013 the discovery of the Karish well, in the Alon C license approximately 20 miles northeast of the Tamar field, in 5,700 feet of water.

Beyond Israel, the most active country in gas exploration has been Cyprus. Nicosia was eager to negotiate its Exclusive economic zone (EEZ) boundary with Israel (having already done so with Egypt in 2003), and reached an agreement in December 2010. A year later, the real Aphrodite field (Block 12) was discovered in Cypriot waters, just 35km west of the Leviathan field. The estimated reserves of up to 8 tcf would more than cover Cyprus’s entire energy needs for 200 years.

More about topic in Outlook for Oil and Gas in Southern and Eastern Mediterranean Countriesby Manfred Hafner, Simone Tagliapietra and El Habib El Elandaloussi, MEDPRO 10/2012

Transfer of gas

The Israeli energy minister Uzi Landau announced that his country has established a high level commission that actively examines the prospects for transfer of gas. To date, the following options have been proposed:

  • Transfer gas to Israel for the purposes of electricity production
  • Creation of LNG stations in Cyprus and Israel to supply the world market
  • Creation of a floating LNG station close to the gas fields
  • Creation of a pipeline connecting the fields with Greece and from there on to the EU via Italy
  • Use the gas production for electricity generation and creation of a high voltage cable to connect Israel-Cyprus-Greece who will consume the electricity. it would mean that Israel could export energy to Europe, and in times of crisis could fall back on European electricity. it would mean that Israel could export energy to Europe, and in times of crisis could fall back on European electricity.

(Source: Natural Gas Europe )

It should be pointed out that any transfer of gas to Europe from developments in the eastern Mediterranean would take upwards of a decade to begin, once investment decisions were taken. In one other point of view, a dynamic triangle between Greece-Cyprus-Israel could be treated as an efficient geo-political counterweight to Turkey.

March. 8, 2013 a new deal by Russia’s Gazprom to market Israeli liquefied natural gas shows that Moscow is again emerging as a player in the strategic region. The 20-year LNG contract between Gazprom subsidiary Gazprom Marketing and Trading Switzerland and Levant LNG Marketing Corp. also provides a major boost for Russia’s drive to rebuild its Cold War influence in the Middle East that collapsed with the demise of the Soviet Union.This is an important milestone for strengthening Gazprom’s position in the global LNG market ( Source: UPI)

Already on end of June 2013 Cyprus inked a deal with a US-Israeli partnership to build a liquefied natural gas plant on the island to exploit untapped energy riches. Building a multi-billion euro LNG plant is seen as the biggest infrastructure investment project in the island’s history.

Early August 2013 Greece, Cyprus and Israel signed a memorandum of mutual understanding to cooperate in energy and water resources. The delegations from all three countries voiced their support for the EuroAsia Interconnector project that plans to link the electricity grids of all three countries via an underwater cable that is also going to hook up with the Paneuropean Electricity Grid. The 2,000-mega-watt EuroAsia Interconnector could potentially allow for the export of electricity generated in the eastern Mediterranean to the EU energy market through the trans-European electricity networks; it is also seen an important reason for stability in the eastern Mediterranean.

Conclusion

The term “Energy Triangle” was first issued at the Cyprus-Israel Business Association in Nicosia, Cyprus in 2010. Due to the joint establishment of the Exclusive economic zone (EEZ) between Cyprus and Israel, this marked the beginning of an increasing collaboration between the two Mediterranean neighbors. Both countries agreed to a joint extraction of natural gas by the American company Noble Energy in order to cut the financial burden of extraction by both countries. Shortly after the exchange of representatives between Israel and Cyprus, the Gaza flotilla raid occurred in 2010, thus destroying the Israeli-Turkish relations and pushing Israel towards a closer alliance with Greece. Since 2011 Greece joined Israel and Cyprus in the plan to export natural gas to Europe by 2015 through a power plant close to Limassol.

The discovery of natural gas is a huge strategic opportunity but it also has complicated rivalries in the eastern Mediterranean, an area already full of long-standing security issues.Among those to have issued assertive statements of intent regarding undersea gas finds are Greece and Turkey, Cyprus and the self-declared Turkish Republic of Northern Cyprus, as well as Israel, the Lebanese militia group Hizbullah and Palestine’s Hamas.

The energy discoveries during last decade have transformed Israel’s energy calculus and caused a significant strategic shift.. In 2012, when Egypt abruptly cancelled natural gas exports to Israel, the country was reliant on imports for 70% of all natural gas used, and on its Arab neighbour alone for 40% of its supply. But the Tamar and Dalit fields alone hold enough natural gas to supply all the country’s needs for two decades. When combined with Leviathan, Israel could meet all of its electricity needs and export gas.

<img source="https://encrypted-tbn1.gstatic.com/images?q=tbn:ANd9GcTLjJH9WkBHGdIjtOeanrJn4-Zb7U01_vLJdgXVwbsZ4EOp4xjs" alt="triangle."</img>

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BalkanBlog, Balkans, Black Sea region, Energy policy

Turkey’s EU hopes -is there any?

Yes, to Europeans, Turkey’s EU bid is dead. The fundamentally Roman Catholic continent simply has no intention of ever incorporating 70 million Muslims in one swoop. And Turkey—with its Ottoman history, which at one time threatened Catholicism’s very existence—has particularly negative associations in European minds. Still, given this nation’s strategic value to Europe, you just watch. Somehow, some way, the EU will continue to dangle carrots in front of Turkey in order to continue to benefit from doing business with it.” (The Trumpet)

While Turkey is rising regional Eurasian superpower is EU-Turkey relationship still foggy. From my viewpoint it looks like EU has two strategies – outside official diplomatic statements – for future process with Turkey: Either EU is waiting that Turkey never will comply the membership criteria or it is innovating new obstacles to guarantee this. As Turkey is extremely important economical partner for EU as well rising EU’s energy hub there is a third way offered to Turkey – a “privileged partnership”.


Turkey submitted its application for associate membership in the European Economic Community in 1959. That was 51 years ago. seeking membership of the EU since 1987. Now Turkey, after three decades of petitioning to join Europe, is an official candidate for membership in the European Union. Joining the E.U. requires meeting “European standards” for institutions that address a wide variety of legal, social, economic, and political issues. These include judicial and economic structure, the abolition of the death penalty, free speech and a free press, minority rights, and curbing military power. Since the EU symbolically opened membership talks in 2005, Turkey has provisionally solved only one (research and development) of 35 issues of concern to the E.U., and only begun to address 11 other policy chapters that candidates must complete. From these 11 eight remain blocked over Turkey’s failure to carry out the Ankara Protocol, which was signed in 2005 and states that Turkish ports should be opened to products from the European Union, including Greek Cypriot goods.

(More about formal process see enclosed “Fact Box: EU-Turkey Negotiation Process and The 35 Chapters” on the end of this article.)


The real issue

There is many obstacles on Turkey’s road to EU accession like missing trade links with Cyprus, like Turkey’s refusal to open its ports and airspace to EU member Cyprus freedom of expression, like the rights of the Kurdish minority and need for Turkey to speed up its political reforms. However its is easy see that these issues are only useful cover to real unspoken fact that France and Germany, among others, don’t want Turkey to join EU.


In France some polls are showing over 80 % of population to be against Turkey’s membership. Nicholas Sarkozy, the French president, has already moved to torpedo Turkish accession to the bloc by stopping ratification efforts in five key areas. In Germany Angela Merkel’s Christian Democrats (CDU) and the Free Democrats (FDP) are both hostile to the accession. The CDU is against the Turks joining for cultural reasons while the FDP has said the country’s economy is too far below European standards to integrate comfortably with other members. Turkey – a country of 72 million – would be second only to Germany in scale if it were to join the EU. Although the government of the country is secular, estimates put the proportion of the population which is Muslim at around 99 percent. On other words it is Turkey’s overwhelming embrace of Islam which is the real issue against country’s EU membership.


Privileged partnership as solution


German Chancellor Angela Merkel insisted on “privileged partnership” for Turkey instead of full EU membership before her visit there March 29-30. “I am of the opinion that we should rather aim for a privileged partnership, in other words a very close affiliation of Turkey to the European Union,” the chancellor said in a radio interview. Privileged partnership, which falls short of full membership. Both Berlin and Paris have peddled the term as an alternative to Turkey’s full membership of the EU, something which they vigorously oppose. She told a Turkish newspaper that Ankara should instead be granted a “privileged partnership” with the EU, a unique status that has not been conferred on any other country that has negotiated its way to membership. She added that Turkey could apply some 80% of EU law.

Turkey rejects the idea of “privileged partnership”. Before Merkel’s visit Turkish Premier Erdogan repeated demands on Wednesday for full EU membership. “We are already conducting negotiations, and these are aimed at full membership. For us, there is no alternative,” Erdogan said in an interview with the German weekly Zeit. “Such a thing as privileged partnership does not exist, so we do not take that option seriously,” said Egemen Bagis, Turkey’s Europe minister. “At times I feel insulted for being offered something which does not exist.” Speaking to the press following their talks, Ms Merkel said she now understood that the term “privileged partnership does not have a good connotation in Turkey.”


Turkey’s viewpoint


I don’t understand the reason of their hatred and grudge against Turkey. I wouldn’t expect this attitude from Merkel. I will share my opinions with her. Turkey is not a whipping boy.” (PM Erdoğan)

In his interview to German magazine Der Spiegel Turkish Prime Minister Recep Tayyip Erdogan said following:

Together with Spain, we run the United Nations Alliance of Civilizations initiative against extremism, which benefits Europe. We have been a member of the customs union since 1996, and we satisfy the political criteria established in Copenhagen. In fact, we are even closer to fulfilling the economic Maastricht criteria than some E.U. member states. And then there is the fact that we are a founding member of the Organization for Economic Cooperation and Development (OECD) and have been a member of NATO since 1952. This makes us a bridge between the West and 1.4 billion Muslims.

Beril Dedeoglu gives quite good description over Turkey’s position in her articleGermany-Turkey: a key relationship

According to the Merkel government, Turkey will never be able to fulfill the criteria necessary to join the union; and even if it does, the EU members will not approve this membership. However, Germany also estimates that Turkey will become an unstable country if the process is simply abandoned. So Germany proposes implementing a “privileged partnership” to Turkey instead of full membership in order to allow Turkey into the EU economically but not politically. This proposal is perhaps reasonable for them; however, it is not rational from Turkey’s perspective. Turkey has no intention to build ties with the EU other than membership. If the membership process fails, Turkey can pursue its bilateral relations with some EU countries, concluding trade or investment agreements with them or initiating cooperation on security and defense matters, but no one can guarantee that Germany will be one of the countries Turkey will choose to develop its relations with. Furthermore, if Turkey does not become an EU member, it will no longer have the obligation to realize the “free trade area +” project, called privileged partnership, with the EU. We already have the customs union, which has reached its limits and which creates serious problems. If the membership expectation disappears, Turkey will definitely do something about it and try to establish other free trade areas in the region.

Privileged partnership means that Turkey must adopt the acquis without the right of being represented in EU institutions. However, no one is capable of explaining why a non-member Turkey would accept the acquis or how it would be able to finance the cost of reaching EU standards. In the event of a privileged partnership, the EU will not ask Turkey to adopt the principles of high levels of democracy and being a state of law; this idea’s partisans in Europe are convinced that Turkey would be amazed by that. Although it is true that this would please some in Turkey, one must not neglect the social demands in Turkey in favor of democratization, as they have reached unprecedented levels.


Energy aspect


Turkey holds a strategic role in natural gas—between the world’s second largest natural gas market, continental Europe, and the substantial gas reserves of the Caspian Basin and the Middle East. Turkey is positioned to play an even bigger role linking gas producers in the Caspian and Middle East to consumers in south-eastern and central Europe. It is developing energy corridors with Russia (Blue Stream I and agreed II), cooperation with Russia’s South Stream, it is participating to proposed EU’s Nabucco gas pipeline project and a potential Iranian gas transit deal.


Turkey also imports liquefied natural gas (LNG) from Algeria and Nigeria to its only regasification plant at Marmara Ereglisi. LNG imports have continued to rise as Turkey seeks to diversify its sources of gas imports. Turkey is also taking steps to increase regasification capacity at two of its ports.

a table depicting turkey's natural gas transit potential by country of origin

The EU’s new “southern corridor” has been dubbed a version of U.S. “Silk Road Strategy” aimed to block Russia from gas fields around Caspian Sea and its connection to Iran (More in my article “Is GUUAM dead?). The South Pars natural gas field brings a new element to change original U.S. plan as it is a sign of a long-term energy alliance between Moscow and Tehran and with active participation of the EU. Turkey and Armenia may be join the project as transit countries. Naturally, this leaves Washington very few chances to lobby its energy projects in the region aimed at using Azerbaijan and Georgia as the so-called ‘Caucasus communication corridor’.


In my conclusion during next few years Turkey will come an energy hub through further development of Blue Stream pipeline from Russia and implementation of South Stream, possible implementation of Nabucco and planned import of gas from Iraq and Iran. So in energy game Turkey will have some aces; if not membership EU must offer very attractive “third way” solution for Turkey.


Epilogue


During last bilateral (Germany/Turkey) talks, Mrs. Merkel detailed her view that Turkey be offered a “privileged partnership”, which Turkey has initially rejected. From my viewpoint that may be unwise as the alternative would be continuing a negotiation process without any guarantees of success.

The EU’s fear is that if Turkey does not get membership Ankara would look for other partners on energy and security, perhaps getting closer to the China-Russia-Iran axis. So Germany proposes implementing a “privileged partnership” to Turkey instead of full membership in order to allow Turkey into the EU economically but not politically. This proposal is perhaps reasonable for them and from my viewpoint rational also to Turkey.


Some Western Balkan countries are a bit similar situation than Turkey. In my articleSerbia on the road to EU” I concluded following, which in my opinion could as well applied with Turkey:

From my point of view Serbia should think if joining to EU is worth of time, money and bureaucracy it demands. Visa arrangements, free trade and some EU programs are possible also for non-members. However I think that at this moment it would be good idea to continue EU process but not because of fulfilling EU needs. The motivation should be the needs of the beneficiaries aka Serbs not EU elite in Brussels. Also from my point of view Serbia should not put all eggs in the same basket; economical cooperation with Russia and other BRIC countries can create real development on the ground instead slow development on the EU’s negotiation tables.

From my point of view “privileged partnership” could preindicate a possible search of “third way” between EU member- and non-membership. The model – when first created – could be copied also with some other countries which now are in enlargement process or included in Eastern Partnership program, which aims to promote economic and political stability in the countries. It includes free trade agreements, visa waivers, financial aid and economic integration with the EU. In return, the eastern neighbors are expected to step up progress toward economic modernization, democracy, the rule of law and human rights.

On the bottom line “privileged partnership“ could be a pragmatic model of the future relations between Turkey and the EU, it can be applied also to other neighbourhood countries e.g. via Eastern Partnership Programme and can even be better alternative for all stakeholders than full EU membership.

Fact Box: EU-Turkey Negotiation Process and The 35 Chapters

How Negotiations Proceed

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The 35 chapters of the EU’s acquis communautaire:
  1. Free Movement of Goods
  2. Freedom of Movement for Workers
  3. Right of Establishment and Freedom to Provide Services
  4. Free Movement of Capital
  5. Public Procurement
  6. Company Law
  7. Intellectual Property
  8. Competition Policy
  9. Financial Services
  10. Information Society & Media
  11. Agriculture & Rural Development
  12. Food Safety
  13. Fisheries
  14. Transport
  15. Energy
  16. Taxation
  17. Economic and Monetary Policy
  18. Statistics
  1. Social Policy and Employment
  2. Enterprise & Industrial Policy
  3. Trans-European Networks
  4. Regional Policy & Coordination of Structural Instruments
  5. Judiciary & Fundamental Rights
  6. Justice, Freedom & Security
  7. Science and Research
  8. Education and Culture
  9. Environment
  10. Consumer and Health Protection
  11. Customs Union
  12. External Relations
  13. Foreign, Security, Defence Policy
  14. Financial Control
  15. Financial & Budgetary Provisions
  16. Institutions
  17. Other Issues
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BalkanBlog, Black Sea region, Energy policy

Ukraine: End of Orange Revolution, start of Stabilisation

We can say goodbye to our democracy, our independence and our sovereignty” (outgoing President Yushchenko predicts a future with either Ms Tymoshenko or Mr Yanukovych as President)

I’m quite happy because whoever is chosen today will be hated tomorrow by the majority of the country.” (Andrey Kurkov)

Ukraine’s Russian-leaning opposition leader, Viktor Yanukovych is on course to become the country’s president, with early results indicating he had a lead of several points over his bitter rival, Yulia Tymoshenko, the prime minister. Describing yesterday’s vote as a “turning point in our country’s history”, he added that he would pursue policies that helped all Ukrainians – and would not favour one geographical area. “We don’t need to find enemies in our country. We need to unite together,” he declared. In contrast to 2004, international observers said there was no major evidence of fraud. Despite fair elections PM Tymoshenko insists that she will challenge the results of the presidential election.


With more than 97% of votes counted, Mr Yanukovych had a 2.6% lead over his rival, PM Yulia Tymoshenko. According to the results, “against all” received 4.4 percent. Preliminary estimates showed about a 69 percent turnout. Sunday’s elections had been given a “positive assessment” by the election observation mission led by the Office for Democratic Institutions and Human Rights ODIHR) of the Organisation for Security Co-operation in Europe (OSCE). The OSCE hailed the process as “professional, transparent and honest,” saying it should “serve as a solid foundation for a peaceful transition of power. There looks to have been less interference from the US this time than happened in 2004, when a number of Washington-backed NGOs took an active part in events in Kiev.


The outcome

Before 1st round I wrote and article “Ukraine – choosing a new Way

I described Ukraine’s challenges – created mainly the disastrous regime of outgoing President Yushchenko – and prognosticated that Ukraine is now selecting more pragmatic and balanced approach with its foreign policy. I also predicted right the 1st round outcome but bet wrong the final 2nd round. One reason can be that after 1st round President Yushchenko went really mad – changing voting regulations, naming Stepan Bandera (nazi-collaborator and chief of the Organization of Ukrainian Nationalists, OUN) as Hero of Ukraine and proposing to vote “against all”. These actions were maybe enough to increase the support for Mr. Yanukovich and decrease the popularity of Ms. Tymoshenko.

Tensions ran high ahead of the vote, with both candidates accusing each other of planning large-scale ballot fraud and vowing to send their supporters into the streets to sway the outcome of any legal disputes over the count. The positive assessment of international monitors however gives limited background to contest the result.

Stabilisation

Mr. Yanukovych and his team may be an old-style party team, however this past can be seen also as an experience needed to bring order and stability to country. In contrast to 2004, Yanukovych’s potential presidency is no longer viewed among Western Ukrainian voters as an existential threat to Ukraine. Earlier Party of Regions even managed to came third in the local election to the city council of Ternopil in March 2009 gaining about 10% and surpassing Tymoshenko’s bloc (which called for a boycott of the election) and Yushchenko’s “Our Ukraine.” Yanukovych’s personal support in the West of Ukraine rose to the same level. At the same time, the less intense animosity to Yanukovych now and disillusionment with his main alternatives means that the West of Ukraine will grudgingly accept him as a new president just the way it accepted Kuchma in 1994. One may claim that the ongoing political confrontation between the Orange leaders has become a far greater threat to Ukraine’s statehood than any of Yanukovych’s election promises could ever be.

According to the 2001 census, 67.5 percent of the population declared Ukrainian as their native language and 29.6 percent declared Russian. Ethnic Ukrainians make up 77.8% of the population while the share of ethnic Russians is 17.3%. So it is clear that the new President has considerable support also outside predominantly Russian regions. This situation may ease tensions between different ethnic and religious groups, not only between Ukrainians and Russians but e.g. between central government and the (Trans-Carpathian) Rusins as the Crimean Tatars.


One of his first tasks is to unblock frozen IMF aid for its ailing economy. Yanukovich supports the idea of starting talks with Russia and the EU on the possible creation of a gas transportation consortium in order to increase the reliability of Russian gas transit to Europe. Improving Ukraine’s investment climate could attract foreign companies who could help Ukraine to develop its vast oil and gas reserves and strengthen its energy security.

In foreign policy the outlines of the new Yanukovych era are clear. He will improve Ukraine’s strained relations with the Kremlin tilting country back towards Russia’s sphere of influence, after the relentlessly pro-European course set under President Yushchenko. He will rule out Nato membership and extend the lease on Russia’s Crimea-based Black Sea fleet. It expires in 2017. He also believes in European integration – economically if not politically.

Energy aspect

The election may also be the final nail in the coffin of GUUAM (Georgia, Ukraine, Uzbekistan, Azerbaijan and Moldova) Group which was founded 1999 with help of US to foster favourable conditions conducive to economic growth through development of an Europe-Caucasus-Asia transport corridor. GUUAM was dominated by Anglo-American oil interests, ultimately purports to exclude Russia from oil and gas deposits in the Caspian area, as well as isolating Moscow politically. First Uzbekistan withdraws from it leaving behind a stump GUAM. Then Georgia started its aggressions with false idea of western support leading today’s situation. Moldova was aiming towards Nato and EU but after conflict in Georgia it started to look other alternatives. Political attitudes of Azerbaijan and Russia have approached each other. Now Ukraine as last fortress of GUAM is taking distance from its earlier Nato ambitions. More e.g. in article “Is GUUAM dead?

Constructing the White Stream pipeline underneath the Black Sea was supposed to be the main energy project of GUAM bloc; it was also designed as an alternative to EU’s Nabucco. The idea of White Stream is to pump natural gas from the Caspian region to Ukraine and further to Romania, from where it can be marketed to Europe. On May 28, 2008, the European Commission identified the project as a “Project of Common Interest” and furthermore accepted it as a “Priority Project.” However the last Georgian energy summit on January 14-15 2010 in Batumi to discuss the construction of pipelines bypassing Russia failed and got downgraded as no high-ranking officials who said they would attend the meeting ended up coming. White Stream has some similarities with Nabucco – both are more political project and both are missing the gas supply. With new President in Ukraine also political backing is dispelled.


Ukraine’s role of a major European gas hub is also at risk because South Stream could almost halve its transit earnings. Russian newspaper Kommersant reported on Tuesday that Viktor Yanukovich had invited Gazprom to participate in upgrading the Ukrainian gas pipeline system. Gazprom has made early comment that the pipelines needed upgrading and the company would be interested in participating, however any investment would not replace the need for Gazprom to develop the South Stream pipeline. I agree – politicians are coming and going and chancing their minds in between but pipe will stay a halve century if not more.

My Conclusions

  • The most positive result were fair and free elections. I expect that in domestic politics attitudes between regions/groups identifying more with Ukrainian nationalism and the Greek Orthodox religion, and predominantly Russian and favourable to the Soviet era will ease.

  • It appears obvious that in foreign policy one of the top priority in the political agenda of new President will become the restoring of cordial relations with Russia.

  • I hope that the EU and Ukraine will rapidly reach agreement on a new Association Agreement (including comprehensive free-trade agreement) that added to better investment climate will help modernise the Ukrainian economy and enable it to return to pre-recession growth rates.

Summa summarum

  • Free and fair elections will revise the policy both with internal and foreign affairs of Ukraine. Nato membership will be ruled out, European integration will continue economically if not politically, relationship to Russia will improve. Ethnic tensions may be reduced and more united country with new President has better possibilities match economical challenges.


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BalkanBlog, Balkans, Black Sea region, Energy policy, EU

The Nabucco-South Stream race intensifies

The race between the two EU’s eastern gas pipelines is going on while next winter can again show some supply problems via Ukraine. South Stream got latest boost on 11th November 2009 as Russia’s Energy Minister Sergei Shmatko and Slovenian Economy Minister Matej Lahovnik signed an agreement on the passage of the South Stream gas pipeline across Slovenian territory. Same time shareholders in the Nabucco have started talks with two European top lenders over borrowing almost €1.5 billion for the pipeline’s construction; a €5.6 billion loan is needed for the construction first stage of the project and the shareholders have also started talks with two credit insurers. Besides loan Nabucco still desperately is searching gas for its planned pipe.

With South Stream Russia is looking a more reliable route for its gas exports to Europe as it bypasses Ukraine and Belarus, where price disputes have in the past led to gas shortages. EU Commission tries with Nabucco provide a supply of gas not subject to Russian control.


The competition


The competition over gas is coming harder. In my article “New Player in Caspian Sea Power Corridor” I described how China has came to game to take big share of Turkmenistan gas.

For contest between EU’s Nabucco and Russia’s South Stream China’s actions favor later. Today’s arrangements are securing gas for South Stream while Nabucco still is searching supply. It is more clear that Nabucco should be filled with Iraqi and/or Iranian gas and political aspects related to this may delay finding(private) investors and the implementation of project as whole. In bottom line while Russia is taking its part from old gas fields and China from old and new gas fields the Nabucco pipe still is more than half empty.

More about this comparison one may find from my post “EU’s big choice – Nabucco or South Stream?“.

Bulgaria?

From 2015 South Stream is scheduled to take gas into the EU via Bulgaria. A northern branch ends up in Italy via Serbia, Hungary, Slovenia and eventually Austria. A southern route takes the gas through Greece and under the Adriatic Sea to Italy. With Slovenia Russia has all the necessary European partners for us to be able to complete its project. During Summer 2009 there was discussions if South Stream could pass Bulgaria. Russia however agreed on 6th August 2009 with Turkey about energy cooperation with South Stream and also development of Blue Stream pipeline between Russia and Turkey under Black Sea so South Stream has secured also an alternative route. After that the discussions between Bulgaria and Russia got a new boost.


Austria?

 

Austria has officially backed Nabucco even some of Austrian companies are also partners in South Stream. On 11th Nov. 2009 Russia and Austria had meeting. PM Putin said after talks with Austrian Chancellor Werner Faymann that they agreed to draft an agreement on cooperation in South Stream. Faymann said South Stream is in Austria’s interests and that Austria’s government had given a mandate to start negotiations two weeks ago. He said Nabucco and South Stream shouldn’t be viewed seen as competitors: “We believe that this is diversification as well as a chance to make the energy supply more secure,” Faymann said. More in CNBC news.

Bottom line


Russia made already on May 2009 a proposal including the South Stream gas pipeline to pump natural gas from Russia to the Balkans and onto Europe in a list of EU priority projects. The U.S./EU backed Nabucco project had been included in the list, but South Stream not yet. From my point of view I would like to see EU to change priority status from Nabucco to South Stream. Nabucco could still be kept alive in case to wait stabilisation in the Middle-East.

 

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BalkanBlog, Energy policy

Is GUUAM dead?

After “Cold War” US has all the while expanded its influence post-Soviet territory with aim to guide those region’s natural resources under US companies.  As stakes have been control over the oil and gas  of the Caspian Sea/Black Sea/Caucasus basin, and the control of multiple key energy pipelines criss-crossing the region.  Economical interests have been linked to political game e.g. Nato enlargement.  While EU has been more bystander Russia has during last couple of years weight down the scale in favour of its own interests by series of successful operations.

GUUAM & SRS

GUUAM (Georgia, Ukraine, Uzbekistan, Azerbaijan and Moldova) Group was founded 1999 with help of US to foster favourable conditions conducive to economic growth through development of an Europe-Caucasus-Asia transport corridor.  GUUAM was dominated by Anglo-American oil interests, ultimately purports to exclude Russia from oil and gas deposits in the Caspian area, as well as isolating Moscow politically.

From its part GUUAM was designed to support sc. Silk Road Strategy Act – adopted by US Cogress March 1999 –  which defined America’s broad economic and strategic interests in a region extending from the Mediterranean to Central Asia. The Silk Road Strategy (SRS) outlines a framework for the development of America’s business empire through development of an Europe-Caucasus-Asia transport corridor.  (More about this in my previous article “War on Pipes” Sep. 2008, in my Archive:Blog )

Cracks

Now GUUAM is coming to end of its short road.  Already earlier Uzbekistan withdraw from it leaving behind a stump GUAM.  Then Georgia started its aggressions with false idea of western support leading today’s situation and possibility to escalate to “small intensity war” between present Georgian leadership and separatist regions Abkhazia and South-Ossetia.

Moldova was aiming towards Nato and EU but after conflict in Georgia it started to look other alternatives.  Russia has offered its help to solve Moldova’s long term problem with Transdnistria and if a federation model will be accepted by local stakeholders it probably neutralizes Moldova’s position between US/EU and Russia.

Last weekend was also highlight of tendency where political attitudes of Azerbaijan and Russia have approached each other.  Russia again took the initiative acting as a mediator between Armenia and Azerbaijan to solve long term conflict of Nagorno-Karabakh and a common memorandum signed 2nd November 2008 is first step of solution.

The last piece of GUUAM is Ukraine, which is deeply divided pro-Russian East and pro-Nato/EU West.  When political struggle now has made cracks also inside western orientated part also this last fortress has degenerated to stagnation.

KO

Parallel with Russia’s able foreign policy the US actions have been short-sighted, weak and fruitless.  Waiting for elections and financial turmoil have took their part but in energy sector also some states in South-America have now more independent and selfish position than before.  Same time Iraq occupation is coming to end when also Alaska can keep its energy reserves when new US President takes his office the perspectives of US energy giants are more foggy than for a long time.

If one would like to see a bright side with this depression – or even knock out –  of US foreign/energy policy it could be the need to reduce pollutions and to support alternative energy solutions which at global scale could help to deal with clima change.

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