Developing a Western Energy Strategy for the Black Sea Region and Beyond

Atlantic Council Atlantic Council GLOBAL ENERGY CENTER and DINU PATRICIU EURASIA CENTER

Ariel Cohen Developing a Western Energy Strategy for the Black Sea Region and Beyond

Ariel Cohen

ISBN: 978-1-61977-976-1

Cover photo credit: Osman Orsal/Reuters. An oil tanker passes through the Bosphorus to the Black Sea in Istanbul, Turkey.

This report is written and published in accordance with the Atlantic Council Policy on Intellectual Independence. The author is solely responsible for its analysis and recommendations. The Atlantic Council and its donors do not determine, nor do they necessarily endorse or advocate for, any of this report’s conclusions.

November 2015 TABLE OF CONTENTS

Executive Summary 1 Developing a Black Sea Energy Strategy 2 The Black Sea Basin and Europe’s Energy Security 2 Gas Supply Diversification 4 Turkish Stream: The Rise and Fall? 4 Why TANAP/TAP is a Better Alternative than Turkish Stream 5 Alternatives to Russian Gas: Regional Pipelines and Interconnectors 6 Alternatives to Russian Gas: Developing Domestic Resources in the Black Sea Basin 10 Alternatives to Russian Gas—Beyond the Black Sea: Northern Iraq/Kurdistan 11 Alternatives to Russian Gas—Eastern Mediterranean: Egypt, Israel, and Cyprus 12 Alternatives to Russian Gas—The Iran-Europe Pipeline 13 Alternatives to Russian Gas—Coal, Nuclear, and Renewables 13 Conclusion: “Happiness Is Multiple Pipelines”— Enhancing Black Sea Energy Security by 2025 14 About the Author 15 DEVELOPING A WESTERN ENERGY STRATEGY FOR THE BLACK SEA REGION AND BEYOND

EXECUTIVE SUMMARY

Since Russia’s annexation of the Crimea, the future of the Black Sea and Caspian energy corridor has been Europe’s energy sector, the EU should: in doubt. The West needs to develop a comprehensive In order to minimize the Kremlin’s influence on Southeast policy for securing energy exploration, production, and • expand the network of gas interconnectors in the transportation between the Caspian Sea basin and Europe. Black Sea and Central and Eastern Europe, which To address these challenges, NATO should boost its would allow import of gas in the South-North, North- presence in the Black Sea basin and expand naval and air South, and West-East directions, thus diminishing force cooperation with Romania, Bulgaria, and Ukraine. dependence on Gazprom; Turkey, a Black Sea power, should also play an important • lift government restrictions on the exploration and role in this endeavor. production (E&P) of nonconventional resources, such The European Union (EU) must create better conditions • establish a favorable tax regime for companies operat- for dialogue among its members, as their varied levels of as shale gas and liquefied natural gas (LNG); dependence on Russia for gas and different approaches to ing in E&P; and nuclear energy continue to present serious obstacles to • focus on the development of oil, gas, coal, and nuclear Central and Eastern European regional energy security, power. While renewables are critical for meeting the including the Black Sea region. Both the United States CO2 emission targets and can enhance long-term ener- and the EU should oppose, or at least try to limit in scope, gy security in the region, hydrocarbons will shape the construction of Gazprom’s Turkish Stream gas pipeline industry for years to come. from Russia to Turkey, while supporting oil and gas development around the Black Sea, including in Georgia, Romania, and Ukraine.

ATLANTIC COUNCIL 1 DEVELOPING A WESTERN ENERGY STRATEGY FOR THE BLACK SEA REGION AND BEYOND

to build Russian nuclear plants.3 DEVELOPING A BLACK SEA have demonstrated that Moscow can and does use its energy ENERGY STRATEGY muscle to impose its foreign policy The agenda last twenty-five on European years countries that import a large share of their natural gas from The United States and NATO need to recognize that Black Gazprom, which is over 50 percent state-owned by Russia.4 Sea energy security directly affects the ability of the region’s countries to withstand the pressure that the Russian The Russian militarization of the Black Sea since the Federation applies to them through price gouging and the annexation of the Crimea is turning the region toward a Cold disruption of gas supplies. War-style confrontation, which, in turn, further increases The US State Department’s Bureau of Energy Resources, ably headed by Special Envoy Amos Hochstein, should take the lead in developing and implementing a coherent US hostage—yetrisks to South-Central another signEurope’s that excessiveenergy supply. dependence If a conflict on policy that will ensure that the region is secure for energy Russianflares up, gas Moscow is a security could holdrisk the the region area’s energycan ill afford. supply transportation, exploration, and production, so that no one power is allowed to dominate the energy chess board.1 Russia is already using the Baltic Sea as an important However, the State Department cannot and should not do it transit waterway for its North Stream pipeline complex. alone. It needs to cooperate with the Pentagon, the De- Moscow is now eyeing the Black Sea as a route to supply 5 partment of Energy, and the intelligence community. Most European countries with its natural gas via Turkey —as a importantly, the United States needs to expand cooperation with its European allies in addressing these issues. which allows Russian gas to bypass Ukraine. symmetrical and parallel reflection of the North Stream, With respect to pipeline development and use, an important goal should be keeping the Turkish Stream project from RUSSIA’S NATURAL increasing the amount of Russian gas that reaches Europe, as long as the Ukraine crisis remains unresolved. The Unit- GAS LEVERAGE OVER ed States and its European allies should support develop- COUNTRIES IN THE ment of the Southern Gas Corridor, as well as the North- South Gas Corridor in Central Europe, to improve natural BLACK SEA BASIN AND IN gas supplies to South and Central Europe. The United States and Europe should also prioritize the development CENTRAL, SOUTHEASTERN, of other alternative sources of natural gas, including from AND EASTERN EUROPE HAS Georgia, Ukraine, Romania, the Black Sea basin, Kurdistan, the Eastern Mediterranean, and beyond. BECOME A RECOGNIZED CHALLENGE FOR THE BLACK SEA BASIN AND EUROPEAN ENERGY EUROPE’S ENERGY SECURITY SECURITY. Russia’s natural gas leverage over countries in the Black Sea basin and in Central, Southeastern, and Eastern Europe Another parameter critical to understanding the situation has become a recognized challenge for European energy is the level of political commitment demonstrated by the security. Countries that acquire most of their supply from Gazprom-supplied countries dependent on Russia for the Russian Federation have become the most vulnerable. In 2006 and 2009, Bulgaria, Croatia, Greece, Slovakia, Ukraine, received 100 percent of their natural gas from Russia at and other countries experienced abrupt interruptions of pricesenergy. lower As shown than inthose figure paid 1, byin 2013,other BelarusEastern andEuropean Armenia Russian gas supply during a cold winter. The Kremlin uses countries. They are also Moscow’s most loyal allies. On energy not just as a commodity to earn cash, but also as a the other hand, Bulgaria, where Gazprom accounts for means of increasing political interdependence—occasionally almost 100 percent of domestic gas consumption, pays at the highest levels, as in the case of Gerhard Schröder, the full market price for the gas it receives from Russia, as the former Chancellor of Germany, who chairs the board of Gazprom’s Northern Stream gas pipeline and regularly 2 heaps praise on Vladimir Putin. Hungary and the Czech the government in Sofia has opposed South Stream, the Republic experience the Kremlin’s economic power and - publication/141117_Conley.pdf.3 Heather A. Conley, “Russian Influence on Europe,” (Washington, DC: Cen ter for Strategic and International Studies, 2014), http://csis.org/files/ influence as well, including a $10 billion credit to Budapest state.gov/e/enr. 4 Ariel Cohen and Ivan Benovic, “The Hour of Truth: The Conflict in 1 US Department of State, “Bureau of Energy Resources,” http://www.- Ukraine—ImplicationsThe Impact for ofEurope’s Turkish StreamEnergy onSecurity European and Energy the Lessons Security for Bloomberg Business, April 29, 2014, http://www. andthe USthe Army,” Southern US Gas Army Corridor War College, December 2015 (forthcoming). bloomberg.com/news/articles/2014-04-29/schroeder-s-embrace-with-2 Leon Mangasarian, “Schroeder’s Embrace With Putin Betrays Germa 2015),5 John Roberts,http://www.atlanticcouncil.org/publications/reports/the-impact-of- putin-betrays-germany-s-split-on-russia.ny’s Split on Russia,” turkish-stream-on-european-energy-security-and-the-southern-gas-corridor. (Washington, DC: Atlantic Council, July 9,

2 ATLANTIC COUNCIL DEVELOPING A WESTERN ENERGY STRATEGY FOR THE BLACK SEA REGION AND BEYOND

Figure 1. European Countries Depend on Russian Gas

Armenia Belarus Bulgaria Estonia Finland Latvia Lithuania Czech Republic Bosnia-Herzegovina Ukraine Slovakia Turkey Slovenia Greece Poland Austria Hungary Belgium Germany Serbia Macedonia Luxembourg Romania Italy France United Kingdom Netherlands

0 10 20 30 40 50 60 70 80 90 100

Gas From Russia Gas From Other Sources

Source - line-open-other-shareholders-including-iran-313641. : TAP Pipeline Open to Other Shareholders, Including Iran,” EurActiv, http://www.euractiv.com/sections/energy/tap-pipe

Russian project to ship gas to Europe via Bulgaria, Serbia, for corrupt actions allegedly involving US-linked business Hungary, and Austria. While in 2015 prices slid down activities.7 However, Firtash’s home turf is Ukraine. geopolitical reality remained the same.6 Serbian police have arrested members of the board of to the range of $235-$242 per 1,000 cubic meters, the 8 Russia As indicated by these examples, political loyalty is the most also supports anti-Western opposition, and funnels funds to important variable affecting the price a country pays to directors of the Gazprom-owned refinery there. Gazprom. This politicization contradicts market principles and to extremist right-wing and left-wing politicians.9 and creates disruptions and instability. The Kremlin’s “environmental activists” who oppose hydraulic fracturing, geopolitical games harm European consumers—most of all, those who heavily rely on Russian gas. Russia has used its imperative for the United States, NATO, and the EU, as well position as a supplier of energy, especially natural gas, as Reducing Russian influence in the region has become an leverage to reach its political goals and enable corruption Economist, May 3, 2015, http://www.economist. in Serbia, Bulgaria, Ukraine, Turkey, and elsewhere in the - region. The Federal Bureau of Investigation is attempting to tash-austrian-court-refuses-extradite-him-catch-me-if.7 “Catch Me If You Can,” com/news/europe/21650382-america-wants-prosecute-dmitry-firRAPSI News, extradite Dmitry Firtash, the politically powerful Ukrainian November, 14, 2013, http://www.rapsinews.com/anticorruption_ oligarch who made billions importing Russian gas to Ukraine news/20131114/269650470.html.8 “Serbian Police Detain Head of Gazrpom Neft Refinery,” - New York Times, November 30, 2014, http://www.nytimes. com/2014/12/01/world/russian-money-suspected-behind-fracking-pro9 Andrew Higgins, “Russian Money Suspected Behind Fracking Pro - Estimating an Average Price for Gas Deliveries to Europe in 2015 Between tests.html?_r=0tests,” The 6 “Gazprom Export Official Said that Russia’sSputnik, Energy August, Giant 10, Gazprom 2015, http:// is Voice of America, September 22, 2015, http://blogs.voanews.com/rus- sputniknews.com/europe/20150810/1025593257.html. sian/us-russia/2015/09/22/russia-for-separatism., see also, Ariel Cohen, “Separatist Games with Fire,” $235 and $242 per 1,000 Cubic Meters,” ATLANTIC COUNCIL 3 DEVELOPING A WESTERN ENERGY STRATEGY FOR THE BLACK SEA REGION AND BEYOND as individual national governments. They can accomplish Russian President Vladimir Putin cancelled the South this strategic goal by improving coordination of their energy Stream in December 2014.12 Putin replaced South Stream policies to make them more transparent and market driven, with Turkish Stream, initially envisaging four pipelines capable of delivering gas across the Black Sea straight Russian gas supply, and by sustaining energy production to Turkey. According to a study published by the Oxford thatby enhancing relies on coal,energy nuclear, efficiency, and renewableby increasing sources. the non- per year (bcm/y) of capacity, 14 bcm/y would replace theInstitute volume for currently Energy Studies, delivered “Of to the Turkey 63 billion via Ukraine cubic meters and GAS SUPPLY the trans-Balkan pipeline, while the rest (approximately DIVERSIFICATION 50 bcm/y) would be delivered to the Turkish-Greek border, where Gazprom would set up a natural gas hub for South- The Black Sea region is pivotal in terms of addressing the 13 This shift demonstrates Russia’s strategic tenacity and tac- - ern and Central European customers.” tionchallenge of gas of supply. gas supply Only adiversification strongly competitive for Europe. environment The willprincipal force solutionGazprom to to this begin problem acting is like geographic a corporate diversifica entity is more likely to meet the requirements of the Third Energy tical flexibility. The Turkish Stream project, if implemented, and not a government agency. Package, while eluding the overall intent of the regulations. While it is unlikely that Turkey will allow Gazprom to have Unsurprisingly, Russia would prefer to maintain its energy full ownership of the pipeline on its territory, or that Russia dominance, to the detriment of European interests in energy would simultaneously sell gas and own the local distribution companies in the EU, the Russian project essentially side- evident in Moscow’s negative responses to the adoption steps the core issue of diversifying the gas supply to Europe. bysecurity the European and the diversificationUnion (EU) of theof gas Third sources. Energy This Package, becomes which creates a barrier against any one company having the Under the initial Russian plan, the original volume of gas ability to control the entire process of production, trans- that was to be supplied via the South Stream—63 bcm/y— portation, and sale of energy resources.10 Essentially, the would still be supplied by Turkish Stream. Furthermore, Package stops monopolies such as Gazprom from disrupting 47 bcm/y of this amount would enter a pipeline ending at the markets by requiring one of three forms of unbundling: the Greek-Turkish border, so that Russia could elude EU jurisdiction.14 • Ownership Unbundling where all integrated energy companies sell off their gas and electricity networks. In Gazprom later suggested that it would initially build this case, no supply or production company is allowed only two pipelines, cutting the volume of gas to be sup- to hold a majority share or interfere in the work of a plied to 31.5 bcm/y. If the Trans-Anatolian gas pipeline transmission system operator. (TANAP) meets its own projections, it will not match this amount until 2026. Initially, TANAP intends to de- • Independent System Operator where energy supply liver 16 bcm/y.15 companies may still formally own gas or electricity transmission networks but must leave the entire op- The bottom line is that the purpose of Turkish Stream is to eration, maintenance, and investment in the grid to an defend Russia’s share of the European gas market by sup- independent company. plying cheaply piped gas. The Turkish Stream project could • Independent Transmission System Operator where energy supply companies may still own and operate regional balance of power: have significant geopolitical consequences, impacting the gas or electricity networks but must do so through a • Expansion of Russian military power in the Black Sea subsidiary. All important decisions must be taken inde- and the Caucasus. Russia is deploying more numerous pendent of the parent company.11 and more powerful military assets, including long-range bombers and surface-to-surface and anti-aircraft missile TURKISH STREAM: THE RISE AND FALL? Reuters, December 1, 2014, http://www.reuters.com/ 12 Darya Korsunskaya, “Putin Drops South Stream Gas Pipeline to- EU, Moscow initially rejected the Third Energy Package’s pro- F30A20141202.Courts Turkey,” visions instead of accommodating its principal customers article/2014/12/02/us-russia-gas-gazprom-pipeline-idUSKCN0J - in the EU. The war in Ukraine, along with Western sanc- tion of South Stream Signal a Fundamental Reorientation of Russian Gas 13 Jonathan Stern, Simon Pirani, and Katya Efimava, “Does the Cancella tions, made the South Stream project politically untenable. www.oxfordenergy.org/wpcms/wp-content/uploads/2015/01/Does-cancellation-of-South-Stream-signal-a-fundamental-reorientation-of-RusExport Policy,” Oxford Institute for Energy Studies, January 2015, http://- sian-gas-export-policy-GPC-5.pdf. Global Research, December 13, 2014, http://www. globalresearch.ca/cancelling-the-south-stream-project-the-woes-of-ener10 Binoy Kampmark, “Cancelling the South Stream Project: The Woes of - gy-insecurity/5419705.Energy Insecurity,” militarization-black-sea.14 Stephen Blank, “The Militarization of the Black Sea,” Center for European Policy Analysis, July 20, 2015, http://www.cepa.org/content/ - sumers/market-legislation.11 European Commission, “Market Legislation—Energy—European projects/trans-anatolian-natural-gas-pipeline-project-tanap.15 Hydrocarbons-Technology.com, “Trans Anatolian Natural Gas Pipeline Commission,” https://ec.europa.eu/energy/en/topics/markets-and-con Project (TANAP), Turkey,” http://www.hydrocarbons-technology.com/ 4 ATLANTIC COUNCIL DEVELOPING A WESTERN ENERGY STRATEGY FOR THE BLACK SEA REGION AND BEYOND

TURKISH POLICYMAKERS from the South Stream, would likely become even more dependentTurkey. The on Balkan Russia states, as a problematic which were sourcesupposed of foreign to benefit ARE WORRIED THAT THEY gas supply. The same will likely prove true for Europe as a FACE GROWING RUSSIAN Gas Corridor, appears to be a preferable alternative for the MILITARY POWER IN THE energy-importingwhole. Instead, diversification, countries and which companies involves in the Southernregion. CRIMEA AND IN SYRIA, However, on September 15, 2015, Alexander Medvedev, WHICH PUTS TURKEY IN A Gazprom’s veteran Deputy Chairman, announced that there VISE. the pipeline will not be completed by the end of 2016, as are significant delays in building Turkish Stream 19and In thatreal - ity, Ankara reacted with growing anger to Russian inter- systems, to Crimea, where such assets had not been de- ventionplanned. in He Syria, blamed especially “political violations turmoil” of in Turkish Turkey. airspace ployed prior to the annexation.16 Turkish Stream would by Russian warplanes.20 provide excellent political cover—Russia’s protection to oust Syrian President Bashar al-Assad, fought radical of its oil and gas projects in the Black Sea will feature Kurdish groups such as Kurdistan For years, Workers’Erdoğan hasParty sought (PKK), prominently in any rationale for these deployments. and supported Sunni Arab opposition. However, Putin’s in military cooperation between Russia and • Increase Moreover, Turkish policymakers are worried that they face Turkey. For decades, NATO member Turkey could growingintervention Russian makes military such actions power inmuch the Crimeamore difficult. and in Syria, block the Black Sea Fleet from entering the Mediterra- which puts Turkey in a vise.21 It appears that the friction nean because Ankara controls the Turkish Straits (the between Ankara and Moscow, caused by the Syrian con- Bosporus and the Dardanelles). Because one of the goals of the Russian grand strategy is to increase naval incursions into Turkish airspace and the bickering over power projection in the Mediterranean, the Atlantic, Moscow’sflict, influenced Syrian the operation decision appeared to delay theto have project overwhelmed as Russian and the Indian Ocean, a close strategic relationship the strong business relationship. with Turkey is a priority for the Kremlin. • Enlargement of the Eurasian Economic Union (EEU). Turkey has been a candidate for European Union mem- WHY TANAP/TAP IS A BETTER bership for quite a long time, but it is increasingly clear ALTERNATIVE THAN TURKISH that other European nations do not want the country STREAM to join. The Kremlin has created the Eurasian Econom- ic Union as a counterweight to the EU. In case of an ir- The TANAP/TAP project was announced in November reparable break with NATO and the US and a change in 2011, at the Third Black Sea Energy and Economic Forum a strategic geopolitical orientation away from the West, in Istanbul, as an alternative to the failed Nabucco pipeline Russia would like Turkey to join its new organization, project.22 TANAP is a new 48-56-inch standalone pipeline under construction across Turkey, and is intended to carry expressed a desire to do so in the past.17 The gas deal - couldand Turkish serve as Prime leverage Minister to achieve Recep this.Tayyip Having Erdoğan Turkey’s has ed reserves of Shah Deniz II alone are 991 bcm. TANAP’s relatively strong economy within the ranks of the Eur- Azeri natural gas from the Shah Deniz II field. The estimat asian Economic Union would allow Russia to shift the reserves for at least a 30-year supply. The Shah Deniz II balance of economic power in the region, and in the consortiumprojected capacity consists is of30 the bcm/y, following and the companies: field itself has world.18 However, with deteriorating relations between The number of shareholders in the TANAP pipeline consor- Moscow and Ankara over Syria, this development is - not in the cards in the near future. tium is significantly lower, and consists of only three mem United Press International, September 15, 2015, http://www.upi.com/Business_ Overall, as it was configured, the Turkish Stream project News/Energy-Industry/2015/09/15/Russias-Turkish-Stream-pipeline-19 Daniel J. Graeber, “Russia’s Turkish Stream Pipeline on Hold,” will be beneficial only to Russia and one other country—Inter- on-hold/9311442309369. preter, September 25, 2014, http://www.interpretermag.com/black-sea- 16 “Black Sea Fleet: A Return to Russia’s Great Power Pretensions,” ABC News, October 5, 2015, http://abcnews. go.com/International/wireStory/turkey-russian-warplane-violated-air20 Suzan Fraser and Vladimir Isachenkov, “NATO Denounces Russia for - fleet-a-return-to-russias-great-power-pretensions.Turkish Weekly, April 6, 2015, http://www.turkishweekly. space-34250018.Violating Turkish Airspace,” net/2015/04/06/news/is-eurasian-economic-union-membership-possi17 Ümit Nazmi Hazır, “Is Eurasian Economic Union Membership Possible- ble-for-turkey/.for Turkey?”, New York Times, October 6, 2015, http://www.nytimes.com/2015/10/07/ - world/middleeast/russia-turkey-tensions-rise-over-syria.html.21 Tim Arango, “Russia Military’s Actions in Syria Cause Rift With Turkey,” - heritage.org/research/reports/2013/06/russias-eurasian-union-could-18 Ariel Cohen, “Russia’s Eurasian Union Could Endanger the Neighbor News.Az, December 19, 2011, http://www.news.az/articles/econo- endanger-the-neighborhood-and-us-interests.hood and US Interests,” Heritage Foundation, June 14, 2013, http://www. my/51212.22 Ferruh Demirmen, “BP-SOCAR Duo Deliver ‘Coup De Grace’ to Nabuc co,” ATLANTIC COUNCIL 5 DEVELOPING A WESTERN ENERGY STRATEGY FOR THE BLACK SEA REGION AND BEYOND

Figure 2. Shah Deniz II consortium

9.0%

10.0% 25.5%

10.0% Statoil

SOCAR

Lukoil 10.0% 25.5% Total

Niftiran Intertrade Company 10.0% Turkish Petroleum

Source Oil & Gas Journal, March 20, 2014, http://www.ogj.com/articles/2014/03/shah-deniz-ii-south-caucasus-pipeline-contracts-awarded.html.: BP, “Frequently Asked Questions,” http://www.bp.com/en_az/caspian/operationsprojects/Shahdeniz/FAQ.html; Christopher E Smith, “Shah Deniz II, South Caucasus Pipeline Contracts Awarded,” bers—State Oil Company of Azerbaijan Republic (SOCAR) The EU Directorate-General Energy and Directorate-General with 30 percent, and BP, which acquired 12 percent of the projectwith a 58-percent on March 13, share, 2015. Turkey’s23 These pipeline projects operator comply withBOTAŞ Competition must fulfill their duties in this respect. the requirements, as well as the intent, of the EU’s Third ALTERNATIVES TO RUSSIAN Energy Package. This fact would give them a serious advan- GAS: REGIONAL PIPELINES tage over the Turkish Stream, if it were realistic today. AND INTERCONNECTORS The Trans-Adriatic Pipeline is an important component of Greece-Bulgaria Interconnector. Although only three the Southern Gas Corridor initiative, as it would link Asia countries will be directly involved in the TAP project, the and Europe. The TAP would bring Azeri gas from Turkey, - via Greece and Albania, across the Adriatic Sea to Italy. tation is likely to rise in the future. For instance, in early However, it was announced in April 2015 that the project 2014,number Turkey of countries and Bulgaria that could agreed benefit to build from a 114-kilometerits implemen will be open to new shareholders, including Iran.24 TAP’s pipeline connecting the two countries’ natural gas distribu- initial capacity is 10 bcm/y. With compressors added, the tion networks, which would allow for the supply of addi- throughput could increase to more than 20 bcm/y. The tional volumes from Shah Deniz to Europe. Such a linkage - would improve western Black Sea littoral energy security, ect, to allow for gas from Italy to be pumped across the Adri- “physical reverse flow” feature will be also added to the proj atic to Southeast Europe in case of energy supply interrup- This interconnector initiative envisages building a 25 benefitting Bulgaria. tion. Greece-Bulgaria interconnector (IGB), which would receive energy-security role by dealing exclusively with non-Russian natural gas from TAP. The expectation is that Azerbaijan gas, so However, that Gazprom it is important does not utilize to ensure this thatopen-access TAP fulfills policy. its

resurrectionwould finance of the Nabucco project. West. With In the response, cancellation Azeri of President South Agency, March 13, 2015, http://www.aa.com.tr/en/s/477976--bp-ac- IlhamStream, Aliyev Bulgarian said that officials Bulgaria expressed could insteadtheir hopes build for an the inter - quires-12-percent-stake-in-tanap-gas-pipeline-project.23 “BP Acquires 12 Percent Stake in TANAP Gas Pipeline Project,” Anadolu connector with Greece in order to meet its energy needs.26 EurActiv, April 9, 2015, http://www.euractiv.com/sections/energy/tap-pipeline-open-other-shareholders-including-iran-313641.24 “TAP Pipeline Open to Other Shareholders, Including Iran,” Energy & Oil, Reuters, March 20, 2015, http://af.reuters.com/article/energyOil- the-pipeline. 26 “Bulgaria, Romania Launch Joint Tender to Complete Gas Link,” 25 Trans-Adriatic Pipeline, “TAP at a Glance,” http://www.tap-ag.com/ 6 News/idAFL6N0WM2IV20150320. ATLANTIC COUNCIL DEVELOPING A WESTERN ENERGY STRATEGY FOR THE BLACK SEA REGION AND BEYOND

Figure 3. Major TAP shareholders

20% 16%

SOCAR 19% 20% Statoil

Flyxys

Enagas

20% Axpo

Source - line-open-other-shareholders-including-iran-313641. : “TAP Pipeline Open to Other Shareholders, Including Iran,” EurActiv, http://www.euractiv.com/sections/energy/tap-pipe

Bulgaria, Romania, and Hungary, particularly the latter - two, are the most exposed EU countries in terms of gas an (and possibly Iraqi and Eastern Mediterranean) gas ex- supply security. If TAP and an additional interconnector are portof this capacities. project would There require is also thea significant attractive increase option of in adding Caspi not implemented, they would remain almost completely Turkmenistan to the supply chain. In May 2015, Turkmen dependent on Gazprom as their sole gas supplier. Con- struction of an Ionian-Adriatic Pipeline (IAP) and West- Union, that they have the capability to provide the Euro- ern Balkan Ring (WBR) that connect to TANAP and TAP peanofficials market told Marošwith the Šefčovič, needed EU volumes Vice President of gas—either for Energy via a marine interconnector to Azerbaijan, or via Iran.29 A revival announced that construction of an additional intercon- of the Nabucco West project may become possible, provid- nectorwould easeto Hungary some of through the pressure. Macedonia Turkish and officials Serbia isrecently being discussed.27 If realized, this plan would affect Gazprom’s exports from the South Caucasus and the Caspian, and suf- hegemony in Southern Europe, including the Balkans, and ed there are sufficient amounts of natural gas available for improve stability within the region. Map 2 (p. 9) shows the international energy company is likely to boost the project. full scale of the TAP initiative, including related intercon- Mapficient 2 (p.demand 9) shows for gas the fromroute European of Nabucco customers. West in compari A major- nector projects. son with the other gas pipelines. Construction of the Interconnector Greece-Bulgaria (IGB) Eastring is the most intriguing pipeline project in the Pipeline could start in March 2016, according to reports region. It addresses the vital needs of the countries con- from Bulgaria’s Energy Ministry.28 This initiative would cerned—and is reversible. The proposed pipeline would eliminate the need for revival of the Nabucco West project. connect Slovakia with Romania via Hungary. One version of the pipeline would be 832 kilometers long, while another Nabucco West. The Nabucco West project has been frozen, would be 1,274 kilometers long and reach Bulgaria.30 The but not entirely abandoned. The need to supply Southern project relies heavily on the existing Eustream pipeline. and Central Europe with gas remains. However, the revival

Daily Sa- Radio bah, March 14, 2015, http://www.dailysabah.com/energy/2015/03/14/ Liberty/Radio Free Europe, May 5, 2015, http://www.rferl.org/content/ bp-becomes-a-partner-in-the-transanatolian-gas-pipeline.27 “BP Becomes a Partner in the Trans-Anatolian Gas Pipeline,” turkmenistan-natural-gas-europe-trans-caspian-pipeline/26996003.html.29 Bruce Panier, “Still One Big Obstacle To Turkmen Gas To Europe,”

Novinte, March 30, 2015, http://www.novinite.com/arti- EurActiv, May 22, 2015, http://www.euractiv.com/sections/en- cles/167576/Construction+of+Gas+Interconnector+Greece-Bulgaria+28 “Construction of Gas Interconnector Greece-Bulgaria May Start in - ergy/slovakia-hungary-romania-and-bulgaria-embark-gas-pipeline-proj30 “Slovakia, Hungary, Romania, and Bulgaria Embark on Gas Pipeline - May+Start+in+March+2016.March 2016,” ect-314793.Project,”

ATLANTIC COUNCIL 7 DEVELOPING A WESTERN ENERGY STRATEGY FOR THE BLACK SEA REGION AND BEYOND

Map. 1 Turkish Stream and the Southern Gas Corridor

Source: Atlantic Council.

Eastring is planned as a bidirectional pipeline, with a 20 32 Given the importance of a strategic project such as the North-South Corridor, the EU second stage. Azerbaijan, Cyprus, Iraq, Israel, Russia, and lion for the period up to 2020.” Turkmenistanbcm/y throughput would at bethe able first to stage supply and gas. 40 bcm/yThe target at the challenges, and arrive at a consensus among the members 31 concerningmembers must this resolvevital energy their securityfinancial package, and administrative which would provide the much-needed framework for further European Islanddate for in beginning Croatia, may construction save gas distributors of the first stagetransportation is 2018. energy projects. costsHowever, and antariffs. LNG terminal closer to the region, such as Krk Adria LNG The North-South Corridor is a proposed project that island of Krk, Croatia. This project would form the south- would include a system of integrated power lines and ern point ofis the a proposed North-South floating Corridor LNG initiative.terminal on Based the on transportation routes, as well as oil and gas pipelines run- reports by the Croatian government, construction of the ning from the Baltic Sea to the Adriatic and Black Seas. This mid-2016.33 by strengthening the energy bonds between nations. It isKrk about Island 4 bcm/y. LNG terminal34 Given in the the fact Adriatic that Croatia’s Sea could domestic begin in wouldproject also would enforce definitely the transition enhance Europe’saway from energy the Soviet-era security consumption The has expected remained capacity stagnant of at the 3 bcm/yfloating during terminal energy network still in existence in formerly socialist the last ten years,35 it is reasonable to assume that Croatia Eastern European countries. Participation in this legacy will become a net exporter of natural gas if the project is system—as is the case with the Baltic states—creates carried out. serious problems. It complicates sustainable development Odesa LNG. as a member of united Europe and makes countries more has announced that the national oil-and-gas company, Ukrainian Prime Minister Arseniy Yatsenyuk essential for any country from the former communist bloc. vulnerable to Russian influence. Transcending this legacy is - - - ment needs for transport, energy, and telecom infrastruc- 32 European Commission, “Long-Term Financing of the European Econ omy,” March 23, 2013, http://eur-lex.europa.eu/resource.html?uri=cel According to the European Commission, “overall invest ture networks of importance to the EU amount to €1 tril- lar:9df9914f-6c89-48da-9c53-d9d6be7099fb.0009.03/DOC_1&format=PDF.Natural Gas Europe, May 25, 2015, http://www.naturalgaseurope.com/croatia-krk-lng-terminal-construction-23837.33 Kruno Kartus, “Croatia Sees Krk LNG Terminal Construction Start-Up by Mid-2016,” Marine Link Eu- http://www.marinelink.com/news/facility-croatia-mulls394477.aspx. rActiv, May 7, 2015, http://www.euractiv.com/sections/energy/former- 34 Aiswarya Lakshmi, “Croatia Mulls LNG Facility,” , July 12, 2015, czech-pm-promotes-eastring-gas-pipeline-314394.31 “Former Czech Prime Minister Promotes Eastring Gas Pipeline,” 35 “Croatia—Natural Gas—Consumption—Historical Data Graphs per 8 Year,” IndexMundi, http://www.indexmundi.com/g/g.aspx?c=hr&v=137.ATLANTIC COUNCIL DEVELOPING A WESTERN ENERGY STRATEGY FOR THE BLACK SEA REGION AND BEYOND

Map. 2 Existing, Planned or Proposed Long-distance Pipelines in Southeastern Europe

Source: Atlantic Council.

Naftogaz Ukrainy, signed a memorandum of understanding with the Texas-based Frontera Resources Corporation have to resolve a critical issue—the refusal of the LNG to Odesa from the world market, Ukraine would city of Odesa.36 This project is designed to bring gas from Bosporus Straits, citing security concerns for the city Frontera’sto begin the upstream construction gas holdings of an LNG in projectGeorgia in to the Ukraine. port Turkish government to allow LNG tankers through the- portation ban as a sign of improved Turkish-Russian designed to be built and expanded in incremental modules, relations,of Istanbul. connected Some in Kyivwith also plans see to Ankara’s build the LNG Turkish trans whichThe LNG are purification each anticipated and liquefaction to handle approximately facility (“train”) 0.5 is bc - Stream pipeline.37 By eliminating an opportunity for - Ukraine to satisfy its energy needs from sources other tion facilities will be situated on Georgia’s Black Sea coast, than Gazprom, Ankara may be placating Moscow, while m/y, with ultimate targeted capacity of 10 bcm/y. Liquefac simultaneously obtaining more favorable conditions for the Turkish Stream deal. with regasification facilities situated in Odesa. in Georgia. However, in order to expand deliveries of This project will be supplied from Frontera’s gas fields

Bloomberg, December 4, 2014, http://www.bloomberg.com/news/ - articles/2014-12-04/shipping-chokepoint-strangles-ukraine-hopes-for-37 Isis Almeida, “Shipping Chokepoint Strangles Ukraine Hopes for US togaz-sign-2-year-mou-for-upstream-lng-24644.36 “Frontera, Naftogaz Sign 2-year MoU for Upstream, LNG,” Natural Gas u-s-lng.LNG,” Europe, July 15, 2015, http://www.naturalgaseurope.com/frontera-naf ATLANTIC COUNCIL 9 DEVELOPING A WESTERN ENERGY STRATEGY FOR THE BLACK SEA REGION AND BEYOND

Another potential method of gas export across the Black ALTERNATIVES TO RUSSIAN Sea is compressed natural gas (CNG)—a technology that GAS: DEVELOPING DOMESTIC - RESOURCES IN THE BLACK meters. It appears that the capital expenditure involved SEA BASIN is profitable for gas transportation for up to 2,500 kilo CNG does not require expensive and energy-consum- Several countries that currently rely on Russian supplies, ingfor suchrefrigeration. a project Shippingmay be lower CNG mightthan that be cheaperfor LNG, than and or serve as major transit corridors for Russian and Caspian gas, actually have ample hydrocarbon reserves. They can become independent—or nearly independent—as far as expensiveshipping LNG. cooling It has process, a lower or cost cryogenic of compression tanks.39 However, and their natural gas supply is concerned. storage,CNG requires as it does a much not larger require storage regasification volume thanfacilities, the same an For example, Georgia has emerged as a potentially important hydrocarbon source for Europe. On October 8, 2015, industry distrust new technology. amount of LNG by mass, and many in this conservative Frontera Resources announced its discovery of massive Today, Georgia provides transit for approximately two resources of gas in eastern Georgia, where it is already million barrels of oil equivalent per day into Turkey and producing oil and gas. The company estimates natural gas resources to be 3.8 trillion cubic meters (tcm) of gas energy exports could transform this low-middle-income in place in its South Kakheti Gas Complex.38 Frontera’s oil countryEurope. Ininto the a high-middlefuture, the windfall income profits state, andfor Georgiaprovide fromthe holdings in the country have been independently estimated to exceed one billion barrels in place, and a new estimate improved social safety net. Moreover, with Georgia’s role as of recoverable and economically viable gas reserves will be anfinancial increasingly base for important both the east/westindustrial transitdevelopment hub for and oil anand forthcoming. give the country more regional relevance. Given this, Geor- giagas, now becoming has the a opportunitysignificant producer to increase and its exporter importance would THE UNITED STATES AND to NATO and European energy security, with its strategic EU SHOULD CONVINCE THE location bordering the organization’s easternmost member, Turkey, as well as Russia. GOVERNMENT OF UKRAINE What Georgia needs today is supportive leadership, TO FIGHT CORRUPTION, especially in the Energy Ministry, that enforces government policies to open the country for exploration and AND TO KEEP TAXATION production, protect property rights, and facilitate domes- LEVELS LOW ENOUGH TO tic distribution and exports of locally produced gas. The country also needs transparency, good governance, and the ATTRACT DOMESTIC AND rule of law—without these, foreign investment will remain FOREIGN INVESTMENT severely constrained. Its strategic location and reserves, together with consider- INTO THE UKRAINIAN able hydropower potential and the proximity of the ener- HYDROCARBON SECTOR. gy-hungry Turkish market, could make Georgia a promising energy supplier to the whole Black Sea area and beyond. Ukrainian gas reserves—including conventional on- and independently, and geopolitical challenges are handled - successfully,Provided the this size means of this thatlarge-scale Georgia, discovery a low-middle-income is confirmed try could become a net exporter of gas to Europe over time. country, could become a net exporter of gas rather than a However,offshore, aswith well the as annexation shale—are ofso the significant Crimea, thatRussia the has coun expanded its exclusive economic zone (EEZ) in the Black Romania, Ukraine, and European markets farther west. As Sea, seizing Ukrainian energy assets worth tens of billions thesenet importer. gas resources The South are broughtKakheti tofind market, can supply Georgia Turkey, could of dollars. In the early days of Russian occupation, Georhii Rudko, Chairman of the Ukrainian State Commission for Georgian Black Sea coast, or via the Main Export Pipeline to Natural Resources, gave a presentation on the future of Turkeyexport gas and via TANAP. a small-scale LNG terminal located on the Crimean offshore areas represent a third of the undiscov- Ukraine’s oil and gas resources. According to him, “The

Business Wire, May 5, 2015, undiscovered oil resources . . . including: oil and conden- http://www.businesswire.com/news/home/20150505005601/en/Fron38 “Frontera Resources Corporation Marks Historic One Year Anniversary- sate—1,148ered natural milliongas resources tons (mt) of Ukraine and gas—3,831 and a fifth bcm. of the Only of Gas Production Operations in Georgia,” - 5 percent of this potential has been developed. The deep tera-Resources-Corporation-Marks-Historic-Year-Anniversary#.Vh8XviBusiness Wire, October 8, 2015, http://www.businesswire. com/news/home/20151008005538/en/Frontera-Resources-Upu22M8. See also “Frontera Resources Upgrades Gas Potential in Georgia- Operations,” Compressed_natural_gas_(CNG). 39 “Compressed Natural Gas (CNG),” PetroWiki, http://petrowiki.org/ 10grades-Gas-Potential-Georgia-Operations#.Vhr_UvlVhBc. ATLANTIC COUNCIL DEVELOPING A WESTERN ENERGY STRATEGY FOR THE BLACK SEA REGION AND BEYOND

Black Sea area has potential recoverable resources of more than 1,000 mt of coal equivalent (54 percent of the total Georgian coastal town of Kulevi, near the port of Poti.43 40 construction of an LNG terminal of 5-8 bcm capacity in the US-European Black Sea energy policy should include an alternative route to the European markets through Black Sea resources).” This way, Azeri, and in the future, Turkmen gas could find formulating an adequate response to the Russian resource grab and pursuing available remedies through AGRI. If the project is profitable, and if the Russian threat international legal action and sanctions on companies to Georgia abates, natural gas will be transported by LNG that attempt to recover these resources as long as they report of Constanta, and to Odesa in Ukraine. From there, tankers to the regasification terminals in the Romanian main captured assets. Additionally, the United States and route could also serve as a CNG shipping line. Azeri gas would find its way to European consumers. This corruption, and to keep taxation levels low enough to at- tractEU should domestic convince and foreign the government investment of intoUkraine the Ukrainian to fight hydrocarbon sector. ALTERNATIVES TO RUSSIAN Romania has also proven to be a favorable destination GAS—BEYOND THE BLACK for on- and offshore exploration in the Black Sea region. SEA: NORTHERN IRAQ/ ExxonMobil is the primary oil company drilling offshore in Pelikan-1 and Domino, which appear to be the largest KURDISTAN sign for Bucharest, and for the whole region. The Unit- Central and Eastern Europe—not only from east to west, edBlack States, Sea hydrocarbonthe EU, and the discoveries. countries inThis the is region definitely should a good butThe alsoBlack from Sea southbasin tois anorth. transit The area Turkey-Iraq for energy Gas flows Pipe to- support indigenous energy development, as it boosts the line would allow Turkey and Europe access to Iraq’s nat- sustainability and security of all the actors involved. ural gas reserves. While Ankara and the Kurdish Regional On the other hand, the development of shale gas, which is Government (KRG) signed a memorandum of understand- highly successful in the United States, has so far proven a ing a number of years ago, feasibility studies for the project disappointment in the western Black Sea region. Romania have not yet started. and Ukraine are the only countries in the western Black As of August 2015, Kurdistan has not exported any natu- Sea that permit development of shale gas deposits. Howev- er, initial exploration attempted by major Western compa- due to higher rates of return on investment. In addition, nies, such as Chevron, has also revealed that the deposits of significantral gas. Local legal authorities constraints prioritized exist in theoil-focused field of energy projects resource extraction, due to conflicts between the Iraqi their relatively small size.41 central government in Baghdad and Islamic State of Iraq shale gas in Romania are not economically efficient, due to In December 2014, Chevron announced it had stopped and al-Sham (ISIS) operations in Syria and Iraq. Recent exploration of shale gas reserves in western Ukraine. military operations conducted by Turkey against the According to Financial Times, PKK Kurdish militia have further aggravated the situ- - ation, heightening political risk. Nevertheless, Turkey nia, which have similar geologies, “The showed company that lost available interest and the Kurds have a common interest in developing and in the project after findings in nearby Poland42 and Lithua exporting gas, gaining closer economic ties and a new revenue stream. wouldreserves pull were out smallerof a shale than gas anticipated.” exploration project Later, in Junethe east Iraq possesses impressive reserves of some 3.17 trillion of2015, the Royalcountry, Dutch due Shellto the notified security Ukrainian situation. officials However, that these it cubic meters of natural gas, a great deal of it in the south setbacks should not discourage small and medium-sized companies, which tend to be more risk tolerant, from pur- of its natural gas production due to the lack of pipeline suing exploration and production in the area. infrastructure.of the country. 44However, A pipeline today system Iraq sending flares 58 gas percent from Iraqi The Azerbaijan–Georgia–Romania Interconnector (AGRI), which has been under consideration by Azerbai- jan and Romania since 2010, envisages transportation of andKurdistan European to Turkey, consumers. and farther Kurdistan afield could to Europe, become would an be natural gas via a pipeline from Azerbaijan to Georgia, and additionala win-win, sourcebenefitting of gas the for KRG, Turkey the andTurkish the Southerngovernment, Gas Corridor. However, the Eastern Mediterranean, a region to the southwest, will provide stiff competition.

Business Insider, March 13, 2014, http:// www.businessinsider.com/crimea-annexation-would-include-offshore-40 John Helmer, “Russia’s Attempted Crimea Annexation Would Include gas-reserves-2014-3.Huge Offshore Gas Reserves,” CNBC, February 23, 2015, http://www.cnbc.com/2015/02/23/chevron-withdraws-from-ro- Natural Gas mania-shale-gas-projects.html.41 “European Shale Dream Dying Before It Started,” Europe of-agri-future-24782.43 Anca Elena Mihalache, “Making sense of AGRI’s future,” Financial Times, December 15, 2014, http://www.ft.com/cms/s/0/76b- , July 27, 2015, http://www.naturalgaseurope.com/making-sense-- 42 Roman Olearchyk, “Chevron Pulls out of Shale Gas Project in Ukraine,” 44 US Energy Information Administration (EIA), “EIA Independent Statis 41d9c-847e-11e4-ba4f-00144feabdc0.html#axzz3kSSAO7IS.ATLANTIC COUNCIL tics and Analysis,” http://www.eia.gov/countries/cab.cfm?fips=iz. 11 DEVELOPING A WESTERN ENERGY STRATEGY FOR THE BLACK SEA REGION AND BEYOND

46 ALTERNATIVES TO To accomplish that, the construction of an East Mediter- RUSSIAN GAS—EASTERN raneanSmaller pipeline gas fields to in Turkey this area via holdCyprus, approximately to carry Israeli 58 bcm.and MEDITERRANEAN: EGYPT, Cypriot gas, would be a game-changer, as it would elimi- ISRAEL, AND CYPRUS The Eastern Mediterranean is a strategic region capable nate a need in a costly LNG facility which would require an investment of US $5-7 billion. A cost of such a pipeline would be a fraction of an LNG terminal. Sea,of significantly it can become reducing an important Europe’s supplier dependence to the on Balkans, Russian THE DEVELOPMENT OF THE South-Centralgas. Located less Europe, than one and thousand beyond, including miles from the the heart Black of Europe. It would also make Cyprus an important energy hub, NATURAL GAS FIELDS IN for the Eastern Mediterranean and all of Southern Europe. CYPRUS, EGYPT, AND IS- RAEL—ALONG WITH THE the Zohr Prospect, in the waters off Egypt (1,450 meters deep)The recent shines discovery a spotlight by onEni the of theEastern supergiant Mediterranean. gas field at CREATION OF AN LNG TER- Overnight, Egypt emerged as potentially the leading MINAL AND/OR PIPELINE discovery ever made in Egypt, or in the Mediterranean NETWORK BETWEEN THE Sea,LNG holdssupplier an estimatedin the region. 900 Zohr, bcm theof lean largest gas, natural in an area gas of about one hundred square kilometers. It could change the PRODUCING, TRANSIT, AND future energy balance in both the Eastern Mediterranean CONSUMING COUNTRIES— and Europe.45 liquefy it in the Segas plant at Damietta and the Egyptian WOULD BRING LONG-TERM Eni may sell the field output to Egypt and BENEFITS TO EUROPEAN LNG facility at Idku, providing a boost to Egypt’s economy. CONSUMERS. hasLocated the capacity fifty kilometers to expand east from of Alexandria the current is two one trains of the to six,world’s processing largest potentiallyproducers, differentEgyptian sourcesLNG. The of company feed gas Energy cooperation between Egypt, Cyprus, and Israel is crucial to Eastern Mediterranean energy development. The two currently operational trains have a combined capac- Israel and Cyprus will require the and creation of an with great flexibility. that includes both domestic shareholders, such as Egyptian interdependence may enhance security and stability underwater gas pipeline and an LNG terminal. Energy Generality of 7.3 Petroleum million tons Corporation per year. Egyptian (EGPC) andLNG Egyptian is a consortium Natu- ral Gas Holding Company (EGAS), and foreign shareholders, the Palestinian territories. If Turkey cooperates, the system among gas suppliers and recipients, including Jordan and such as BG Group, Petroliam Nasional Berhad (PETRONAS), would bring gas from offshore Israel and Cyprus to the EU and Engie (previously called GDF Suez). through Turkey, into the TANAP system, and into Europe

However, if Ankara does not cooperate, Greece would via TAP and the modified Nabucco system. orThe pipeline development network of betweenthe natural the gas producing, fields in Cyprus,transit, andEgypt, become the transit country, creating one of the world’s and Israel—along with the creation of an LNG terminal and/- largest pipeline systems. In this scenario, a pipeline would ropean consumers. A joint offshore gas development by Noble route the gas from Israel and Cyprus to Crete and the rest Energyconsuming in the countries—would exclusive economic bring zone long-term of Israel benefits and Cyprus to Eu of Greece. Another option envisages generation of elec- might require one of the world’s largest pipeline systems. tricity in Cyprus, which would be then supplied to Greece through an underwater cable. However, there are serious - questions about the costs of all these plans. CNG may be another cost-effective solution for shipping gas to Europe. couldWith the participate development in major of the regional Aphrodite energy and projects. Leviathan Aphro nat - ural gas fields offshore Cyprus and Israel, the two countries The Eastern Mediterranean can and should play a vital role in reaching the EU’s goals by supplying a portion of the ad- dite is a relatively small field in the Eastern Mediterranean ditional 100 bcm/y of natural gas that may be needed over approximatelyregion, with estimated 303 bcm. reserves According of 200 to expert bcm. Leviathan analyses, and Tamar, the Israeli offshore fields, are bigger. Tamar holds Eastern Mediterranean would compete with great volumes ofthe natural next fifteen gas coming years. fromHowever, the Persian the offshore Gulf countries, fields in the Leviathan has more than twice that amount, with 620 bcm. principally Iran. www.eni.com/en_IT/media/press-releases/2015/08/Eni_discovers_su45 Eni, “Eni Discovers a Supergiant Gas Field in the Egyptian Offshore, the- Largest Ever Found in the Mediterranean Sea,” August 30, 2015, http:// - Reuters terranean_Sea.shtml. 46 “Israel’s Leviathan Gas Reserves Estimate Raised by 16 Percent,” pergiant_gas_field_in_Egyptian_offshore_the_largest_ever_found_in_Medi , July 13, 2014, http://www.reuters.com/article/2014/07/13/ 12 israel-natgas-leviathan-idUSL6N0PO08Q20140713.ATLANTIC COUNCIL DEVELOPING A WESTERN ENERGY STRATEGY FOR THE BLACK SEA REGION AND BEYOND

Bulgaria operates one active power plant in Kozloduy, ALTERNATIVES TO RUSSIAN with two-gigawatt capacity, and there are plans to build GAS—THE IRAN-EUROPE a second power plant in Belene; but the project has been PIPELINE power capacity, and is exporting electricity. However, the Given the recent shift in relations between Iran and the EU, cancellationstalled for almost of the five South years. Stream Currently, might Bulgariaprovide thehas impetusexcess it is reasonable to assume that Iran’s natural gas deposits, for restarting the project. which are approximately 34 trillion cubic meters and the second largest in the world, could also contribute to Euro- Turkey is developing two power plants, with four nuclear pean energy security. However, only 160 billion cubic me- reactors in Akkuyu, a city on the Mediterranean coast, and ters of gas are produced annually, due to technological and four more in Sinop, on the Black Sea coast. The plant in Ak- kuyu is expected to become operational in 2020.49 It will be a lack of expertise, and the Western sanctions that now based on Russian VVER reactors, whereas the one in Sinop 50 appearfinancial to constraints be lifted. Only caused a small by domestic amount of mismanagement, Iran’s annual will use and French technology. gas production is currently being exported. Russia possesses the most nuclear expertise among the Japanese The Iranian energy industry will require massive invest- countries in the region. It has ten nuclear power plants with ments to meet European and global demand. Currently, Iran thirty-four reactors. It also has another project under devel- supplies less than 1 percent of global natural gas exports. -

51 and one that the Iranian leadership is likely to reach for inopment, 2016. a Thisfloating mobile nuclear plant power can be plant transported on the barge through the Akathe inBuilding the years LNG to export come. terminalsAccording would to the beUS anEnergy enormous Informa prize,- country’sdemik Lomonosov, waterways. which Although is expected the initial to become goal of operationalthe project tion Agency (EIA), Iran presently exports relatively small was to supply energy to Chukotka, a remote peninsula in amounts of natural gas via pipelines to three neighboring - countries—Turkey, Armenia, and Azerbaijan.47 Thus, the monosov would become a major source of electricity for the existing Iran-Turkey pipeline, with its 14 bcm/y capacity energy-starvednortheastern Siberia, Crimea. there However, were suggestions due to the mobile that the reactor’s Lo cost and schedule overruns and the planned deployment to 52 supply of Iranian gas to Europe, capable of providing up to 7and bcm/y. Turkish This imports could begin of 5.5 to bcm/y, happen would in two be to the three first years. line of the Arctic, this plans appear to be postponed indefinitely. Beyond that, there are plans to build a Persian Pipeline with in the region. Ukraine has lost its primary sources of coal sinceLarge thequantities beginning of conventional of war in the energyDonbas. are Production also produced fell fuel to generate electricity, and the Black Sea region’s capaci- from 8.3 million tons in 2013 to 6.5 million tons in 2014. tya capacity to produce of up power to 40 from bcm/y. other Yet, sources natural is gas growing. is not the only It fell further in 2015 by 53 percent, as Ukraine’s major coal-producing regions are under the control of separatists. ALTERNATIVES TO RUSSIAN 2015 increased year after year, the value of coal imports GAS—COAL, NUCLEAR, AND While the amount of the imported coal in the first half of RENEWABLES close to the same period for 2014.53 Ironically, Ukraine hasin the increased first half its of imports 2015 remained of coal from at $857.5 Russia, million, further Countries around the Black Sea boast considerable conven- undermining its energy security. tional-energy potential, including the capacity for generating nuclear power. For example, Ukraine has four active power Romania imported 857 thousand tons of coal in 2013, with plants with 14-gigawatt total installed capacity. The ill-fated no domestic production. However, Romania does produce Chernobyl reactor remains closed, and three other projects lignite, known as brown coal. More polluting than the more commonly used black coal, it is also considered to be of industrial consumers of energy located in the occupied easternare unfinished regions (including of Ukraine, one there in Crimea). are no current With large-scale plans for World Nuclear expanding the existing facilities or building new ones. News, April 15, 2015, http://www.world-nuclear-news.org/NN-Ground- 49 “Ground Broken for Turkey’s First Nuclear Power Plant,” Romania has one active power plant, with 1.4-gigawatt Anato- capacity. Future projects include a two-reactor power plant liabroken-for-Turkeys-first-nuclear-power-plant-1541501.html. News Agency, May 3, 2013, http://www.hurriyetdailynews.com/ 50 “Turkey, Japan Sign $22 Bln Deal for Sinop Nuclear Plant,” in Transylvania with 2.4-gigawatt capacity. These plans are turkey-japan-sign-22-bln-deal-for-sinop-nuclear-plant.aspx?page- ID=238&nID=46206&NewsCatID=348. long term and are unlikely to be implemented earlier than World Nuclear News, October 2020.48 The project will also involve imports of nuclear reactors from French companies. be-delivered-in-2016-23101401.html.51 “Floating Plant to Be Delivered in 2016,” See also http://www.b-port.com/ tv21/item/160476.html.23, 2014, http://www.world-nuclear-news.org/NN-floating-plant-to-

Gazeta.ru, August 26, 2015, http://www.gazeta.ru/sci- ence/2015/08/26_a_7718603.shtml.52 Vasily Petrov, “Two Reactors Awaiting ‘Akademik Lomonosov’ 47 US Energy Information Administration, “EIA Independent Statistics in Pevek,” Kor- and Analysis,” http://www.eia.gov/countries/cab.cfm?fips=iz.. respondent.net - Romania.48 World Nuclear Association, “Nuclear Power in Romania,” October 2014, cial/3536022-ukrayna-zakupyla-uhlia-pochty-na-myllyard-dollarov.53 “Ukraine Purchased Almost One Billion Dollars’ Worth of Coal,” http://www.world-nuclear.org/info/Country-Profiles/Countries-O-S/ , July 6, 2015, http://korrespondent.net/business/finan ATLANTIC COUNCIL 13 DEVELOPING A WESTERN ENERGY STRATEGY FOR THE BLACK SEA REGION AND BEYOND the lowest quality, due to its relatively low caloric value. region that abuts Russia, Iran, Turkey, the Middle East, and According to Romania’s Energy Strategy 2015-2035 draft,54 Europe. Energy policy in the Black Sea region is part of a the country’s lignite production capacity is about 33 mt per broader economic and security policy paradigm that needs year, with domestic consumption being 23 mt per year, re- to be developed and implemented, with US support, by all sulting in an over-capacity of approximately 10 mt per year. littoral Black Sea states, and by the members of the EU. Bulgarian coal imports in 2014 were 1.4 mt, showing a US energy security priorities should include boosting the decrease in coal consumption compared with the previous US military presence along the western littoral of the Black year (2.1 mt imported). Sea, with special emphasis on air, naval, and Marine Corps assets. Cooperation, training, and interoperability among Turkey’s thermal-coal imports were 23.5 mt in 2014, including the all-time largest purchases from Colombia NATO allies, as well as between NATO and Ukraine and (9.278 mt, a 30-percent increase from 2013) and South Georgia, should be a top priority. The use of the Crimea as Africa.55 Colombia ousted Russia (8.409 mt in 2014, a a staging area for Russian operations in the Middle East 2 percent decrease from 2013) as the main thermal-coal threatens not only the Black Sea region, but also Turkey supplier to Turkey. 2014 coal imports marked the second and the Eastern Mediterranean. highest on record, just after 2012’s 23.725 mt, according to The US government, especially the Departments of State data from the Turkish Statistical Institute (TUIK).56 and Energy, should work with US energy companies—and Georgia’s coal imports are negligible. The country import- with Georgia, Ukraine, and the United States’ NATO allies, ed only 8.8 thousand tons in 2012. The country’s energy especially Turkey—to prioritize the development of new needs were and are covered by natural gas from Azerbaijan and Russia, as well as local production. redgas andtape, oil in fields combination offshore with and manageableon shore, around and diminish the Black- As for renewables, despite their humble beginnings, they ingSea graftlittoral will and all ingo the a long adjacent way toward areas. Low attracting tax rates, foreign less have an increasing role in achieving diversity of electricity investment in the region’s energy sector. Ukraine, Romania, supply sources. Energy producers can take advantage of Georgia, northern Iraq, and the Eastern Mediterranean local factors (such as the many mountain rivers of Georgia, the sunny weather in Turkey and Greece, and the strong to diminish Europe’s dependence on Russian gas by 50 per- winds of the Black Sea coast) to increase the share of re- centhave bysufficient 2025-30. potential to supply themselves, and possibly newables. Renewable power-generation costs will decline as these technologies develop and mature, although it is clear that the medium-income countries in the region do of clean coal, as well as expanding nuclear energy and Electricity-source diversification includes the limited usage not have the deep pockets needed to subsidize their renewables on the same level as the countries of the Organization renewables, wherever economically justified. for Economic Cooperation and Development (OECD). New LNG terminals, including Krk Island in Croatia, the Natural gas cannot and should not be the only source and South and Central European interconnectors, will Baltic littoral (Poland and Lithuania), possibly Odesa, of energy in the Black Sea basin. However, with its low carbon emissions relative to coal, and its great safety energy system. Therefore, Black Sea and Balkan countries be crucial for a diversified, reliable, and robust regional record in comparison to nuclear energy, it is the main should work on integrating all future energy infrastructure transition source of energy until renewables become fully competitive. Thus, natural gas will remain the principal suggested above. projects into a unified natural gas distribution system, as electricity-generating commodity for the region. The Black Sea is already a major intersection of European energy trade. Its role will only increase, especially if the current disruptive policies of the Kremlin persist and if CONCLUSION: “HAPPINESS the Middle East remains unstable. Under current condi- IS MULTIPLE PIPELINES”— tions, the link between the Southern Caucasus, Turkey, ENHANCING BLACK SEA and Southern Europe may not only become an important ENERGY SECURITY BY 2025 part of the European energy infrastructure, but a strategic and vital one. Furthermore, natural gas from Central Asia A safe and peaceful Black Sea region is vital for Europe- an energy security, and for the economic development of route as well. (Turkmenistan) may find its way to Europe through this US and European markets in this strategically important Without a doubt, a deeper level of cooperation and coordination between the various governments and the energy com- - panies involved will be required in order to create an interde- Romania Journal, May 10, 2015, http://www. romaniajournal.ro/domestic-coal-production-on-the-rise-however-roma54 Anca Bernovici, “Domestic Coal Production, on the Rise. However, Ro - pendent energy system that promotes stability and peace. nia-continues-to-import.mania Continues to Import,”

Platts coal/london/turkeys-2014-thermal-coal-imports-rise-13-on-26996414.55 “Turkey’s 2014 Thermal Coal Imports Rise 13 Percent on Year to 23.56 Mil Mt,” , January 30, 2015, http://www.platts.com/latest-news/

1456 Ibid. ATLANTIC COUNCIL DEVELOPING A WESTERN ENERGY STRATEGY FOR THE BLACK SEA REGION AND BEYOND

ABOUT THE AUTHOR Ariel Cohen is a Nonresident Senior Research Fellow at the Atlantic Council’s Global Energy Center and Dinu Patriciu Eurasia Center, and the Director of the Center for Energy, Natural Resources, and Geopolitics at the Institute for the Analysis of Global Security. He is the founding principal of

International Market Analysis Ltd (www.IMAstrategy.com).

ATLANTIC COUNCIL 15 Atlantic Council Board of Directors

CHAIRMAN Henry A. Kissinger Ahmed Charai Franklin D. Kramer *Paula Stern John E. Chapoton Richard J.A. Steele Sandra Charles *JonCHAIRMAN, M. Huntsman, Jr. INTERNATIONAL Melanie Chen Philip Lader Robert J. Stevens ADVISORY BOARD George Chopivsky *Ellen O. Tauscher *Richard L. Lawson John S. Tanner Brent Scowcroft Wesley K. Clark Karen Tramontano *Jan M. Lodal David W. Craig Clyde C. Tuggle PRESIDENT AND CEO Jane Holl Lute Izzat Majeed Paul Twomey *Frederick Kempe William J. Lynn Nelson Cunningham Wendy W. Makins Melanne Verveer *Ralph D. Crosby, Jr. EXECUTIVE VICE Ivo H. Daalder Mian M. Mansha Enzo Viscusi CHAIRS Gerardo Mato Charles F. Wald *Adrienne Arsht William E. Mayer *Paula J. Dobriansky Conrado Dornier Allan McArtor Michael F. Walsh Christopher J. Dodd Jay Walker *StephenVICE CHAIRS J. Hadley Eric D.K. Melby Mark R. Warner Franklin C. Miller David A. Wilson Thomas J. Edelman *Richard Edelman *Stuart E. Eizenstat Maciej Witucki *Robert J. Abernethy Thomas J. Egan, Jr. *C. Boyden Gray Thomas R. Eldridge Neal S. Wolin James N. Miller *Alexander V. Mirtchev *Judith A. Miller *Virginia A. Mulberger Karl Moor Dov S. Zakheim *George Lund Julie Finley Mary C. Yates *W. DeVier Pierson Alan H. Fleischmann Lawrence P. Fisher, II HONORARY *Ronald M. Freeman Michael Morell DIRECTORS Obie L. Moore Georgette Mosbacher *JohnTREASURER Studzinski David C. Acheson *Brian C. McK. Henderson Courtney Geduldig Steve C. Nicandros Madeleine K. Albright Laurie Fulton *Robert S. Gelbard Thomas R. Nides SECRETARY Thomas Glocer Franco Nuschese *Walter B. Slocombe Harold Brown James A. Baker, III *Sherri W. Goodman Frank C. Carlucci, III DIRECTORS Mikael Hagström Sean O’Keefe Robert M. Gates Stephane Abrial Joseph S. Nye Ian Hague Hilda Ochoa- Michael G. Mullen Odeh Aburdene Brillembourg Peter Ackerman Frank Haun Ahmet Oren John D. Harris, II Timothy D. Adams Michael V. Hayden *Ana Palacio Leon E. Panetta William J. Perry Annette Heuser Carlos Pascual Condoleezza Rice Michael Andersson Colin L. Powell John Allen *Karl Hopkins Thomas R. Pickering Michael Ansari Robert Hormats Daniel B. Poneman George P. Shultz Miroslav Hornak Daniel M. Price Edward L. Rowny Richard L. Armitage William H. Webster Elizabeth F. Bagley Wolfgang Ischinger *Kirk A. Radke John W. Warner David D. Aufhauser *Mary L. Howell Arnold L. Punaro Peter Bass Robert Rangel Charles O. Rossotti *Executive Committee Reuben Jeffery, III Members Stanley O. Roth *Rafic Bizri *James L. Jones, Jr. Francis Bouchard Robert Rowland *Thomas L. Blair George A. Joulwan Myron Brilliant Stephen R. Kappes Harry Sachinis Lawrence S. Kanarek List as of November 3, 2015 Esther Brimmer Maria Pica Karp *R. Nicholas Burns Brent Scowcroft John P. Schmitz Sean Kevelighan Rajiv Shah *Richard R. Burt Francis J. Kelly, Jr. William J. Burns Zalmay M. Khalilzad Michael Calvey Robert M. Kimmitt Alan J. Spence James Stavridis James E. Cartwright The Atlantic Council is a nonpartisan organization that promotes constructive US leadership and engagement in international affairs based on the central role of the Atlantic community in meeting today’s global challenges.

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