Russia says may cancel 'major projects' with Turkey after warplane incident: Medvedev

Moscow (Platts)--25 Nov 2015 908 am EST/1408 GMT

* TurkStream gas pipeline, Akkuyu nuclear plant build at risk
* Gas supplies won't be affected, says official


Moscow may cancel a number of "important joint projects" with Ankara after Turkey shot down a Russian warplane Tuesday, Russian prime minister Dmitry Medvedev said Wednesday, with market experts raising concerns over the future of the TurkStream gas pipeline.

On Tuesday, a Russian Su-24 military place was shot down by a Turkish F-16 air fighter jet near the Turkish-Syrian border. Turkish authorities said the Russian jet had violated its airspace, which Russian authorities denied, saying the jet was hit some 4 kilometers inside Syrian territory.

The incident "has undermined good neighbor relations between Russia and Turkey, including in the economic and humanitarian spheres," Medvedev said, according to a statement posted at the governmental web site. "It would be difficult to make up for this damage."

"Abandoning a number of important joint projects as well as Turkish companies losing their positions on the Russian market could be a direct consequence of [the incident]," Medvedev said, without elaborating further.

President Vladimir Putin Tuesday condemned the action by Turkish forces, calling it "a stab in the back" and promised "serious consequences."

JOINT PROJECTS

Deliveries of Russian gas to Turkey are unlikely to be affected by the incident since Russia will want to maintain its reputation as a stable gas supplier.

Supplies will continue in line with contracts, Russia's deputy energy minister Anatoly Yanovsky said late Tuesday, Russia's TASS reported.

But a major gas pipeline project across the Black Sea, TurkStream, may fall victim.

Putin's spokesman Dmitry Peskov Tuesday said the authorities would "thoroughly analyze" the situation around the pipeline project, when asked whether it would be cancelled, according to local media reports.

Turkey and Russia have long enjoyed close relations in the energy sphere, with Turkey importing up to 30 Bcm/year of Russian gas. Turkey is the second-biggest consumer of the Russian pipeline gas after Germany.

In addition, Russia's Rosatom holds a contract to develop Turkey's first nuclear power plant, a 4.8 GW facility at Akkuyu on Turkey's eastern Mediterranean coast.

ARBITRATION

However, relations between the two countries have been strained recently, with the two sides failing to agree over the development of the 63 Bcm/year TurkStream pipeline, which Moscow wants to route across the Black Sea and through Turkey's European province of Thrace.

Turkey has agreed in principle to the development of two of the four parallel lines that would make up the pipeline system, but has yet to ratify the agreement. In return, Moscow has failed to implement an agreed 10.25% discount on the price Botas pays for the gas it imports. Turkey earlier this month said it had instituted an international arbitration case over Gazprom's failure to implement the discount.

Russian sources earlier this year did not rule out signing the final agreement on TurkStream in December, with Moscow insisting on the pipeline deal and discount being signed simultaneously.

Turkey is not dependent on oil deliveries from Russia but controls the Turkish Straits, a key route for Russian crude deliveries to the Mediterranean from the Black Sea ports.

Crude deliveries via Russia's key export port in the south, Novorossiisk, averaged around 466,790 b/d in the first 10 months of the year, accounting for 10.5% of the Russian total crude exports in the period.

Turkey has full control over the Bosphorus and Dardanelles straits under the Montreux Convention, which envisages free shipping of civic vessels in peacetime.

--Nadia Rodova, nadia.rodova@platts.com
--Edited by Jonathan Fox, jonathan.fox@platts.com

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