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Turkey: Earthquake Tremors Also Rock Gas Projects

Boston, 27 August 1999 (RFE/RL) -- The earthquake that struck Turkey on August 17 could also turn into a shock for countries that hope to supply the nation with gas, analysts say.

In addition to the death and destruction in Turkey itself, the economic loss could be felt as far away as Turkmenistan, Russia, and Iran. All three countries have planned major pipeline projects to deliver gas to Turkey within the next three years.

The question is whether reconstruction of the northwest industrial region of Kocaeli, which accounts for one-third of the country's output, will stifle economic growth. Turkey is already in recession with a decline in gross national product of 6.5 percent in the first half of this year.

A further downturn could dash expectations for strong growth in the use of gas and electricity. Many experts viewed Turkey's forecasts as optimistic even before the earthquake. The country consumed about 10 billion cubic meters of gas last year and was expected to use 13 billion cubic meters in 1999. The use is projected to more than quadruple by 2010 to 57 billion cubic meters a year.

But the outlook for gas relies on at least two conditions. Turkey must resume the strong economic growth rates that it enjoyed from 1995 through 1997, when most of the pipeline plans were proposed. It must also build the gas-fired power plants that will turn the country's demand into electricity that it can use.

The effect of the disaster on overall growth is difficult to determine. As with the Hanshin earthquake that hit Kobe, Japan in January 1995, some analysts are predicting that the stimulus of reconstruction may offset the current economic cost. But such forecasts are hard to prove. Japan remained in recession long after the Kobe quake, for a variety of reasons. The construction boom may only benefit some sectors, leaving most energy consumers with little reason to increase their demand.

While the effect on growth is uncertain, experts are more positive about plans to build new power plants because of a recent legal decision. Under pressure from foreign developers and lenders, Turkey decided to amend its constitution to allow arbitration of disputes in international courts. Laurent Ruseckas, an analyst at Cambridge Energy Research Associates in Cambridge, Massachusetts, said it was fortunate that the Turkish parliament passed the measure, just days before the earthquake.

Foreign investors have been waiting for the arbitration decision before proceeding with power plant projects. Political turmoil following the earthquake might have made such legislation difficult, Ruseckas said.

But the effect of the earthquake could still be serious for the countries that are competing to be gas suppliers. Any new doubts about Turkey's economic growth or its projected demand may now fall on the country with the most impractical plan.

Turkmenistan could suffer because of its great distance from Turkey and the need to build a trans-Caspian pipeline to serve it. Although U.S. Energy Secretary Bill Richardson urged all parties to resolve their differences during his recent visit to the region, Azerbaijan could still block Turkmen gas by demanding high transit fees or greater access to the line for its own gas.

Iran's supplies may also be affected because of U.S. pressure on Turkey to make purchases from Turkmenistan a priority. But Russia's plan to build a pipeline across the Black Sea could be the most vulnerable. The Blue Stream project of Russia's Gazprom and ENI of Italy was the subject of heated words this week from the Russian Foreign Ministry.

Moscow accused the United States of trying to frustrate the Blue Stream project, a charge which U.S. officials deny. But the Turkish earthquake may increase the likelihood that one of the big projects will be dropped. Gazprom recently failed in efforts to finance its part of the project on Russian territory with a poorly-received bond sale.

The earthquake itself is a reminder of another problem for all pipelines in the region. Both Russia and Iran have objected to the trans-Caspian project on the grounds that earthquakes will make it an environmental risk. Cambridge Energy's Ruseckas said that multilateral lenders like the World Bank may find it hard to back the project if Russia presses the point.

But given the experience of the earthquake, the environmental argument may also be turned on Russia because of the risk of building under the Black Sea. In a region filled with human conflicts, nature seems to be adding troubles of its own.