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Turkey: Russia Seeking Delay In Pipeline Project

Boston, 13 October 1999 (RFE/RL) - Western analysts say while it is publicly pushing ahead with a gas pipeline across the Black Sea to Turkey, Russia is quietly preparing to negotiate a delay in the project.

Officials at Russia's Gazprom reportedly fear that Turkey will not be able to use as much gas as previously forecast because of its recent earthquake. The problem could leave Gazprom with doubtful returns from its costly Blue Stream pipeline project, which it planned to complete by 2001.

Analysts at Petroleum Finance Company, a Washington-based consulting group, said that officials at Gazprom and the Russian Foreign Ministry are now planning to seek a delay in the scheduled start of the "take-or-pay" contract with Turkey for gas from Blue Stream.

Such contracts are normally considered to be a guarantee that a country will accept the gas that is delivered because it is obligated to pay. But in this case, the concern is that Turkey could declare that it is unable to fulfill its contract because of circumstances beyond its control. If Turkey does cite such a condition, known as "force majeur," Gazprom and its partner, ENI of Italy, could be left with no immediate return on its investment in Blue Stream, the deepest underwater gas line in the world.

Julia Nanay, a director of Petroleum Finance, said that it has already become clear that Turkey does not need any more gas in the near term, other than the volumes that Gazprom is already delivering through Bulgaria.

Even before the earthquake, officials of the Turkish pipeline company Botas had begun to lower their estimates of the country's gas needs for next year. In June, Botas officials estimated Turkey's gas demand in 2000 at 15,700 million cubic meters, said Nanay. Six months earlier, Botas put the figure at 19,000 million.

The revised projections still reflect a remarkable rate of growth. Turkey consumed about 10,000 million cubic meters of gas in 1998. The country may use up to 13,000 million cubic meters this year.

But Turkey's future gas use depends both on its economy and its ability to build new gas-fired power plants to produce electricity. The country's recent passage of international arbitration legislation encouraged foreign investors that will build the new plants. But Turkey's resources are now stretched by reconstruction after the earthquake.

Blue Stream would provide an additional 4,000 million cubic meters of gas in 2001, rising to 16,000 million cubic meters in 2010. If it cannot negotiate a delay with Turkey, Gazprom is still said to be committed to the project, which is estimated to cost at least $2.4 billion. An official at Gazprom's partner, ENI, voiced concern Friday about the new demand estimates and said the company would check into the reports.

But the doubts about Turkey could have further consequences for other countries. In addition to Russia, Algeria and Nigeria also have take-or-pay contracts to supply liquefied natural gas. Turkey has agreed to buy gas from Iran and Turkmenistan, as well. Recently, it has negotiated to buy even more gas from Azerbaijan.

Turkey's consistently high forecasts of its future demand have been responsible for the long list of would-be suppliers. The country has predicted that its consumption will climb more than fivefold to 54,000 million cubic meters a year in 2010. But Nanay of Petroleum Finance said that some World Bank officials believe the real figure will be only about half that amount.

As doubts about the Turkish market have grown, so have the pressures among the supplier nations that have pinned their hopes on high-priced pipeline projects.

The tension of competition has already led to angry words between Turkmenistan President Saparmurat Niyazov and Turkish Energy Minister Cumhur Ersumer. At a meeting in Ashgabat last week, Niyazov criticized Turkey for promoting the Blue Stream project instead of pressing harder for a trans-Caspian gas line from Turkmenistan. Russia's new links would allow Moscow to simply buy Turkmen gas and sell it to Turkey for nearly triple the price, Niyazov said.

The exchange, reported by Platt's Oilgram, is a sign of the high stakes involved for Turkey's suppliers. In Turkmenistan, the result has been open frustration because of the risk that the trans-Caspian pipeline project will be squeezed out.

Last week, Niyazov lashed out in all directions, threatening to sell larger volumes of gas to Iran. The plan would be hard to carry out because of current pipeline constraints, but the public threat was apparently intended to send a signal to the United States and Turkey that more diplomatic attention is needed to make the trans-Caspian scheme work.

Even Russia delays Blue Stream or cancels the project, it will be left as Turkey's largest supplier. Moscow already has take-or-pay contracts for its existing supplies through Bulgaria, giving it an advantage over other nations which must rely on pipelines that have yet to be built.