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Russia: Gazprom Competes For Energy Exports

As Caspian countries wrangle over plans for new pipelines, Russia's Gazprom is pressing ahead with a project designed to avoid the same diplomatic pitfalls. By piping gas directly to Turkey, Russia may be putting other countries on notice that they will have to resolve their differences to compete.

Boston, 7 February 2000 (RFE/RL) -- In a region where pipeline ceremonies have far outnumbered new pipelines, Russia's Gazprom has officially started a gas project that competes with Caspian export plans.

Last week, Gazprom staged an elaborate event near the southwest city of Krasnodar, inaugurating its Blue Stream project to pipe gas across the Black Sea to Turkey. Coverage by the Reuters news agency was skeptical, noting that the ceremony consisted of welding together "two tubes lying entirely alone in a muddy field," with no other sections of the pipeline in sight.

One reason for doubt is the ambitious nature of the project, which is planned to include the deepest underwater pipeline in the world. Some 400 kilometers of the line to the Turkish coast will be laid at depths of up to 2,100 meters. Critics have called attention to the extreme water pressure on the pipeline and environmental risks. The project, announced in 1997, was originally scheduled to start deliveries before the beginning of this year.

Now, Russian and Turkish estimates of the timetable appear to differ. In January, Turkish Energy Minister Cumhur Ersumer said the first gas would reach Turkey within seven months. Last week, Gazprom chief Rem Vyakhirev voiced hope that deliveries would start "in a year's time."

There have also been questions about the need for the $2.5 billion project, undertaken by Gazprom and Italy's ENI. Russia already supplies 9 billion cubic meters out of the nearly 13 billion cubic meters of gas that Turkey used last year.

Gazprom plans to pipe an additional 16 billion cubic meters through Blue Stream by 2007. It is also working to increase deliveries through Ukraine to 14 billion cubic meters a year by 2001. Turkey has said that its demand will grow to 19 billion cubic meters this year, a 47 percent increase over 1999.

Questions about the strong forecast have been compounded by the number of competing pipeline plans to serve Turkey. Turkmenistan is negotiating with Azerbaijan and Georgia for a trans-Caspian line to pipe gas to Ankara by the end of 2002.

In December, Iran completed another line as part of its agreement to sell gas to Turkey, demonstrating readiness by lighting a flare on the border in its own ceremony. The displays by Russia and Iran are meant, in part, to send signals to competitors that their efforts may be wasted and their investments may be too late.

But in spite of the risks of investing in Blue Stream, the project has a logic that Russia may find irresistible. The planned pipeline must brave the Black Sea, but it will not have to cross any other international borders. As a result, it is not dependent on any other countries for agreements or security. The project has reportedly attracted financing from Germany and Japan.

The disadvantages of border crossings in the region's, energy exports have been demonstrated repeatedly in recent weeks. Several times this winter, Russia has accused Ukraine of siphoning gas from lines that cross its territory. Estimates of Ukraine's gas debt have been a source of continual disagreement. Russia is also planning to build a 254-kilometer oil pipeline through the Rostov region to Novorossiysk, bypassing Ukraine, in an attempt to avoid $70 million a year in alleged thefts.

Elsewhere in the region, doubts continue about projects that involve multiple border crossings. In the cases of both the trans-Caspian pipeline and the Baku-Ceyhan oil line, work has not started because negotiations are not yet completed.

Despite agreements signed in Istanbul on November 18, the Baku-Ceyhan deal has been held up by Georgia. Tblisi has yet to settle on a transit tariff for its territory, even though a fixed fee for the entire line from Baku has already been agreed. Georgia's demands could mean that either Azerbaijan or Turkey will have to accept less, or oil companies will have to agree to pay more.

The trans-Caspian project has been stalled by Azerbaijan's claim to a large share of the line's capacity for its own gas exports as a condition of transit.

Baku has stuck to the demand, even though it is currently suffering such a gas shortage that it has rationed electricity and even halted some television broadcasts. The crisis has apparently moved President Heidar Aliyev to schedule a long-delayed visit to Iran, where he is expected to revive talks on reactivating a gas line between the two countries.

The trouble of negotiating multiple border crossings and national interests may make Blue Stream look relatively simple, despite the technical problems. The threat of a direct route to Turkey may serve as a challenge to Caspian countries to resolve their differences, whether or not the project succeeds.