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Caspian: Turkey and Greece Open Talks On Pipeline Connection

As relations improve between Turkey and Greece, prospects are brightening for nations that are hoping to supply Caspian gas. The two Mediterranean rivals have opened talks on a pipeline link that could give the Caspian its first connection through Turkey to the European market.

Boston, 11 July 2000 (RFE/RL) -- Warming relations between Greece and Turkey may lift the fortunes of the Caspian Sea region as the two historic rivals open talks aimed at linking their natural gas networks.

Last Friday, representatives of Ankara and Athens meeting in Brussels signed a memorandum of understanding to work toward building a pipeline connection between the two countries starting in 2002.

The agreement, also signed by the European Commission, could solve one of the basic problems of Caspian development plans. So far, the Turkish market has been the destination for several projects for gas pipelines from Russia, Iran, Turkmenistan and Azerbaijan. But Turkey is unlikely to consume all of the gas.

Energy analysts have been at odds with the Turkish government for several years over its estimates of the country's growing gas demand. Turkey has insisted that it can use all the gas it can get, projecting that demand will rise more than fourfold between this year and 2010. More conservative forecasts by experts, including World Bank officials, suggest that gas use is more likely to double by then.

Turkish officials have dismissed concerns by arguing that any excess gas can be sold to Western Europe. Under an agreement last year, for example, Turkmenistan said it would supply Turkey with 16 billion cubic meters of gas per year with an additional 14 billion cubic meters for transfer to Europe.

The only problem is that Turkey has no pipelines to Europe for delivering excess gas. Russia is Turkey's biggest supplier, and its pipeline through Romania and Bulgaria runs toward the country, not away.

The real limits on Turkey's consumption have been a reason for competition among suppliers and skepticism among pipeline financiers. For example, the U.S.-backed plan for a trans-Caspian pipeline from Turkmenistan has suffered in part because Azerbaijan has discovered gas closer to the Turkish market. Turkey may not need both sources of gas.

Last January, Iran also tried to impose a $200 million fine on Turkey because it failed to accept gas under a 1996 contract after Iran built a pipeline to the Turkish border. Ankara has been slow in completing its part of the line. The two sides settled their differences after Turkey pledged to take delivery of the gas starting next year. But it is also scheduled to receive more gas through a new Black Sea pipeline from Russia, as well as supplies from Turkmenistan and Azerbaijan.

A connection between Turkey and Greece could change the situation. Greece has also been discussing a pipeline to Italy, one of Europe's major markets for gas. The ability to move excess gas from the Caspian region through Turkey and onto Greece and Italy could ease the pressure among pipeline builders to see who reaches Turkey first.

Until now, the limited Turkish market has created a fierce contest in which there were likely to be stark contrasts between winners and losers. Countries, like Turkmenistan, that failed to start their pipeline projects quickly seemed destined to be left behind. But the ability to ship gas through Turkey could open the door for participation of more countries with less risk. A connection to Europe means that Turkey would no longer have to be the only buyer of Caspian gas.

There is a certain irony in the improved ties between Greece and Turkey, which followed the humanitarian response to the Turkish earthquake of August 1999. The disaster was expected to damage Turkey's economic growth and its potential as a gas importer.

Nearly a year later, Turkey's economy is growing with declining inflation. With a pipeline link to Greece, the earthquake could wind up increasing Turkey's potential as a transit country instead. With reduced tensions, Turkey's prospects for European Union membership have also been given a boost.

While the development could help the competitive conditions for Caspian countries like Turkmenistan, the plans for a trans-Caspian pipeline still appear cloudy at best.

On Monday in Ashgabat, Steven Sestanovich, the U.S. State Department adviser on the Newly Independent States, met with President Saparmurat Niyazov and said that Washington is still interested in the trans-Caspian project despite a series of disagreements and delays. But Niyazov again pressed his demands for better terms, including unspecified economic and political guarantees.

Backers of the pipeline project have improved their offers to Niyazov several times. At the end of June, two U.S. companies all but ended their activities in support of the pipeline plan. The Royal Dutch/Shell oil company has continued to stay involved. Last week, Shell offered some revised terms for the project, according to the Turkish Daily News.