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Turkey: Slashed Gas Forecast May Spell Trouble For Neighbors

Turkey's downward revision of its gas demand forecast could spell trouble for several countries that have staked their pipeline plans on its prospects. But despite a slumping economy, Ankara still insists that its gas needs will grow rapidly this year.

Boston, 4 January 2002 (RFE/RL) -- Turkey has slashed its forecast of natural gas demand in 2002, raising new doubts about the pipeline plans of countries including Russia, Azerbaijan, and Iran.

On 24 December, the Turkish pipeline monopoly Botas cut its estimate of gas demand by 8.7 percent from forecasts made a year earlier, according to figures posted without comment on the company's website.

According to Botas, Turkey will need 21.2 billion cubic meters of gas this year, a decline from its earlier forecast of 23.3 billion. The cut reflects lower expectations for the Turkish economy.

The International Monetary Fund recently revised its economic outlook to show a steeper decline in 2001 and a weaker recovery than were previously envisioned.

Last month, the IMF said that Turkey's gross domestic product would drop 6.1 percent in 2001 instead of the 4.3-percent loss forecast in October. This year, GDP is expected to grow 4.1 percent, instead of the stronger 5.9-percent increase predicted before.

Despite billions of dollars in IMF loans, the country is still struggling with an economic crisis that followed a political row last February. While the signs of the slow progress have been clear for months, Turkish officials have been even slower to adjust their energy forecasts accordingly.

Turkey's prospects are important to countries including Russia, Azerbaijan, and Iran because all three have either built or planned costly pipelines in the belief that Turkey's gas market would grow at rapid rates. Algeria and Nigeria are also Turkish suppliers, while Turkmenistan has an agreement for future gas sales. Turkey has discussed even more purchases from Iraq and Egypt.

Much of the activity has been driven by bullish forecasts from Botas, which have consistently proven too high. In 1998, the company predicted that Turkey's gas consumption would reach 19 billion cubic meters in the year 2000. Last June, Botas reported a consumption figure of 14.6 billion, although independent estimates were considerably less.

An earlier economic crisis and Turkey's devastating 1999 earthquake were partly responsible for the huge 23 percent shortfall. The country has fallen behind on building distribution networks and power plants. But bad forecasting has also been partly to blame.

Botas still predicts that gas demand will rise 20 percent this year and more than double that rate by 2004. To meet the estimate for this year, gas demand would have to grow five times faster than the economy.

Turkey has yet to publish consumption figures for 2001, but the Reuters news agency said last month that usage is expected to be 14.6 billion cubic meters, or in other words, no growth from the year before.

Perhaps most controversial is the Botas forecast that the country will need 55 billion cubic meters of gas by 2010. The company has stuck to that figure through good times and bad, despite analysts' estimates that it may be more than 40 percent too high.

Snam Spa, a division of the ENI petroleum company of Italy, recently cited estimates that Turkey's gas need will reach only 38 billion cubic meters by 2010. The reference is notable because ENI is a partner in Russia's Blue Stream project to pipe gas under the Black Sea to Turkey starting this year. One might expect that its forecasts would be as rosy as those of Botas.

Turkish energy officials have apparently shunned reality for fear of scaring foreign pipeline investors. But the demand for reality may be greater than the demand for more gas.

A report last month by IBS Research & Consultancy said, "A first requirement is the need for more credible energy demand forecasts for the country." The Istanbul-based firm added, "Our own view is that...Turkey now faces up to six years of energy sufficiency."

Last month, Botas General Manager Gokhan Bildaci told the Turkish newspaper Dunya Gazetesi that the company has been trying to bargain down the amount of its "take-or-pay" contract with Russia's Gazprom. Turkey will have no room for surplus gas storage until 2005, Bildaci said. IBS said the surplus problem could leave Turkey with a liability of up to $700 million a year.

Some U.S. officials see a pipeline to Greece as a solution to the surplus problem. But progress has been slow, in part because Turkey refused to question its own estimates for years. It is also far from clear that a pipeline under the Black Sea to Turkey would have been considered the most efficient way to supply Russian gas to Greece, if the surplus issue had been addressed earlier.

The new Botas figures on contract obligations show an effort to push back and reduce supplies from Russia and Turkmenistan. The slowdown has already affected Iran, which started deliveries in December after months of delays. Azerbaijan also hopes to start work on a 900-kilometer line that can start to pump gas to Turkey by 2005.

Each country will share a stake in Turkey's progress through its pipeline connections, as well as a share of its problems.