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Caspian: Countries Compete To Bring Gas To Europe

A new pipeline connection between Turkey and Greece may help nations of the Caspian region to export their natural gas to Europe. But Russia and Iran are joining the competition to take advantage of the same route.

Boston, 19 March 2002 (RFE/RL) -- A breakthrough in talks between Greece and Turkey has raised hopes for European natural gas imports from Iran, Russia, and Azerbaijan. But which of the countries will benefit remains far from clear.

Reuters has reported that Greece will sign an accord with Turkey by the end of March to build a gas pipeline connecting the two historic adversaries. The news agency quoted George Agrafiotis, general secretary of the Greek Development Ministry, as saying the new line will run from Ankara to Komotini in northeastern Greece.

In a recent statement, Turkish Energy Minister Zeki Cakan said the state gas companies of the two nations are already conducting feasibility studies. An intergovernmental agreement and the start of basic engineering are expected within six months, the "Turkish Daily News" reported. Construction will take about two years, Agrafiotis said.

The news may mark a major step forward in relations between the estranged neighbors, which have been trying to ease tensions for the past three years. Efforts still seem to be at an early stage.

Greek diplomats in March traveled to Ankara for talks described as "exploratory." Officials were careful to avoid public comments about whether contentious issues like Cyprus and Mediterranean borders had even been raised.

But negotiations for the pipeline have been moving at a faster pace, in part because of desperate need.

Turkey will soon be overflowing with gas as a result of deals it signed in the 1990s, when the government predicted huge economic growth rates. An earthquake and two economic crises have cut back the growth but not the ambition.

Even though its earlier forecasts have not been fulfilled, the Turkish state pipeline BOTAS is predicting a 25 percent increase in gas demand in 2002 and a jump of another 58 percent in 2003. Analysts have warned BOTAS for years that its predictions may be as much as 40 percent too high. Even according to the company's latest revised figures, Turkey's contracted supplies will exceed demand by 25 percent in 2002.

But pipeline developers, who invested in Turkey's forecasts, have been converging on Turkey and racing to reach the market first. Turkey has no storage facilities for excess gas, making transit to Europe an escape valve for Ankara's energy policy.

Earlier in March, the European Investment Bank agreed to lend Turkey 90 million euros ($79.2 million) to build a vast storage reservoir at two depleted gas fields in Thrace, the "Turkish Daily News" reported. But the facilities would not spare Turkey the cost of having to pay for surplus supplies.

The planned link to Greece is seen as an extension of a 2,500-kilometer pipeline from Iran that officially opened in January after years of delay. But according to Reuters, the connection could carry Iranian or Caspian gas to European countries, including Italy.

Greek Development Minister Akis Tsohatzopoulos will conclude the pipeline pact in Ankara at the end of March before visiting Iran and the Caspian region to discuss gas supplies, Reuters said. But the extension to Greece can hardly come fast enough.

The Georgian government recently signed an agreement with the British-led BP oil consortium, which is planning to pipe gas from Azerbaijan's offshore Shah Deniz field to Turkey by 2005. Turkmenistan has also signed a supply deal with Turkey to start in 2005, although it is unclear what route will be used.

The problem of Russian gas may be more pressing.

In February, an affiliate of Italy's ENI oil company finished laying the first of two new pipelines to Turkey under the Black Sea. Fuel from Russia's Gazprom is expected to start flowing in October, a year later than planned. Russia already supplies 70 percent of Turkey's gas, mostly through Bulgaria.

Russia alone has take-or-pay contracts to pump 16 billion cubic meters of gas to Turkey this year, slightly more than the country's total imports in 2001. But Ankara is also committed to buying from Iran, Algeria, and Nigeria, even before its agreements start with the Caspian countries.

The question of which gas will flow through to paying markets in Europe is likely to be the subject of heavy political pressure. It is unclear how much pipeline capacity will be needed to relieve Turkey's surplus, or how fast the countries of the planned "southern Europe gas ring" can handle the growth.

Iranian President Mohammed Khatami recently visited Greece to help further his country's reach into the market. The two countries have signed a memorandum of understanding for cooperation on gas transfer, the Iranian official news agency IRNA reported. But far more is needed to assure European transit for Iranian gas.

Since Russia is already the main gas supplier to Greece and a major source for Italy, it is unlikely to welcome competition from Iran. But an agreement on 16 March by European Union leaders at a summit in Barcelona, Spain, to open their gas markets to competition in 2004 could clear the way for new suppliers, despite long-standing objections from Gazprom.

Ankara is also expected to keep encouraging the Turkic nations of the Caspian region to export their gas. But how it will honor its overlapping contractual obligations remains to be seen.

The pipeline to Greece may offer a partial answer to Turkey's gas problem, but many nations may try to take part in the solution at the same time.