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Russia: Blue Stream Pipeline A Technological Feat, But An Economic Misadventure

Turkey is celebrating the completion of Russia's giant Blue Stream gas project across the Black Sea, but there are signs that the world's deepest underwater pipeline will be underutilized. European nations are busy planning more routes to make use of surplus Turkish gas, but the effects of the huge Russian pipeline may not be felt for many years.

Boston, 23 October 2002 (RFE/RL) -- A Russian joint venture is hailing the completion of its record-setting underwater pipeline to Turkey amid doubts about whether the $3.2 billion project has been finished too soon.

In a "golden welding" ceremony at Turkey's port of Samsun, Energy Minister Zeki Cakan joined the final two sections of the 1,400-kilometer Blue Stream pipeline across the Black Sea from Russia. At depths reaching 2,150 meters, the project of Italy's ENI oil company and Russia's Gazprom is the deepest underwater line in the world.

The event on 20 October marked the second subsea link of the Blue Stream project, although Gazprom has yet to finish 2 kilometers of pipe through the mountains on the Russian side before gas flows in December, the "Turkish Daily News" said. Turkey still celebrated the event as a breakthrough.

The Anatolia News Agency quoted Cakan as saying: "Many had doubts about this project and claimed it was a dream. But it has been realized, and it will serve the socioeconomic development of both countries and open up new fields of cooperation." Cakan has played a major role in last-minute renegotiations over terms of the Blue Stream deal, even as the last few kilometers were being built.

Based on plans announced in 1996, the project is three years behind its original schedule. Yet, Turkey's faltering economy has forced it to postpone the gas deliveries even more. When it signed the 25-year contract for Blue Stream in 1997, the country was seen as the region's fastest-growing gas market, but an economic crisis last year brought expectations back down to earth.

Last month, Cakan announced that Turkey had canceled this year's gas deliveries and negotiated with Gazprom to slash next year's supplies by half. This week, news agencies reported that the huge project would reach its design capacity of 16 billion cubic meters a year in 2008, but the latest forecast from the Turkish state pipeline company Botas has pushed the date back to 2010.

According to Cakan, Turkey has also negotiated new price cuts for gas from both Russia and Iran. Reports say that both countries have agreed to ease terms of take-or-pay clauses in their original contracts with Turkey, as well. Even without Blue Stream, Russia already provides most of Turkey's gas by pipeline through Bulgaria under other contracts that seem more than sufficient for now.

The postponements make it appear that Blue Stream could turn into a vastly underutilized asset, a giant technological feat with little chance of paying for itself. Much of the project was underwritten by European state-controlled export credit agencies and banks, making it unclear where the burden will fall.

As troubles have mounted, both Russia and Iran have tried to redirect their gas for the Turkish market somewhere else. Both countries are hoping that a plan for a 285-kilometer pipeline to link Turkey and Greece will take Ankara's overflow after its contract-signing binge of the past five years.

But the $300 million pipeline would carry only 500 million cubic meters per year, only a tiny fraction of Turkey's rising gas glut. Longer-term plans to carry up to 30 billion cubic meters of surplus gas to Europe appear flawed, since Blue Stream would carry gas south, only to require more pipelines to carry it west or north again.

Planners speak wistfully about another underwater pipeline across the Adriatic to Italy, but the country already gets enough Russian gas piped through Austria. Last year, Gazprom's exports to Italy fell 7.3 percent.

The cloudy outlook has not stopped the gas-exporting countries from trying new plans. On 21 October, the London-based "Financial Times" reported that the European Union will fund a $10 million feasibility study for pumping Iranian gas through the Greek connection. On 18 October, Bulgaria and Romania also agreed to build sections of a pipeline for bringing Iranian gas through Turkey to Central Europe, the Associated Press said.

The plan presents the odd prospect of Iranian gas flowing north from Turkey through Bulgaria and Romania, while Russian gas flows south on the same route to a market that already has more than it can use.

Whatever happens now, the competitors seem to be locked into patterns formed by the pipelines they have already built. But it may be decades before a practical use of resources will emerge from projects like Blue Stream.