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Russia: Gazprom Project To Turkey Runs Into Snags

Russia's Gazprom is preparing to officially open its ambitious "Blue Stream" pipeline across the Black Sea within days. But reports suggest that the project may not actually be ready to deliver gas to Turkey, where the market has sent confusing signals about whether the $3.4 billion pipeline is needed at all.

Boston, 27 December 2002 (RFE/RL) -- Russia and Turkey are set to mark the opening of the region's biggest energy project, but perhaps without any energy actually changing hands.

Yurii Komarov, deputy chairman of Gazprom, says the Russian gas monopoly will officially launch its $3.4 billion Blue Stream gas pipeline across the Black Sea before the end of the year, the Reuters news agency reported. Mikhail Akselrod, head of Gazprom's investment and development department, told reporters that gas supplies would begin on 28 December, the RosBalt news agency said.

The 1,240-kilometer project, including the world's deepest underwater gas line, is a technological marvel, allowing Gazprom and its partner, Italy's ENI oil company, to reach the Turkish market without crossing any third country. Two subsea lines from the Russian port of Dzhubga were designed to carry 16 billion cubic meters of gas annually to Turkey's growing economy by 2008.

But reports from Turkey have been ambiguous. The "Turkish Daily News" reports that although the laying of pipe has been completed in Russia, the welding may not be finished until March.

Other reports also suggest unfinished business. This week, Bogdan Budzulyak, a Gazprom board member, told a company meeting that the pipeline had already been tested "by commercial gas," according to the ITAR-TASS news agency. But the "Turkish Daily News" said that Ankara is seeking Russian financing for its terminal at the port of Samsun to regulate pressure from the pipeline. Russia has reportedly agreed, but the request may give little confidence that supplies are about to start.

The contradictions are the latest for the project, which has run about $1 billion over estimates and two years behind schedule. They are also part of larger questions about the Turkish gas market, where information has become increasingly vague.

Some of the trouble stems from a series of economic crises, from which Turkey is only starting to recover. After years of deceptively high gas-demand forecasts, Turkish officials have sought cuts in supply contracts with countries, including Russia and Iran. In recent weeks, few statements on any of the three sides have agreed.

While Turkey is sensitive to criticism that it inflated its forecasts, supplier countries have tried to avoid blame for basing billions of dollars worth of projects on predictions that proved overblown.

On 24 December, Gazprom's Komarov called the Turkish economic situation "quite difficult." He added, "They need additional volumes of gas anyway, although we have always said that their gas demand has been overestimated." No such statements were heard when the Blue Stream pipeline was proposed.

How much gas Turkey really needs is anyone's guess. While the Turkish state pipeline company Botas initially predicted a 22 percent growth rate in 2002 at the start of the year, consumption is likely to rise little if at all. Botas stopped posting monthly usage rates at the end of October and is still calling for improbable growth of over 50 percent next year.

Officials appear to be dealing with the problems of too much gas through a combination of contract revisions and delay. While Russia's Blue Stream may get an opening in name only, the outlook seems just as uncertain for Iran, which has a 25-year contract with Turkey, once valued at over $20 billion.

In September, Turkish officials disclosed that they had stopped accepting gas from Iran months earlier in June, a fact that Tehran did not publicize. Ankara blamed the shutoff on quality problems, but it then negotiated for cheaper prices, forcing Iran to match a 9 percent reduction in rates reportedly granted by Russia. Gazprom is already Turkey's main supplier with overland lines through Bulgaria.

The flow of Iranian gas began again in November after several more weeks of delay. But in mid-December, Turkey's Energy Ministry said deliveries had been disrupted by a "pipeline fault" in Iran. Days later, the head of the National Iranian Gas Company, Mohammad Mallaki, said the temporary trouble was nothing more than a slight drop in pressure, which was quickly resolved, the Iranian official news agency IRNA reported.

But on 23 December, a senior Turkish energy official told Reuters that the gas volume from Iran was resumed only at half the agreed level. The unidentified official said: "Now, it is winter and we need gas. Due to supply disruptions, we halted production in two natural-gas power stations and turned to alternative fuel in another one." Iran has said nothing about the problem, so far. The official said Turkey was looking forward to getting Russian gas from Blue Stream, although Ankara has already negotiated a reduction in supplies from the new pipeline next year.

Officials have apparently been unable to strike even a rough balance between shortages and a glut. In the meantime, the huge pipeline projects for the Turkish market seem likely to be underutilized, perhaps for years to come.

The situation for Azerbaijan and other Caspian countries, which hoped to serve Turkey, now seems no clearer than it did months ago. Azerbaijan had planned to build a pipeline from its giant Shah Deniz gas field to Turkey next year, but postponement may now be in the cards.

Although Turkey wants to turn its gas problem to advantage by building new links to Europe, the transit projects will take time and the demand is uncertain. The confusion over the need for the ambitious Blue Stream pipeline is likely to stretch well into next year.