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Turkey: Ankara's Trouble Hits Caspian Region

Turkey has lowered its estimates for gas consumption after missing its forecasts for 2002 by a wide margin. The problems may raise further doubts about exports and pipeline investments in Russia, Iran, and Azerbaijan.

Boston, 7 February 2003 (RFE/RL) -- Turkey has cut its estimate of gas use this year after consumption fell far short of forecasts for 2002, casting a pall over planned exports from the Caspian region, Russia, and Iran.

This week, the Turkish state pipeline company Botas posted new predictions of the country's gas demand on its website, confirming many months of doubts about whether the market will justify all the costly pipeline projects that were planned for it in the mid-1990s.

Last year, Turkey's slowly recovering economy burned 17.6 billion cubic meters of gas, mainly from Russia and Algeria, recording a 7.6-percent increase from the year before. Although consumption rose, it was 17 percent below the Botas forecast in January of last year and 24 percent under estimates from July 2001.

Turkey has been recuperating from its worst recession since World War II after political infighting sparked a steep devaluation in February 2001. But the economic hardships do not fully account for the slow reactions of energy officials and past habits of pumping up the gas demand forecasts. Even as the country suffered steep economic declines, Botas persisted in predicting double-digit gas growth rates.

The latest forecast for 23.9 billion cubic meters of gas consumption this year is a step down from previously adjusted figures, although it still presumes that demand will grow nearly 36 percent this year from 2002. Figures at the start of last year would have required annual growth of nearly 80 percent.

The inaccuracies have been widely criticized. This week, the London-based "Financial Times" cited hopes at the World Bank that a new Turkish regulatory agency "will kick old government habits of inflating energy forecasts, resulting in Turkey's oversupply of natural gas, and awarding contracts at terms unfavorable to the taxpayer but benefiting individual officials in the form of kickbacks."

Another primary motive since the 1990s has been to convince neighboring countries to invest in building multiple gas pipelines to Turkey, which are now underutilized.

This month, Russian officials were due to celebrate the official opening of the giant Blue Stream project to carry commercial volumes of gas across the Black Sea after an ambitious $3.2 billion venture between Gazprom and Italy's ENI oil company. But the volumes will be only one-eighth of the line's design capacity after Ankara bargained to reduce the rate to just 2 billion cubic meters this year.

It now appears that Turkey would have been adequately served by existing Russian pipelines through Bulgaria without Blue Stream, if Turkey's contracted imports of Algeria and Nigeria were added in. Instead, Turkey negotiated for a price break on its take-or-pay contract with Russia and used only four-fifths of the gas it committed to buy from the Bulgarian lines last year.

The addition of gas from Iran put Turkey's supply well into surplus. Tehran seems to have suffered the biggest shortfall in its expectations for exports to Turkey last year. The country used only 670 million cubic meters of Iranian gas, or less than 17 percent of the contract amount.

Last June, Turkey stopped taking Iranian gas completely after complaining about the quality and then succeeded in negotiating a lower price. Last month, a headline in the official English-language "Iran Daily" complained that the country was now "Selling Gas to Turks at Throwaway Prices."

The troubles may mean more worries for Azerbaijan, where a consortium of Western oil companies is reported to be on the verge of approving the $3.2 billion Shah Deniz project to pipe gas from the Caspian Sea to Turkey. A decision is expected later this month.

Last week, the Azerbaijani state oil company SOCAR said the European Bank for Reconstruction and Development had agreed to help finance its share of the project with a $250 million loan, the Dow Jones news service reported. The news may mean that the final pieces of the embattled project are falling into place.

On the positive side, Turkey has developed some new power plants and distribution networks that will encourage growth. But the latest Turkish estimates, which have been lowered over the past year through 2005, will put greater emphasis on piping gas through Turkey rather than just to it.

Although Botas still claims it will need huge volumes by 2010, Russia, Iran, and Azerbaijan all want connections from Turkey to the European market. This week, Iran said it will start delivering 10 billion cubic meters of gas to Europe through Turkey by 2007, the official IRNA news agency said.

But all the plans have moved slowly in a region that is already supplied by Russia. As Turkey's estimates gradually catch up with reality, the forecasts are not as bright as they were a few years ago.