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Turkey: Ankara Cuts Russian Gas, Courts Iran

Turkey has shut down the flow of gas from Russia's new Blue Stream pipeline, idling the enormous underwater project less than a month after deliveries began. The move follows years of warnings that Turkey was heading for a gas glut, but Ankara's new government has also announced that it wants to reduce the country's reliance on Russian gas.

Boston, 29 April 2003 (RFE/RL) -- Turkey has stopped buying Russian gas from the recently opened Blue Stream pipeline across the Black Sea, raising doubts about Ankara's policies and whether the $3.2 billion project was ever needed at all.

On 25 April, an official of the Russian gas monopoly Gazprom told Reuters that Turkey suspended imports through the underwater line last month after complaining that the prices were too high. A Turkish energy official confirmed that deliveries were halted on 12 March.

The date means that the enormous project was pumping gas for less than three weeks after commercial supplies started on 20 February. Construction of the 1,250-kilometer line took nearly three years, including subsea sections at record-setting 2,100-meter depths.

Although the project of Italy's ENI oil company and Gazprom qualified as an engineering triumph, it seems far less likely to be a commercial success.

Analysts have been warning for years that Turkish gas demand forecasts have been far too rosy. Even before the cutoff, Turkey had negotiated with Gazprom to reduce this year's flow through the pipeline by half.

Earlier this month, "The Russian Energy" industry newsletter said the lower volume "will hardly justify the construction of the pipeline for years to come." Although purchases were supposed to be guaranteed by a take-or-pay contract, the unnamed Turkish official told Reuters that Ankara can suspend them within six months without paying a penalty.

Turkey plans to accept gas again in August, but the huge investment may sit unused until then.

The contracts and forecasts seem to have counted for little as Turkey takes steps to recover from its worst economic downturn since World War II. Last year, Ankara negotiated a price cut on Russian gas delivered by a separate pipeline through Bulgaria.

But Gazprom refused a similar demand for Blue Stream, saying that its price was already set by international pacts.

The suspension seems to be Turkey's answer to Russia's resistance. Gazprom's prices have been rising because they follow higher oil prices with a lag of six to nine months. The price may be only on paper, however, because Turkey's reaction means that Gazprom is getting no Blue Stream revenue at all.

At a parliamentary session earlier this month, Energy Minister Hilmi Guler said that Turkey had already lost $196 million by buying the more costly Blue Stream gas, the "Turkish Daily News" reported.

But Gazprom's problems could raise questions about the motives of Turkey's new government under Prime Minister Recep Tayyip Erdogan and his Justice and Development Party. It is unclear whether the government is simply trying to deal with a gas glut, save money, spread its energy sources, or perhaps steer more business to Iran.

At his parliament appearance, Guler also reportedly said, "The Turkish government has declared that its strategic goal is to eliminate the country's dependence on Russian gas." Guler said Russia's share of the Turkish market should be lowered in the next five years from 70 percent to 30 percent.

"The Russian Energy" newsletter noted that the goal would violate Russia's contracts, which call for deliveries that would give it 54 percent of the market by 2008. The newsletter said Turkey's plan is to shift the growth to Iran, which already has a pipeline and a 25-year supply deal, and Azerbaijan, where Caspian gas development is just getting under way.

Turkey also has import contracts for liquid natural gas from Nigeria and Algeria. But in the past week, the most active avenue seems to be with Iran.

Last week, Iranian Vice President Mohammad Reza Aref met with Erdogan in Ankara as part of a bilateral economic commission. The talks followed a joint security committee meeting in Ankara last month.

Iran's ambition to pipe gas through Turkey to Europe won Guler's backing last week, the official Iranian news agency IRNA reported. Tehran has been lining up support for the plan from Romania and Bulgaria for the past year.

According to the English-language "Iran News," Iran and Bulgaria are planning a 4,000-kilometer transcontinental pipeline to Austria. The project through Romania is called Nabuko, the paper said, citing a Bulgarian news agency.

Like Russia and Azerbaijan, Iran has tried to turn the problem of Turkey's gas glut into an advantage by seeking transit routes through the country that could supply Greece and other countries.

Last year, Turkey also stopped importing Iranian gas on a pretext of quality problems until it negotiated a lower price. Tehran's patience may now be rewarded by the new Erdogan government as it tries to reduce its Russian imports.

But it seems more likely that Turkey will keep playing one side against the other for economic reasons rather than boosting gas business with Iran because of the Justice and Development Party's Islamist roots.

At the moment, Iran's gas is believed to be substantially cheaper than Russian gas from Blue Stream, and after the winter season, Turkey has no need for both.

Iran's transit plan may also be a tough sell because its gas would flow north to a region where Russian gas already flows south through existing lines.

With Turkey's crimp in Blue Stream, Russia will have more than enough gas to keep Europe supplied, making an investment in new lines for Iranian gas just as unprofitable as Blue Stream has turned out to be.