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29

Gazprom?s Trouble In Turkey

In March, Turkey has stopped importing Russian gas through the Blue Stream Pipeline, bringing fresh woes for the problem-plagued $3 billion project. The 1,240-kilometer pipeline, including the world's deepest underwater gas line, is a technological marvel, constructed by Gazprom and Stroitransgaz from Russia, Italy?s Eni and the Turkish state owned gas and pipeline company Botas.

In March, Turkey has stopped importing Russian gas through the Blue Stream Pipeline, bringing fresh woes for the problem-plagued $3 billion project.

The 1,240-kilometer pipeline, including the world's deepest underwater gas line, is a technological marvel, constructed by Gazprom and Stroitransgaz from Russia, Italy?s Eni and the Turkish state owned gas and pipeline company Botas. Two sub sea 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.

However, only after weeks of the first commercial supplies through the new pipeline. Turkey considered the gas prices too be too high and requested a revision of the terms. It plans to resume gas imports only in August.

Gazprom's gas export prices are cross-indexed with international crude oil and refined products prices but have a lag of six to nine months. The oil prices peaked in late 2002 and early 2003 on fears of growing instability in the Middle East ahead of a possible US war in Iraq and on Venezuelan supply disruptions. Gas prices will therefore peak in mid-2003. Turkey shows only a similar behaviour as other European Gazprom clients do. Nobody wants to purchase gas until prices have declined.

Under the project?s terms, Turkey had agreed to purchase 2 billion cubic meters this year and increase purchases every year until 2008. The country would have to pay penalties after August if it continued refusing deliveries. However, if there are not any purchases within 5 month, it seems impossible to honour the contract. It seems that the Blue Stream appeal to Turkey is declining.

Turkey will become an even more difficult market for Gazprom as rival projects possibly delivering cheaper gas to the country will soon be in operation. Last April, the consortium exploring the huge Shah Deniz gas field in Azerbaijan announced that it started drilling ahead of schedule and it is assumed that Azerbaijan will start supplying Turkey in 2006. Furthermore, Blue Stream is still struggling with technical difficulties and it will become increasingly difficult to back the expensive exports from Russia.

However, there seems to be further reasons why Turkey is trying to renegotiate existing agreements with gas supplier. For years, the country published high gas demand forecasts. The problem started last year, when Botas, due to economical problems in the Turkish economy, revised its natural gas demand growth sharply. Originally the gas demand was considered to be about 1.6 trillion cubic feet (Tcf) in 2005, but now it is expected to reach only 1.1 Tcf in that year, a 37 % downward revision. Most likely, the new situation allows Turkey only to support one of its main import options (Blue Stream, Trans Caspian Pipeline or Sha Deniz).

This sharp downward revision in Turkey's projected natural gas demand could have significant repercussions, since the country has already signed contracts for far more natural gas than it is ever expected to need. To date, Turkey has entered into agreements for around 2 Tcf per year of natural gas imports beginning in 2005, around three times greater than current Turkish gas consumption.

Other mayor suppliers are Iran, Turkmenistan and Azerbaijan. The contracts with these countries include a so called "take-or-pay" provision which obliges Turkey to purchase the agreed amount or pay a fine. These cash penalties could sum up to almost $1 billion per year. The National Iranian Gas Company (NIGC) has already stated that, if Turkey fails to take the volume of natural gas agreed to for 2002, NIGC will invoke a penalty clause under "take or pay" provisions.

However, if the Turkish economy does not support the contracted amount of gas, the country has still the option to become a transit center for Western Europe. In 2002 Turkey and Greece agreed on a $300 million project to extend the natural gas pipeline from Iran to Turkey into Greece. Afterwards, the gas could be transported further to Western Europe over Bulgaria or though an undersea pipeline to Italy. This option would however be very expensive.

Author: Andreas Wild

Source : Neftegaz.ru