SKOPJE, Macedonia, June 25 (UPI) -- An ongoing dispute between Turkey and Gazprom, the Russian natural gas giant, has imperiled the future of the Blue Stream gas pipeline. An engineering marvel which rests on the bottom of the Black Sea, the pipeline was turned off in mid-March, only a month after commencing operations. Earlier this month, the Russian newspaper Gazeta reported that bankruptcy of the pipeline could incur $42 billion losses for Gazprom.
Turkey is now complaining that the previous government's contract is unsatisfactory and would like to revise the purchase amounts downward. The negotiated price ($115 per 1,000 cubic meters) is also now deemed too high. The current existing agreement obliges Turkey to buy 2bcm (billion cubic meters) of gas. But if it comes to a decision between accepting lower volumes and renegotiating prices, Ankara would probably prefer the former.
Investors have long feared a glut of Caspian gas on the market over the next few years. Turkey was expected to take more than it really needed. Growth predictions that turned out to be overoptimistic helped justify plans for development of the enormous (1 trillion cubic meter) Shah Deniz gas fields in Azerbaijan, when British Petroleum discovered them in 1999. However, this discovery just worsened the general inertia. With a fall in demand came a concomitant rise in costs. Industry experts quoted by Reuters last December maintained that Europe's gas supply is already contracted, for at least the next 10 years. Turkey is now seeking viable ways to dump surplus gas on to Greece and other points westward.
Gazprom Deputy CEO Yuri Komarov recently stated that Turkey must take the agreed amounts of gas by 1 July, or else stipulated take-or-pay contractual conditions will come into effect. The Turks have demanded lower prices, but Komarov cited his company's credit obligations as negating such a prospect. He also accused Turkey of overestimating its gas needs from the project's beginning. This well-worn charge has been heard from foreign investors as well as from other producers like Iran and Azerbaijan.
The dispute has other, region-wide repercussions. Gazprom needs users for the Blue Stream pipeline. Both Azerbaijan and Georgia have been courted. Georgian opposition politicians and U.S. energy envoy Steven Mann protested on June 6 against secretive negotiations held between Gazprom CEO Alexei Miller and President Eduard Shevardnadze, to revive a moribund Gazprom-Georgian gas consortium. Mann charged that the deal, "...would significantly weaken Georgia's position along East-West energy transportation routes." However, Gazprom is prepared to offer lower consumer prices than current supplier Itera. This, as well as the promise of uninterrupted supply, is politically tempting for the leaders of a country afflicted by chronic power outages and gas shortages.
What the U.S. fears, according to a Eurasianet.org analysis, is that Gazprom would control Georgia's pipeline "hardware," and thus could threaten or control part of the proposed Baku-Tbilisi-Erzurum (BTE) gas pipeline (from Shah Deniz in Azerbaijan through Georgia to Erzurum, Turkey). However, such a route would not be operational until at least 2006, considering its great expense ($3.2 billion) and the low demand for gas in Turkey. Ankara agrees with the BTE idea, at least in principle, being cheaper than Blue Stream.
However, any Blue Stream losses would not be such a big problem for Gazprom. Reuters reported on June 23rd that the company's gas export revenues will reach a record $15 billion in 2003. This represents a $2.1 billion increase over last year. According to Komarov, export volumes will reach 134 bcm, a 4 percent increase over 2002. Compared to this, the Turkish trouble is merely an annoyance. "We are ready to consider some alterations (to the agreement), but we are not talking about significant changes," Komarov told Reuters. "In connection with the Blue Stream pipeline, the question of paying with goods is not possible."
At the same time, Turkey is squabbling with Bulgaria over electricity imports regulated under a 1998 deal. Until this April, the former had been importing 4 billion kilowatt hours annually -- more than half of Bulgaria's total annual electricity exports. In 1998, Turkey agreed to purchase electricity from Bulgaria at a fixed rate. For its part, Bulgaria pledged to contract Turkish companies for two major infrastructure projects, the Maritsa Highway and the Gorna Arda hydroelectric plant. However, the projects have foundered because of the financial troubles of the commissioned company (Turkey's Ceylan Holdings), according to an RFE/RL analysis of 16 June. No replacement company was nominated, and this led the Turkish government to abrogate the deal temporarily on April 21, when the state-owned electricity distributor TEDAS ceased purchasing Bulgarian electricity.
On Monday, the Bulgarian Ministry of Energy announced that the country accounts for 46 percent of the total electricity exports on the Balkans, and that its share of the Balkan energy market will reach 65 percent once new export contracts commence on 1 July. According to the Bulgarian News Network, "...this will fully compensate Turkey's last April cancellation of electricity imports." And so, as is the case with Gazprom, Bulgaria's energy exporters will survive the mercurial policy of the Turks.
RFE/RL also reported that there will finally be a compromise: Turkey will resume electricity imports (albeit on a smaller and cheaper scale) and the Bulgarians will revive the stalled infrastructure projects. Bulgaria has been seeking a foreign investor for the past several months. One candidate for the $220 million Gorna Arda project, the Italian electricity supplier Enel declined, citing high expenses and high risk. Enel has already committed to another Bulgarian energy project, the Maritza Iztok III coal fired power plant. According to the BBC, the Italian company has acquired a 60 percent share in this $580 million refurbishment project, along with the U.S. company Entergy.
The Bulgarian failure to find an investor means that things, while agreed in principle, are not yet cut and dried. On 16 June, a Bulgarian energy official stated that Sofia would make "no compromises" in the negotiations. And, one week later, Turkish Foreign Minister Abdullah Gul merely expressed hope that an agreement would be reached -- sometime within the next 3 months.
However, Turkey has little to lose while the Bulgarians fulfil their side of the deal. Electricity usage in Turkey will stay below the usual levels for at least the next few months. As expected, the war in Iraq has gouged Turkey's vital tourism industry -- and thus some of its biggest seasonal electricity users. Meanwhile, the Bulgarians will concentrate on expanding their regional electricity exports in Greece, Macedonia and Montenegro.
According to the IMF there is no reason to worry that Turkey may again face a serious recession, as it did in 2001. Ironically, many analysts trace the beginnings of the current policy of energy import austerity to that financial crisis, which dramatically lowered energy usage totals across the board. However, on 22 June the Anadolu news agency quoted Odd Per Brekk, senior resident representative of the IMF in Turkey, as saying "...a new eruption of an economic crisis like the one in 2001 is impossible."
Although this will likely prove to be true, there will be little appreciable change in Turkey's energy demands -- indicating that disputes like those with Russia and Bulgaria may well recur for some time.