Turkish gas hub

Gazprom faces a battle for the gates to Southern Europe

Today, the next meeting of the Russian-Turkish intergovernmental commission on trade and economic cooperation will be held in Istanbul. The delegation led by Minister of Industry and Energy Viktor Khristenko will discuss problems and prospects for cooperation with Turkish Minister of State Kurshad Tyuzmen. According to Vremya Novostei, Turkey has again included in the meeting agenda “the conditions for maintaining the growth of Russian gas supplies,” which means that another round of difficult trade is ahead due to the emergence of Ankara’s alternative source of gas supplies - Azerbaijan. Turkey itself has no need for Azerbaijani gas, but strives to become a gateway to the markets of Southern Europe. And it will not fail to organize competition between potential gas suppliers to the region - at this stage between Gazprom and the consortium that operates at the Shah Deniz field. In addition, Iran is laying claim to transit capacity. And in the future, Egyptian gas will also begin to flow into the region along the route Egypt-Jordan-Syria-Türkiye.

In an interview with the British The Financial Times, Azerbaijani President Ilham Aliyev said that his country has renewed European export ambitions. “Until last year, we only considered Turkey and Georgia as markets for Azerbaijani gas,” he said. “Now the situation has changed.” According to him, Baku now sees that the demand for additional gas in Europe is becoming more and more obvious, and they are going to carefully evaluate this need. He also promised to take this into account in production and investment plans within the framework of gas projects in Azerbaijan.

Last year, the Turkish monopolist Botas received about 18 billion cubic meters of Russian gas, including 5 billion through the Blue Stream gas pipeline. Another approximately 4.5 billion cubic meters are supplied by Iran, and the same amount is supplied from Algeria and Nigeria in the form of LNG to the western part of the country. At the end of 2006, commercial exploitation of the Shah Deniz field in Azerbaijan will begin. According to a 2001 contract with a consortium led by BP, Botas will purchase up to 2 billion cubic meters of Azerbaijani gas by the end of this year, and from 2007 the volume of supplies should increase to 6.6 billion cubic meters. In parallel, gas imports via Blue Stream should grow, reaching the projected 16 billion cubic meters (taking into account the take or pay rule, at least up to 13 billion cubic meters) by 2010. At the same time, the average annual growth in demand does not exceed 2.5-3 billion cubic meters, although according to forecasts in the late 90s, gas consumption in Turkey was expected to reach 55 billion cubic meters per year by the end of this decade.

In order to accommodate the excess volume of gas, Ankara declared itself the gas transport gateway to Southern Europe. And she even agreed with Greece on the construction of a gas pipeline with a capacity of 3.5 billion cubic meters, which should be operational early next year (there is a possibility of expanding it to 11 billion cubic meters in order to deliver gas to the Italian market). A corridor through Bulgaria and Romania, known as Nabucco, is also being discussed. In parallel, multilateral bargaining is underway with potential gas suppliers. Moreover, Ankara itself strives to become a seller of gas to Europe and, accordingly, offers Russia, Iran and Azerbaijan, as a basic negotiating position, to grant it the right to re-export. Because of this, at the end of last year, Tehran even suspended relevant contacts with the Turkish leadership. Neither Gazprom nor the suppliers of Azerbaijani gas agree with this formulation of the issue.

Nevertheless, the bargaining continues, and the tension in the dialogue between Moscow and Brussels, seasoned with a nervous search for alternative sources of gas supply, in this case clearly does not play into the hands of the Russian side. Türkiye is eager to join the European Union and may well please European officials by giving preference to Azerbaijani gas. In this case, the fate of the Russian initiative to build the second line of the Blue Stream, which was again stated at the end of last week by the Deputy Chairman of the Board of Gazprom, Alexander Medvedev (and in November last year, Vladimir Putin spoke about this following the results of trilateral negotiations with the leaders of Turkey and Italy in the time of the official opening ceremony of the Blue Stream) will remain in doubt. Moreover, for Turkey, Azerbaijani gas may be more attractive economically than Russian gas, which comes from distant fields in Western Siberia.

Alexey GRIVACHS