TRANS-CASPIAN GAS PIPELINE PROJECT POISED TO START AHEAD OF RUSSIAN BLUE STREAM.

Russia’s political rivals are making common cause in a last-ditch effort to frustrate the American-backed Trans-Caspian Pipeline project, designed to bring Turkmenistan’s enormous gas reserves directly to international markets. On December 3, the Duma voted 345-5 to approve a government package of tax breaks and other incentives–at the expense of Russia’s hard-pressed budget–for the projected “Blue Stream” pipeline from Russia to Turkey to run along the bottom of the Black Sea. Turkey is one of the world’s fastest-growing gas markets and is also ideally positioned to transit Caspian oil and gas to international markets in circumvention of Russia. The Trans-Caspian and Blue Stream projects are not only rival but mutually exclusive, and the Russian government makes no secret of its goal to stop the Trans-Caspian project in its tracks.

The government and the Gazprom company mounted an all-out lobbying effort to ensure passage of the Blue Stream incentives to render that project more attractive to investors. Gazprom Chairman Rem Vyakhirev, Prime Minister Vladimir Putin, First Deputy Foreign Minister Aleksandr Avdeev and other officials told the Duma that the arrival of Turkmen gas in Turkey and, via Turkey, in the Balkans and Eastern Europe would cause Russia to lose those gas markets. The officials argued that implementing Blue Stream is “geopolitically” and “strategically” important, enabling Russia both to continue functioning as sole transit country for Turkmen gas and to thwart the Caspian-South Caucasus-Turkey oil-and-gas export corridor, planned by the United States and the regional countries. Recent calculations suggest that the commercial prospects of the Baku-Ceyhan oil pipeline and of the trans-Caspian gas pipeline largely depend on their being paired to form a corridor.

The Russian officials’ arguments implicitly conceded that Turkmen gas can out-compete Russian gas on the markets in question and that Moscow’s resistance to Caspian resource development is guided not only by economic considerations, but also and ultimately by power politics. The move to jump-start Blue Stream represents Moscow’s reaction to the recent progress achieved by the Trans-Caspian pipeline project, as demonstrated during the summit in Istanbul of the Organization for Security and Cooperation in Europe.

Presidents Saparmurat Niazov of Turkmenistan, Haidar Aliev of Azerbaijan, Eduard Shevardnadze of Georgia and Suleyman Demirel of Turkey–with U.S. President Bill Clinton as witness–recently signed in Istanbul an interstate declaration on the construction of the Turkmen gas export pipeline via the Caspian Sea and the South Caucasus to Turkey. The document stipulates that the countries’ mutual obligations are unaffected by any border or jurisdictional disputes. This doubly significant point insulates the project from Azerbaijani-Turkmen differences over the status of three offshore Caspian oil fields while also disposing of the Russian and Iranian objection that the project lacks a legal basis pending a general agreement on the legal status of and sectoral delimitation in the Caspian Sea.

Under the document, the United States, Turkmenistan, Azerbaijan, Georgia and Turkey are setting up a coordinating committee to oversee the project. A quadripartite intergovernmental agreement and four host country agreements are to be signed by March 2000 and will be followed by commercial contracts for the construction and operation of the pipeline.

On the same occasion in Istanbul, Niazov and Turkey’s Deputy Prime Minister and Energy Minister Cumhur Ersumer signed a bilateral agreement on deliveries of Turkmen gas to Turkey and via Turkey to European markets. Feasibility studies undertaken separately by the Enron and the Shell companies have established that Turkmen gas can be marketed to Turkey and further afield at lower prices than the Russian gas. This is due to lower extraction costs in Turkmenistan and the lower cost of building the trans-Caspian pipeline, compared to the Blue Stream alternative.

The pipeline from Turkmenistan’s Caspian shore to the Turkish border via Azerbaijan and Georgia will measure approximately 2,000 kilometers in length. Its annual throughput capacity, projected at 16 billion cubic meters in the first stage, will grow to 30 billion cubic meters in the second stage after 2005. The construction work is projected to take two years, at an estimated cost of US$2.5 billion. Turkmenistan has already chosen the American consortium Power Group Services (PGS), consisting of the Bechtel and General Electric companies, as builders of the pipeline. The Shell company recently joined PGS in a partnership and will raise 50 percent of the financing. Shell is currently developing Turkmenistan’s huge Malai onshore gas field and five other fields, whose output will increase the overall volume available for export through the trans-Caspian pipeline. Construction work is anticipated to begin in December 2000. Gas is expected to begin flowing in late 2002.

The Trans-Caspian project seems well positioned to raise the financing on international capital markets ahead of Blue Stream. The Russian project rests on the hope of quickly securing Italian and Japanese technology and investments. It faces technological problems substantially more complex than those posed by the Caspian project and is also handicapped by diminishing international confidence in Russia’s overall investment climate. Two minor stumbling blocks remain in the way of the trans-Caspian pipeline project. One is Turkish Prime Minister Bulent Ecevit’s continuing consideration of Blue Stream as a possible alternative to the trans-Caspian pipeline. Ecevit’s stand is consistent with his long record of throwing symbolic and ultimately inconsequential spokes into the wheels of American policy. The other minor obstacle is an unresolved debate between Turkmenistan and Azerbaijan regarding the latter’s quota for its own gas export through the Turkmenistan-Turkey pipeline. That issue is clearly amenable to resolution through American good offices (Caspian Times-News, November 23-30, December 1-7; Caspian Business Report, December 1; Hart’s Asian Petroleum News, November 29; Itar-Tass, December 1-4; see the Monitor, February 23, March 15, July 15; The Fortnight in Review, February 26, July 30).

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