Blue Stream

Turkey

Economic News

22 Jul 2010
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In 2006, Turkey received 19.6bn cubic metres (bcm) of gas from Russia (63% of total gas imports) of which 7.4 bcm came through Blue Stream, a major trans-Black Sea gas pipeline that carries natural gas directly from Russia to Turkey. Although the volume carried through Blue Stream is increasing in pace, the capacity used is still less than 50%.



Half-empty Blue Stream serves as a "last resort" option to supply peak demand and to address unexpected gas supply cuts during severe winters in Turkey. Iran, which supplied 14% of Turkey's gas needs in 2006, has been, from time to time, an unreliable supplier. For instance, it cut gas deliveries on January 3, 2007 on the grounds that its domestic demand increased. Turkey's excess demand was met by increasing imports from Russia, Algeria and Nigeria until Iran resumed supplying gas at a lower volume on January 5. Similar instances have occurred in the past, such as in December 2006, when Iran cut its exports to Turkey, leading to an increase in supply of Blue Stream.



The pipeline, which was officially inaugurated in November 2005, was constructed by Netherlands-based Blue Stream Pipeline, a joint venture between Russia's Gazprom and Italy's ENI. Blue Stream Pipeline is owner of the sea section of the pipeline, including the Beregovaya compressor station, while Gazprom owns and operates the Russian land section of the pipeline and Turkish energy company Botas has the part located on Turkih soil.



After reduced prices were achieved in the contracts for the delivery of Russian gas via the Western route (i.e. the pipeline crossing Ukraine, Moldova, Romania and Bulgaria), as well as with Iran, Botas negotiated a reduction in the prices and overall volume of gas transiting via Blue Stream because the volume initially contracted - 16 bcm per year - was more than Turkish demand could support. Instead of going to an international arbitration process, as originally considered by Gazprom, the parties managed to reach a settlement which resulted in the reduction of prices.



"We would like to cooperate with Turkey on transiting Russian gas to Southeastern Europe and the Middle East. With the help of this crucial proposal, Turkey will have a very strategic position in the energy market," said Servey Kupriyanov, a spokesman for Gazprom to a group of Turkish journalists in Moscow, in November 2006. He mentioned two alternatives, either the extension of the existing Blue Stream pipeline or the construction of Blue Stream-2 pipeline that would run alongside the existing Blue Stream pipeline.



Gazprom's interest in a possible extension of Blue Stream southwards has been long known. Gazprom and Hungarian state oil and gas company MOL signed a preliminary agreement shortly after Putin's visit to Hungary in March 2006. Besides, Alexei Miller, Gazprom's chief executive officer, and Janos Koka, Hungary's economy and transport minister, signed on June 21, 2006 a non-binding agreement to open the way for Gazprom's expansion via Hungary, deeper into EU territory.



These agreements support Gazprom's ambitious plan for a South European Gas Project (SEGP), counterpart to the North European Gas Pipeline, a planned natural gas pipeline from Russia to Germany. SEGP would extend the Blue Stream pipeline from Turkey to Bulgaria, Romania and Hungary, into Slovenia or Croatia, terminating in Italy. Considering the route and the partnership with Hungary, the Blue Stream extension project is competing with the proposed Nabucco gas pipeline project, planned to transport natural gas from Turkey to Austria via Bulgaria, Romania and Hungary, which is a strategic priority for the EU in order to decrease its dependence on Russian gas.

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