Turkey - Greece Pipeline Deal Underway

Turkey

Economic News

22 Jul 2010
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In a landmark agreement between the two traditionally hostile neighbours Turkey and Greece have signed an agreement to construct a $300m natural gas pipeline from the north western Turkish city of Bursa to Komotini in north eastern Greece. Greek Minister for Development Akis Tsochatzopoulos, announced that European Union funding had been allocated for the 85km Greek while a similar application had been made for funding for financing for the 200km Turkish section. Turkish energy minister Zeki Cakan reported that feasibility work has already been completed and that the pipeline would be completed in 2005, with initially around 500m cubic metres pa of gas being transported to Greece, a figure that would gradually increase.



The agreement is highly significant as the new pipeline is the final link in a chain of interconnection which will both link the gas reserves of the Caspian basin with the gas markets of southern Europe. As such it will provide a valuable alternative source of supply to Russia which currently supplies the bulk of gas used in Europe. Iran, Azerbaijan and Turkmenistan all have huge reserves of gas but lack the means to transport their reserves to market. The new link also offers the opportunity for exporting gas from the Middle East. Egypt is also hoping to export its huge gas reserves via Turkey. Although plans for an unersea pipeline linking the two countries seem to have been shelved, plans for an overland pipeline link via Jordan and Syria are moving ahead with the Egypt-Jordan link currently under construction. Iraq also has huge gas reserves. A plan for a pipeline link with Turkey exists but has long been stalled due to UN sanctions.



As well as allowing Caspian and Middle eastern gas reserves access to European markets, the new pipeline will also allow Turkey to sell on gas which it has contracted to buy but which thanks to slower than anticipated growth in demand it will be unable to use. Under two separate deals Turkey is contracted to take 14bcm of gas via a pipeline through the Caucasus. Under a separate agreement Turkey is due to begin receiving gas via pipeline under the Black Sea, with volumes rising to 6bcm by 2009. Turkey receives a further 5.2bcm of liquid natural gas (LNG) by ship from Nigeria and Algeria, and earlier this year began receiving gas from Iran via a newly constructed pipeline running from Iran to Ankara. That agreement allows for Turkey to receive 4bcm this year rising to 10bcm by 2006. Under a further agreement, 2005 will see Turkey begin to receive gas via a pipeline to be built between Baku and north eastern Turkey via Georgia, with volumes rising to 6.6bcm by 2010.



Turkey is already facing the problem of oversupply. The country is due to receive around 25bn cubic metres (bcm) of gas this year. However according to the predictions of the state importation and transmission company, BOTAS, demand for the year will reach only 20bcm. Worse, analysts are predicting that demand may reach only 17bcm, and according to some reports BOTAS has already been forced to pay stiff penalties for the gas it has been unable to take. The payments are believed to have been made to Russian gas company, Gazprom which is Turkey's main supplier. Given the slow growth in demand the problem of oversupply is likely to be come more acute. By 2010 Turkey will be receiving close to 60bcm pa, which even the most optimistic independent analysts believe will be at least 20% above demand.



In short as far as Turkey's position is concerned, the new pipeline link with Greece and Southern Europe cannot come too soon, offering as it will the opportunity to sell on gas which it cannot use. Greece alone, estimates that it will require 6bcm pa by 2010. Currently it receives 3bcm pa via a pipeline from Russia via the Balkans, and is believed to be planning on sending gas on to Italy, whose annual demand is around 65bn cu m. Athens has recently held negotiations with both Iran and Azerbaijan with a view to purchasing gas and Azeri gas field operator SOCAR has announced that it is in discussion with several other European gas markets.



The gas pipeline link between Turkey and Greece also represents a partial success of US energy policy in the region. The US has long promoted the use of Turkey as an export route for Caspian energy reserves, backing the construction of both the Baku-Ceyhan oil pipeline which will transport Azeri and Kazakh oil to the Mediterranean via Georgia and Turkey, and the construction of a gas pipeline. With the US still supporting the imposition of sanctions against Iran, it had been backing a plan to construct a pipeline linking the gas fields of Turkmenistan to Turkey. 2000 saw Turkey sign a 20-year purchase agreement with Turkmenistan for the supply of 16bcm pa. The supply pipeline was to have been built via Azerbaijan and Georgia, however following the discover of gas in the Azeri section of the Caspian Sea, Azerbaijan and Turkmenistan were unable to reach an agreement. The pipeline now appears unlikely to be built, with both Iran and Russia having been reported as buying volumes of Turkmen gas cheaply to sell on to Turkey instead of their own gas.

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