US supports Caspian gas pipeline project

“I have very, very, strong confidence that the Shah Deniz pipeline will proceed as my government hopes and expects that it will,” said US Ambassador Steven Mann, senior adviser for Caspian basin energy diplomacy, during a visit to Ankara.

Turkey has already failed to meet its pledged natural gas purchases from Russia and Iran, two major gas suppliers to the country, because of a drop in demand at home following a financial crisis in 2001, when the economy shrank 9.4%. Mann said gas consumption was heavily dependant on economic growth, and it would be hard to say what future consumption would be until economic growth projections are forecast more accurately. “It’s an issue that deserves some attention and I do have confidence that the (Turkish) government will manage this issue effectively,” he said.

The first phase of the Shah Deniz project will cost $2.6 billion, and envisages an annual output of about 8Bcum. The 1,050-km pipeline is scheduled to be built by 2005, and will have an annual capacity of 22Bcum. BP and Statoil each hold 25.5% in the project, estimated to hold 1Tcumof gas. The Azeri state oil company, Russia’s Lukoil , French TotalFinaElf, and Iran’s OIEC each own 10%, in the project while Turkish TPAO holds the remaining 9%. The US government has long supported energy pipeline projects from the Caspian that do not involve Iran, preferring to support projects such as the Baku-Ceyhan crude oil pipeline that runs from the Azeri capital through Georgia to Turkey.

Meanwhile, Norwegian energy group Statoil has said it will compete against oil major BP for the right to operate the gas pipeline linking the Shah Deniz field to Turkey. Pipeline officials in Ankara said the move surprised BP, oil industry leader in Azerbaijan and the operator of the Shah Deniz gas field. But they said BP was still committed to winning the right to operate the pipeline. The final decision will be taken by the other shareholders of the gas project in the third quarter of 2003.

Turkish officials said Statoil, which believes the Turkish market still represents a great opportunity despite a slowdown in consumption, is already preparing to enter the gas market in Turkey, looking at distribution and power production and signing cooperation agreements with Turkish firms. They said, however, that BP was concerned with the volatile supply-demand balance in the Turkish gas market. “But both oil giants agree it is too soon to plan a major pipeline extension from Turkey to southern Europe,” said one senior Botas official. Turkish, Azeri, and Greek officials have said Azeri gas could go via Turkey to Greece and potentially to the Balkans and Italy to compete with the Russian gas.

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