The effects of Turkey reducing its natural gas volumes forecast

Due to the crisis that was transformed from a political into an economic one, Turkey reduced the forecasted plans on the natural gas volumes needed in the country. The Turkish "Botas" state company cut down its estimates of the country needs in this fuel for the coming year by almost 14 %, and it is expected that the supplies will decrease by another 20 % in 2004. According to many analysts, this situation must cause the anxiety of Azerbaijan first of all.
It should be noted that initially the gas supplies from Azerbaijan Shah Deniz field were targeted at the Western neighbour. The gas exports from this field were expected to start in late 2004. The supplies were initially to make 2 bn of cmpy, with subsequent increase of the exported fuel to 6.6 bn in 2007-2018.

The problem was first publicized by the Managing Director of BP and the Executive Director of the Global Business Division of production Dick Oliver during his recent visit to Baku. At that time, answering the questions on the delays in the start of the work on Shah Deniz project that were planned in the 2nd quarter of this year, he unexpectedly stated that BP must be sure in the marketing of the gas produced.
"Yes, we do have the agreement with Turkey on the purchase of Azerbaijani gas, but it also is engaged in negotiations with Iran and Russia. And we need guarantees that Turkey will be able to pay for the Azerbaijan gas as well as for the Iranian and Russian", he noted.

The concern of the British company is understandable: the Shah Deniz project is quite an expensive undertaking and is currently estimated to cost $ 2.53 bn. BP owns 25.5 % of the project shares, the same proportion belongs to the Norwegian Statoil, the National Oil Company of Azerbaijan, the Russian LUKoil, French TotalFinaElf, Iranian OIEC own 10 % each, and 9 % of the shares belong to the Turkish partner.
It should also be noted here that initially Turkey itself intended to become the main buyer of the Azerbaijani gas and signed a sale and purchase agreement in 2001. Then a similar agreement with Russia appears, the Turks also buy Iranian gas. Thus, it is quite possible that by 2005 the intended supplies Azerbaijani gas to Turkey may be unwanted. The Shah Deniz partners are also greatly concerned over the solvency of the Turkish state (the exchange rate of the national Turkish currency and the USD has decreased by 22 % since April this month).

The Turkish officials themselves so far deny the existence of any problems. Thus, the Turkish Energy Minister Zeki Cakan maintains that Turkey remains true to all commitments assumed on Baku-Tbilisi-Ceyhan and Baku-Tbilisi-Erzurum projects. While Botas decreases its estimates of Turkish gas consumption, its chairman Gokhan Bildaci announced that by 2005 the existing agreements on gas supplies will not be sufficient and new opportunities must be considered.
According to him, along with the population growth and industry development the energy needs of Turkey augment. Azerbaijani officials also acknowledge the existence of certain problems, although they continue to maintain that the gas production project will remain operational. Thus the Chairman of the Azerbaijani Oil Company Ilham Aliyev announced that Azerbaijan could supply gas not only to Turkey but also to other European countries.

The deputy head of the Foreign Investment Department of the Oil Company Vitaly Begliarbekov noted on his behalf that Azerbaijani has started to develop the possibilities of supplying gas to the markets of Greece, the Balkan countries and the countries of Western Europe. The Economy Assistant of the President of the country Ali Asadov introduced an original idea of producing electricity from the Azerbaijani gas and supplying it to the neighbouring countries, which will yield greater profits to the country.
As the President of the Oil Company, Natik Aliyev, reminded -- also, according to the contract signed -- Turkey has a right, by purchasing the Azerbaijani gas to market in the world. This can generate substantial profits for Ankara as it buys the "blue fuel" from other countries by market prices, and Azerbaijan defines the tariffs proceeding from "friendly and fraternal" relations.