Created: 6/17/1999

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Gas Pipeline Facing Growing Challenges


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Turkmenistanajor step forward with the May signing of the gas purchase agreement with Turkey, the Trans-Caspian Gas Pipeline (TCP) project is facing serious challenges.

Azexbaij&n's recent positive reassessment of its gas potential presents the newest coinr>ctition to the TCP as Azerbaijan looks to export its gasto Turkey. Azerbaijani officials have said that Baku will block Ihc TCP if Ihe project does not leave substantial room for Azerbaijani gas.

Financing for the Russian Blue Stream project is moving forward and Gazprom's Italian partner, ENI, expects to finalize financing by August. ENI anticipates that the project will be otrstream by tbe enduffing it well ahead of the TCP.

Iran also is positioning itself to double its contracted gas supplies to Turkey if it is able lo free sufficient gas for export F

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^complicate and could even derail Ashgahat's cooperation with olhcr TCP playcis:

PSG informed Niyazov that nctbacks to Ashgabat will be less than originally specified went surprisingly well. Niyazov, nevertheless, made some financing and timing demands of PSG that the company says it will not be able to meet

Collapse of the TCP would bring Iran back into the picture to either transport Turkmenbringing Turkmenistan closer tosupply more Iranian gas to Turkey as Ankara looks to reduce dependence on Russian gas.

Azerbaijan Targeting the Turkish Gas Market

Azerbaijan's stale oil company (SOCAR) vice president for foreign investment, Aleskerov, hasew mitiativc toignificant part of tbe Turjcjsh gas market for tbe Azeibaijanis. Industry experts suggest that Azerbaijan could haveillion cubic meters per year Qjcta/yt) available for exportf

volumes that could be available for export are ukdyto

grow substantially in later years, given Azerbaijan's latest positive reassessment of hs gas potential:

TCP project that did

not leave substantial room lor Azerbaijani gas is unacceptable and could lead Baku to block tbe TCP.

Furthermore, Conoco istrategy to pursue development of an independent pipeline to move gas4 from Azerbaijan's shallow water Gtineshli oilfield to Turkey. Conoco has bid with SOCAR for development rights to the field, which is rich in associated gas. Turkey's Bolas and Conocorotocol agreement onay to examine an export pipeline for this project.

Russia Angles To Preempt the TCP

Although Azerbaijan's export ambitions pose the most immediate hurdle for the TCP. Russia's Blue Stream looms as the greatest threat to the project's economic viability and ability to gain linancing. Financing for Blue Stream is moving forward.

Russia has been pressuring Georgia toazprom gas pipeline to Turkey to fend offlhrcals to Russian dominance of the Turkish gas market. This has alarmed both Georgian and Aj/rrbaijani government officials.

Ttiis report wa preparederf Transnational Issues/]

| andot Russian nnd European Analysis^

LocnaieitB, and queries are welcome and may be directed lo

georgian president shevardnadze has expressed his readiness to support the tcp, but judges that quick implementation of the project isisightrope between its desire toaspian export route and georgia's dependence on russia for its natural gas.

azerbaijan's aleskerov is convinced that gazprom and its marketing subsidiary, itcra, are heavily lobbying washington to support this route in order to keep the bulk of the turkish gas market for itself by preempting the

russia's apparent interest iniissian-gcorgian-'rurkish gasline may be primarily intended to disrupt nkvvementcp. in any case, we do not believe that the moves signal any weakening in gazprom's commitment in bine stream. I 1

Tho Iranian Export Option

turkmenistan's niyazov raises the "iranexports through iran towhenever tcp progress slows or fails to moveirection he prefers. most likely niyazov is not prepared to abandon the tcp at tins tune, and these threats are probably more rhetorical than real. the iranian route, nevertheless, remains an economically feasible alternative should the tcp fall through:

' the iran-turkey gas pipeline almost certainly will be ready for iranian gas deliveriesem/yt to turkey by the end9 arid iran could meet the coirtractcd amount ofem/yr by tbe end

thc spare capacity could be used by ashgabatwap agreement, in which tuxkmcrustan supplies northern iranian markets with turkmen gas, thus freeing iranian gas for export to turkey.

problems in ashgabat

niyazov's view of the world is so decidedly turkmenistan-centric that it is likely to continue to complicate and possibly derail aahgabat's cooperation with the other tcp layers. p


hadrkey thai toe lUf project is financially the lirst phase makes Turkmenistan gas deliveries to Turkey via the Ru old Shell that the TCP project should not be inte, Russia. Turkey probably is concerned because its key goal of diversifi from Russian gas could be substantially delayed by Shell's maneuvers.

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The TCP is clearlyritical stage with the growing twin threats from Russia's Blue Stream and Azerbaijan's own gas. Several companies interested in developing end exporting gas from the Caspian region also have the potential to complicate and delay the project;

most likely will lose its chance to supply the Torkisho other potential suppliers unless itay to aceomciddate

Azerbaijan in the TCP project.

major risk for the United States if the TCP were to fall through is that Iran couldarger foothold in the Turkishransit state for Turkmenistan gas orupplierTurkey reaches to meet its need to diversify from Russian gas.

Original document.

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