No. 1, 2006

Nikolay Pankrashkin


The Blue Stream underwater gas pipeline running from Russia to Turkey is a unique project and a guarantee of European security with respect to energy

According to forecasts, a quarter of a century from now, one-third of the amount of electric power produced in the industrially-advanced countries will be generated with the help of natural gas. Russia, with its over 30% of the world's reserves of natural gas, will have every chance of increasing its influence as a major energy producer. In this context, the Blue Stream gas pipeline acquires a special significance, for it will promote the growth of Russian gas exports to Europe and Israel, and will augment the role played by Russia and Turkey on the world energy market.

Building cooperation step by step

The history of the Russian-Turkish relations in the sphere of energy goes back almost 120 years. Following the signing of the well-known San Stefano peace treaty of 1878, relations between Russia and Turkey began improving steadily. Brisk trade started between the two countries, and Russian kerosene produced by A.I. Montashev & Co. Oil Producing and Trading Company appeared on the Turkish market and began competing with the petroleum products of the U.S. Standard Oil Co.

When in 1917 the Bolsheviks came to power in Russia, the new political system gave a fresh impetus to the development of trade between Russia and Turkey. Deliveries of crude oil and petroleum products from Soviet Russia continued after the signing in 1921 of a Treaty of Friendship and Brotherhood between Soviet Russia and Turkey.

In the second half of the 20th century, Mid-Eastern oil gradually gained a dominant position on the Turkish market, but Russian gas remained unrivalled there.

An intergovernmental agreement signed in 1984 by the Republic of Turkey and the USSR formed the basis of cooperation between the two countries in the sphere of natural gas supplies. The first deliveries of natural gas from the USSR to Turkey were made via Trans-Balkan pipeline specially laid across the territory of Romania and Bulgaria. In February 1986 the Soyuzgazexport association signed a commercial contract with the Turkish Botas company, providing for steadily growing supplies of Russian gas for a period of 25 years. They were to increase from 1.5 billion m3 in 1987 to six billion in 2011, and were effected by transit across the territories of Ukraine, Moldavia, Romania and Bulgaria.

Time, however, amended the partners' plans. The importance of gas in Turkey's power industry had grown considerably, and the amount of the former deliveries of gas could no longer meet the republic's needs in the long term. In 1997 Russia and Turkey signed an intergovernment agreement under which Gazprom and Botas signed a commercial contract for the delivery to Turkey of 365 billion m3 of gas via the Blue Stream gas pipeline over a period of 25 years.

Gazprom's chief partners in the joint venture were the Italian energy concern ENI and one of its branches SNAM which specialized in the gas industry. The partners selected the Italian company Saipem as general contractor for the construction of the offshore section of the pipeline and set up a JV Blue Stream Pipeline Company. Registered in the Netherlands, the company exercised day-to-day management of the construction, and in 2003 it put the pipeline into operation.

Across the land and sea

From the technical viewpoint the Blue Stream project is unique. In fact, it is considered to be one of the world's most complex pipeline projects. For the first time in world practice it was laid along the sea bed at a depth of 2,200 meters, which is about 30 percent deeper than any of the known underwater pipelines.

The laying rate was over five kilometers a day, and the process was controlled by computers via a space satellite and by a deep-water bathyscaph. The pipeline is planned to reach its maximum capacity of 16 billion m3 a year by 2010. The overall length of the pipeline is 1,213 kilometers, of which 373 km pass across Russia's land area, 396 km across the water area of the Black Sea, and 444 km across Turkey's territory.

The underwater part of the pipeline is capable of withstanding an earthquake of ten points on the Richter scale. A reliable coating protects the metal of the pipes from the aggressive action of hydrogen sulfide in the sea depths. To enhance the reliability of the pipeline it was built in the form of a twin conduit. The Italian company guarantees its faultless functioning for 36 years. Twice a year the condition of the underwater pipes will be checked with the help of a bathyscaph and special flaw detectors of the inside surface of the pipes. Designers, scientists, engineers and construction workers from Russia, Turkey, the Netherlands, the United States, Norway, France, Japan, Ukraine, Sweden, and Germany took part in delivering the required equipment and constructing the Blue Stream pipeline.

The construction of the onshore section of the pipeline along Russia's territory was carried out by JSC Gazprom, and along Turkey's territory by the Botas company.

On December 30, 2002, a protocol on the commissioning of the start-up complex was signed. Commercial supplies of natural gas to Turkey began in February 2003, and by the end of the year they totaled 2 billion m3. In 2004 gas deliveries to Turkey amounted to 3.2 billion m3, and in 2005 to 4.5 billion.

Actually, these amounts were far from what had been planned originally (4 billion m3 in 2004 and 6 billion m3 in 2005). Although the forecasts concerning the development rates of Turkey's energy industry were not justified, the leaders of the two countries duly appreciated the advantages of transiting gas to third countries.

Energy plus geopolitics

Evidence of the fact that interest in the project had renewed was a symbolic Blue Stream opening ceremony which was formally tied to the occasion of pumping to Turkey of the 130-millionth m3 of Russian gas since 1987. The ceremony was held on November 17, 2005, in the Turkish city of Samsun at the Durusu metering station. Taking part in it were Russian President Vladimir Putin and the Prime Ministers of Turkey and Italy Recep Tayip Erdogan and Silvio Berlusconi, as well as the heads of Gazprom and ENI Alexey Miller and Paolo Scaroni. Actually, the second opening of the gas pipeline demonstrated to the world public that the leaders of Russia, Turkey, and Italy intended in earnestly to utilize the potential of the project unrealized until then.

During the ceremony the Russian President thanked all those who had taken part in implementing the project and described the commissioning of the Blue Stream as one more step toward creating a unified energy field for Europe, toward strengthening its security with respect to energy, and toward diversifying the deliveries of energy raw materials to their primary consumers. Vladimir Putin pointed out to the possibility of one more branch of the Blue Stream being laid along the Black Sea bed and of creating additional opportunities for transporting gas to South Italy, to the south of Europe and to Israel.

Besides Russia, all of the major gas-producing countries of the region Iran, Azerbaijan and Turkmenistan had projects regarding the export of gas to Turkey. Furthermore, Turkey intended to start purchasing liquefied gas and was conducting relevant negotiations with Algeria and Nigeria. The Turkish government had concluded various agreements on gas deliveries with all of the above-mentioned countries. The most important agreement was signed with Turkmenistan: under it Ankara expected to receive up to 30 billion m3 of gas a year via the so-called Transcaspian pipeline.

In view of all this situation, all of Turkey's new suppliers of gas became competitors already at the stage of project development. How quickly they could lay new gas pipelines was to be the key factor of winning their competition. Gazprom was the first to build its pipeline.

Some time ago, international mass media expressed a broad range of views concerning the new gas pipeline. Many of its critics doubted the economic feasibility of the project, pointing out its unprecedentedly high cost of construction about $3.2 billion.

Furthermore, Turkey had requested a revision of the understanding reached with Gazprom earlier concerning the price of Russian gas. The Turkish side also doubted the parameters of its own gas market as they had been taken into consideration during the planning of the pipeline's operation. Some of the negative forecasts came true: for instance, in 2004 Turkey consumed no more than 22billion m3 of gas that is half of the amount stipulated originally during the planning of the project. Therefore today it can be stated that the Blue Stream has become a strategic victory more than anything else: despite certain difficulties associated with the project recoupment in the short term, it opens up great prospects for Gazprom to acquire new markets in the long term.

Moscow regards the first stage in the construction of the gas pipeline as a springboard for developing its success in Europe. According to the Russian President, he discussed the subject of realizing the second stage of the project with the Turkish Prime Minister as far back as August 2005. During their meeting in Sochi, President Putin and the Italian Prime Minister, Silvio Berlusconi, also discussed the Blue Stream pipeline. The Russian President then recalled: It is with our Italian partners that we have constructedt the Blue Stream pipeline to Turkey along the Black Sea bed.

In the words of President Putin, Italy is one of the biggest customers for the Russian energy resources, and so Russia is interested that its companies, including Gazprom, would be able to make additional investments in the Italian energy sector, particularly in the gas-distributing networks. On its own part, Russia is prepared to consider the possibility of getting Italian investments in its energetics, as was the case with its German partners.

If the agreements are successfully implemented, Gazprom will be able to supply Russian gas directly to Italy, as well as to Spain, Greece and even Israel, while Turkey will acquire the importance of a transit center in the system of energy resources flow in Eurasia.

The Blue Stream has actually reduced to naught the plans for building the Transcaspian pipeline and organizing the export of Turkmenian gas by passing Russia. As a result, in the first place, Russia has got protected itself from a strong competitor on the European market and, in the second, it acquired the opportunity to buy large amounts of Turkmenian gas at an acceptable price. Already in effect is a contract signed by Gazexport and Turkmenneftegaz under which the deliveries of gas from Turkmenistan to Russia are to reach 70-80 billion m3 a year.

Russia actively supports Turkey's entry into the European Union and points out the strategic importance of developing bilateral relations between the two countries. In the context of its problems with European countries, Turkey increasingly turns to Russia which stresses that the Blue Stream is an additional argument in favor of Turkey's joining the EU. As Vladimir Putin has pointed out, the Blue Stream has actually turned Turkey's territory into an energy bridge between the East and the West, and augmented the part played by Turkey in the European energy field. The Blue Stream creates opportunities for the development of a South European gas circuit which optimizes the export of gas to South Europe and the Balkans. The scale of the new gas pipeline is enormously impressive, Vladimir Putin summed up. Gazprom is planning to implement a second stage of the pipeline construction, bringing its capacity up to 32 billion m3 a year. And then the Blue Stream will turn Turkey's territory into an energy bridge between Russia and Europe.

Russia, Turkey and Italy are convinced that the operation of the gas pipeline will help create a unified energy field for Europe. This will be a new, important step toward strengthening the energy security of the continent and diversifying sustainable energy supplies to the European consumers.

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Oil of Russia, No. 1, 2006
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