Turkey Stops Buying From Gazprom

Turkey has halted shipments through a pipeline laid by Gazprom under the Black Sea, a Gazprom official said Friday, bringing fresh woes for the problem-plagued $3 billion project.

The official said Turkey stopped imports in March, only weeks after the first commercial supplies were shipped, and wanted Gazprom to revise delivery terms from July.

"Turkey halted gas purchases in mid-March saying gas prices were too high," the official said. A Turkish Energy Ministry official confirmed the news, saying the country planned to resume gas imports in August.

"We stopped purchases on March 12 as within six months from the start of purchases we have the right to halt shipments bilaterally without any liabilities," the Turkish official said.

Export revenues are vital for debt-laden Gazprom, which has borrowed $15 billion on foreign markets. But the official, who asked not to be named, said loans used to build the line were under no threat as they were secured by gas exports to Italy.

Analysts said Turkey will long remain a difficult market for Gazprom and questioned rival projects to supply the country with more gas over the next decade, including a BP-led giant offshore gas field in Azerbaijan.

Gazprom's gas export prices are cross-indexed with international crude oil and refined products prices but have a lag of six to nine months.

Oil prices peaked in late 2002 and early 2003 on fears of growing instability in the Middle East ahead of a U.S.-led military campaign in Iraq and on Venezuelan supply disruptions.

Gas prices will therefore peak in mid-2003. Analysts noted many European countries were buying larger volumes of gas at the moment in order to cut imports when gas prices peak.

"Turkish behavior is similar to the behavior of Gazprom's other European clients. They don't want to buy gas now, when prices are extremely high. So they go on gas vacation and they have all the rights," said Sergei Glaser from Alfa Bank.

The official said Turkey was obliged to buy gas or pay fines under the so-called take or pay condition only from July 2003.

Gazprom supplied Turkey with 12 billion cubic meters in 2002 via the Trans-Balkan gas pipeline through Romania and Bulgaria. Gas supplies in the first quarter of 2003 soared 34 percent to 3.9 bcm.

Turkey's total annual gas consumption stands at around 20 bcm, and it imports gas from Russia, Algeria, Iran and Nigeria.

The ambitious Black Sea Blue Stream pipeline, the world's deepest, was planned more than a decade ago, when Turkey was booming and the country was planning huge growth in gas use.

It was postponed due to Gazprom's own financial problems, and only finally completed with help from Italian energy group ENI at the end of 2002.