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Gas giants plan pipeline
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February 4, 1999: 8:32 a.m. ET
Gazprom and Eni agree to build 250-mile gas pipeline from Russia to Turkey
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LONDON (CNNfn) - In a deal likely to spur fresh controversy in the fraught world of Caspian oil politics, ENI of Italy and Russia's Gazprom, the world's largest natural gas producer, are teaming up to build a 250-mile gas pipeline from Russia to Turkey's Black Sea.
Laid at depths of 2,100 meters, the pipeline will not only be the world's deepest underwater conveyor of natural gas, but also, with a reported price-tag of about $3 billion, the costliest for a project of its size and scope.
In a statement from Rome Wednesday, ENI, one of Italy's largest companies, said it and Gazprom would each hold a 50 percent interest in the joint venture, to be called the "Blue Stream Project". The pipeline will have a minimum capacity of 16 billion cubic meters, with each company authorized to use 50 percent of the gas that flows through it.
ENI said 20 percent of the project's costs would be funded by issuing equity in a new company expressly established for the project, while the remainder of expenses would be covered by debt.
A consortium of banks will provide credit guaranteed by Italy's export credit bank, SACE, and similar institutions, ENI said in a statement.
The project is likely to intensify competition for prized energy routings in the Caspian Sea region. Russia currently exports its natural gas to Turkey through a pipeline in one of its former republics, Ukraine.
Aside from Africa and Italy, ENI has ventures in China, Croatia, Iran, Iraq and Kazakhstan. The company, which is 38 percent owned by the Italian government, also holds a sizable stake in an international oil consortium to develop a gas field at Karachagnak in Kazakhstan.
The project carries the potential to stoke political controversy, especially in the United States, which has lobbied fiercely to secure Turkey's endorsement for a pipeline routing favored by Washington.
Analysts also note that the project, while a good deal for both companies, especially the cash-flush Gazprom as it struggles to establish credibility in a global market, may not justify its costs.
"The big problem with development of gas in the Caspian is what do you do with it?" asked Julian Lee, a senior energy analyst, with The Center for Global Energy Studies in London.
Lee portrayed the deal as symbolically and practically important for Gazprom, which at present supplies natural gas to Turkey via pipelines to Bulgaria.
"It gives them an alternative route into Turkey that doesn't actually cross anyone's territory," he said.
Lee added: "It's an expensive project and I think it's in large part politically driven by the Russian side. It sends a message to those countries around the north and west of the Black Sea , Ukraine in particular, that they are not the only route."
The deal also ratchets the stakes for Iran and Turkmenistan, two other potential suppliers of natural gas to Turkey.
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Eni
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