Gazprom secures financing for gas line across Black Sea to Turkey

Gazprom has secured financing for its proposed Blue Stream natural gas export pipeline from Russia across the Black Sea to Turkey. A group of Italian banks will lend the $2 billion needed for the project, secured by gas export contracts to Italy. Gazprom is also apparently seeking financing support from Italian state petroleum company ENI (with which it has a strategic alliance in Russia's Astrakhan region) for the Russian portion of the line. Saipem SpA, an Italian company and a subsidiary

Oct. 26, 1998

3 min read

Gazprom has secured financing for its proposed Blue Stream natural gas export pipeline from Russia across the Black Sea to Turkey.

A group of Italian banks will lend the $2 billion needed for the project, secured by gas export contracts to Italy. Gazprom is also apparently seeking financing support from Italian state petroleum company ENI (with which it has a strategic alliance in Russia's Astrakhan region) for the Russian portion of the line.

Saipem SpA, an Italian company and a subsidiary of ENI, will construct the pipeline, portions of which traverse deep water.

The syndicated long-term loan from Italian banks, guaranteed by the Italian agency Sace, will be secured by revenues from current gas sales to Italy. The funds will be used to purchase western equipment for the project, which will be designed to transport 360 billion cu m of Russian gas to Turkey during 2000-25.

The 1,213-km line would extend from Izobilnoye, Russia, to Ankara. A 396-km section would traverse the Black Sea at a depth of 2,150 m. Start-up is planned for April 2000 (OGJ, Nov. 10, 1997, Newsletter).

Turkish market

Turkey is seen as a major market for Russian gas; the Turkish buyer, Botas, has ambitious plans to expand the use of natural gas in the country.

However, most of the demand increase is predicated on rising Turkish power generation demand for gas and an increase in the number of gas-fired power plants in the country. There remains some uncertainty about whether all of the necessary power sector infrastructure will prove economic to install and, accordingly, whether all of the projected gas demand will ultimately materialize.

Gazprom is also very keen to implement the project quickly, because timely financing would allow it to meet its sales contract with Botas. If it fails to do this, Botas will need to contract for alternate supplies. These could come from Algeria, as liquefied natural gas, or from Turkmenistan. The latter would prove to be a more worrisome competitor for Gazprom, because this option would allow Turkmenistan to get closer to the European market with its infrastructure-something Gazprom will be keen to prevent.

Gazprom status

The Italian loan illustrates that Gazprom is one of the very few companies in Russia that is bankable. Gazprom has also taken a 50% stake in a new Russian-Moldovan company, Moldova-Gaz, in return for remission of gas debts to Russia. This is another element of Gazprom's strategy of moving downstream in Europe and acquiring relatively useful assets in place of cash that it stood little chance of receiving from countries such as Moldova. A similar approach has been used in Moldova previously and in Belarus, although no progress has been made with Ukraine on the subject.