Turkey to resume gas imports from Iran

Nov 14, 2002 01:00 AM

Turkey has ended its four-month shutoff of gas imports from Iran after negotiating lower prices and avoiding the threat of contract penalties. The country's economy is recovering, but Turkey still faces a huge surplus of gas imports after nearly a decade of promoting costly pipeline plans.
Turkey resumed its gas imports from Iran on 11 November, keeping a pledge made to Tehran a month ago. A spokeswoman for the Turkish state pipeline company Botas said that it had restored the gas flow from Iran after a cut-off on 24 June. Turkish officials initially blamed quality problems for the four-month-long stoppage, but they then bargained with Iran and struck a deal for cheaper gas prices on 9 October.

Although Botas has signed a new contract with the National Iranian Gas Company, neither side has disclosed the terms. The deal is likely to alter Iran's landmark 25-year gas agreement with Turkey, which was estimated to be worth $ 20 bn when it was signed in 1996. The episode between Turkey and Iran may also challenge the long-term value of huge contracts with "take-or-pay" clauses for pipeline projects, since it serves as a reminder that commitments can be renegotiated later on.
After Turkey publicized the June shutoff belatedly in September, Iran responded by threatening to seek penalties under the clause, which was supposed to guarantee payment regardless of Turkey's consumption rate. But in the end, Turkey avoided any fines. Instead, it won a reduction both in the price and the amount of gas subject to take-or-pay conditions from now on.

The result may show that the real bargaining power lies with the user rather than the supplier in the gas-rich region at the edge of the Caspian, Russia, and the Middle East, if all compete for the same markets. Despite their complaints about gas quality, Turkish officials acknowledge the biggest problem was the economy, which plunged in February 2001. Turkey's gross national product dropped 9.4 % in 2001. The economy may snap back by as much as 4 % this year,but the damage to projected gas demand has already been done.
Turkey's gas use this year will fall far short of the 20 bn cm that Botas estimated in January. At the end of September, the country had consumed only 12.5 bn, according to company data. Botas contracted for 25 bn cm of imports, including 4 bn from Iran. Turkey has also negotiated a reduction in both volume and price with Russia, its biggest supplier.

Ankara has shrunk its gas surplus by a combination of halting Iranian imports and cutting supplies from Russia's Blue Stream pipeline across the Black Sea, which is scheduled to open next month. Turkey has been Iran's only export market for gas so far, although the country has the second-largest gas reserves in the world. The size of Iran's concession to get its exports restarted can only be guessed.
But statements suggest that it was forced to grant Turkey a price break of 20 % or more to compete with Russia's price cut of 9 %. In September, Iranian Oil Minister Bijan Namdar Zanganeh argued against Turkey's allegations of poor quality, saying that Ankara had chosen to buy gas from Russia instead because it offered a reduced price of $ 0.09 per cm, compared with "more than $ 0.11" under Turkey's contract with Iran.

After returning from negotiations with Iran in October, Turkish Energy Minister Zeki Cakan hinted that Tehran had at least matched Russia's price. Cakan told, "Iranian gas was the most expensive on the way to Iran, but now it is the most convenient gas."
According to the Russian investment bank Troika Dialog, Russia reduced its gas price from Blue Stream to $ 75 per thousand cm ($ 0.75 per cm). If Iran was forced to undercut that price, its returns would be even worse. With the resumption, Iran's patience and diplomacy seems to have paid off. But the result may bring little solace or profit to Tehran.

On 12 November, Botas said it expected to import 12 mm cmpd of gas from Iran for the rest of 2002, a rate that would total 600 mm cm by the end of the year. That means that Turkey will have bought less than 1 bn cm this year, including the amount before the shutoff, compared with 4 bn in the original contract.
Turkey has not said how much Iranian gas it will buy in 2003, but the amount will probably be far less than the 5 bn cm that it still carries in its public forecast. The silence may leave the impression that Turkey has only restarted Iranian imports for the winter, when residential use rises. The same events could be replayed in the spring.

Next month's opening of Russia's $ 3.2 bn Blue Stream pipeline will also give Turkey another reason to satisfy its main gas supplier rather than Iran, although Russia may also see little return on the investment with Italy's ENI oil company next year either.
Turkey's recovery now seems to be on track, giving both Russia and Iran hope that its gas use will grow over time. Both countries want Turkey to turn into a transit country for gas sales to Europe. Turkey's success is also vital for the gas-export plans of Azerbaijan. But the events surrounding the shutoff may prove a disappointment to all parties after nearly a decade of promoting costly pipeline plans.

Source: RFE/RL
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