Turkey to pay more for natural gas from Azerbaijan

Feb 08, 2010 01:00 AM

Lengthy negotiations between Turkish and Azeri officials on gas prices have finally come to an end as Turkey has agreed to buy Azeri gas at $ 300 per tcm, Energy Minister Taner Yildiz informed following his meeting with the Iranian Foreign Minister Manouchehr Mottaki.
Although no official deal has yet been signed on a gas price agreement between the two countries, the Turkish side says the new price is satisfactory. According to the informal agreement, Turkey will pay $ 1.8 bn to Azerbaijan in exchange for 6 bn cm of gas in 2010.

Previously, Turkey was paying $ 720 mm annually for gas imported from Azerbaijan, when the price was $ 120 per tcm. Azerbaijan had said several times that a price hike was inevitable considering world gas prices, which are hovering at around $ 400.
When Azerbaijan announced it was going to increase gas prices, Turkey didn't lose time in seeking to negotiate. Turkey appreciated Azerbaijan's wish to adjust its natural gas prices to a more plausible level compared to global prices but still hoped to continue purchasing gas at a better price than it gets from Russia and Iran. As a result of the negotiations, Turkey also agreed to pay an additional $ 1.7 bn for amounts outstanding that arose from price differences since the previous agreement ended last year. Turkey was continuing to purchase a 1,000 cm of Azeri natural gas at $ 120.

Evaluating the gas dispute between Turkey and Azerbaijan, Roevsen Ibrahimov, a professor from Qafqaz University in Baku, said the impact of the price hike on Turkish consumers would depend to a degree on how local gas distributors agree to sell the gas.
"Currently, the gas sector is a very profitable sector for Turkey, and a cm of Azeri gas costs between $ 380 and $ 500 -- depending on location -- for consumers, whereas its cost to the state is just $ 120 per tcm. Azeri gas provides only 17-18 % of Turkish consumers' needs," Ibrahimov said. According to the expert, the price increase was inevitable as Azerbaijan has many alternative export markets including Iran, Russia and Romania, and recently officials were speculating on exporting gas to China through Turkmenistan.

President Ilham Aliyev had reiterated several times over the past year that there was no logical explanation for exporting gas to Turkey at one-third of the world gas price. Some analysts attempted to link strained Turkish-Azeri relations due to Turkey's growing relations with Armenia with the gas price increase, but Aliyev rejects the claims, asserting that the current gas price of $ 120 is preventing Azerbaijan from exporting its gas to European markets.
"If Turkey is earning from expensive Russian gas, the less-costly Azeri gas will surely make substantial profits," the expert said.

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