How will Turkey's gas deal with Iran affect other initiatives?
by Charles Coe
Turkey and Iran reaffirmed their 1996 natural gas agreement in Ankara on August 2 with the signing of an addendum
that calls for Iranian gas deliveries to begin on July 30, 2001. Deliveries will start at the rate of 3 bn cmpy and
increase to 10 bn cmpy by 2007. They will continue at that rate until 2025 and may be extended a further 10 years, in
accordance with the original agreement.
Gokham Yardim, the general manager of Turkey's Botas, and Hamdullah Mohammad-Nejat, Iran's deputy oil minister and chairman of the National Iranian Gas Company (NIGC), signed the addendum, bringing to an end questions about Turkey's commitment to the deal.
After reaching the accord four years ago, Ankara had come under considerable pressure from the United States to forego buying Iranian natural gas. Washington encouraged Turkey to focus instead on gas from Turkmenistan arriving via the Trans-Caspian Gas Pipeline (TCGP). Washington even went so far as to block the sale of a US-manufactured compressor needed for a section of Turkey's domestic gas pipeline system near the Iranian border in order to slow the arrival of Iranian gas to the Turkish market.
The Turks have since obtained a suitable compressor from Germany's MAN. And as of end-July 2001, Ankara will no longer need to consider US reprisals under the Iran-Libya Sanctions Act (ILSA), which subjects any foreign company investing more than $ 40 mm per year in Iran's oil and gas industry to the threat of sanctions. ILSA is due to expire in August of 2001 -- just a few days after Iranian deliveries are set to begin.
What impact this renewed commitment by Turkey to purchase natural gas from Iran will have on the former's contract to
buy 16 bn cmpy from Turkmenistan remains to be seen. Despite efforts by Shell to keep the TCGP project alive, it does
not appear that work on the 1,700 km pipeline will begin anytime soon. The Turkey-Turkmenistan agreement is legal but
cannot take effect without a means of delivery. Furthermore, it remains unclear as to what sort of relationship may
develop between Turkmenistan and Iran in light of the possibility that TCGP might be shelved.
Turkmenistan has in recent weeks made statements signalling some support for Iran in its suggestions regarding the legal status of the Caspian Sea (Iran is asking for an equal, 20 % share of the area). At present, Turkmenistan is shipping just a few bn cmpy to Iran, but several years ago there was considerable speculation about piping Turkmenistani gas overland to Turkey.
If TCGP falls through and Ashgabat is unable to come to a satisfactory sales agreement with Russia, the prospect of shipping natural gas westwards through Iran might inspire Ashgabat and Tehran to reach a common position on the legal status of the Caspian. The 20 % of the Sea that Iran claims encroaches on Turkmenistan's assumed offshore territory, but it encroaches on Azerbaijan's as well. And Ashgabat holds Baku to blame for spoiling its plans to export 16 bn cmpy to Turkey via the TCGP.
In the meantime, the BP-led Shah-Deniz consortium in Azerbaijan has entered into discussions with Ankara concerning the proposed delivery of Azerbaijani natural gas to Turkey. Deliveries would begin in early 2002 at a rate of 2 bn cmpy, rising to 5 bn cmpy by 2005 and reaching 16-30 bn cmpy by 2020. Shah-Deniz is estimated to hold as much as 1 t cm of natural gas.
The plan, which is strongly supported by BP's Shah-Deniz partner Statoil, calls for the refurbishment of a Soviet-era
gas pipeline running through Azerbaijan and Georgia, plus the laying of new pipe where necessary to Turkey's
north-east border. The cost of the work may cost up to $ 1 bn, which will be less than half of the estimated $ 2.2 bn
it would cost to build the TCGP.
The Turkey-Iran gas sales agreement was originally negotiated by Turkey's former Islamist Prime Minister Necmettin Erbakan in August 1996 shortly after US President Clinton signed ILSA into law. Erbakan's visit to Tehran was his first abroad as prime minister and it had a chilling effect on the usually warm relations between Washington and Ankara. The original agreement called for Iranian natural gas deliveries to begin in 1999, with Turkey to receive a total of 190 bn cmpy during a 22-year period at a cost of $ 20 bn.
The Turkish military leadership later forced Erbakan from power. Meanwhile, work on the Turkish pipeline section running between Dogubeyazit on the border and Erzurum made little headway.
Last December, Iran informed Turkey that it was ready to deliver 3 bn cmpy of natural gas in accordance with the 1996 agreement, but Ankara announced that it was not ready to take delivery because the Eastern Anatolia Gas Network was incomplete due to the country's financial problems.
Differences of opinion were expressed diplomatically and Tehran suggested that Turkey should compensate Iran under
the terms of a vague "take-or-pay" clause in the accord. Turkey refused to pay compensation, but as a result of
negotiations since, the original length of the agreement hasbeen extended from 22 to 25 years.
Turkey has signed a number of gas purchase agreements with different countries and questions are now beginning to arise as to whether Turkey will need as much natural gas as its projections indicate. Botas has forecast Turkey's natural gas demand at 18.2 bn cmpy for 2000, rising to 43.1 bn cmpy by 2005, 51.5 bn cmpy by 2010, 62.5 bn cmpy by 2015 and 77.8 bn cmpy by 2020. Meanwhile, Turkey has supply contracts for 20.7 bn cmpy for 2000, 49.2 bn cmpy for 2005, 63.2 bn cmpy for 2010, 63.2 bn cmpy for 2015 and 63.2 for 2020. Not until 2020 is Turkey's demand expected to exceed supply.
During 2000, Turkey will receive 10.5 bn cmpy from Russia, and volumes will begin to increase in 2001-2002 when the Goluboi Potok (Blue Stream) pipeline comes into operation. When it reaches full capacity, Blue Stream, which will convey Russian natural gas by underwater pipeline across the Black Sea to Turkey's northern coast, will carry 16 bn cmpy.
As of 2005, Turkey will receive 24 bn cmpy from Russia, and in 2010 this volume will rise to 30 bn cmpy and continue
for the following decade. Meanwhile, apart from its gas supply contracts with Iran, Turkmenistan and Russia, Ankara
has also reached supply agreements with Algeria and Nigeria for LNG.
When Turkey's Eastern Anatolia Gas Network is finished it will stretch from Dogubayazit on the Iranian border and terminate at the central Anatolian cities of Ankara and Seydesihir. The network is being constructed in five sections: Dogubeyazit-Erzurum, Erzurum-Imranli, Imranli-Kayseri, Kayseri-Ankara, and Kayseri-Konya-Seydisehir. The total length of the network will be around 1,500 km. The pipelines should become operational sometime in late 2001, with a capacity of 3.5 bn cmpy and build up to 7 bn cmpy by 2005 and 10 bn cmpy by 2007.