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Turkmenistan: Iran's Crises Lend Urgency To Gas Export Problems

Boston, 27 January 1998 (RFE/RL) -- A sudden energy and economic crisis in Iran has brought new urgency to the problems of exporting natural gas from Turkmenistan.

Iran's troubles surfaced earlier this month when the official news agency IRNA disclosed that major power plants in the northern part of the country were in danger of shutting down because of cold weather and lack of fuel.

The problems, coming in the midst of the worst Iranian winter in the past 10 years, are particularly acute at the Neka power plant near the Caspian Sea. The plant is a primary source of electricity for the northeast region, served by an 800-kilometer pipeline within Iran, as well as a 200-kilometer connection across the border to Turkmenistan.

The report initially blamed Turkmenistan for what it called "fluctuations" in gas supplies to Iran. But analysts immediately discounted the claim, noting that Turkmenistan only started delivering gas to Iran one month ago through its new pipeline from its Korpedzhe field.

One measure of the seriousness of Iran's energy shortages is that Iran's official news agency was willing to report it. The government has been urging its citizens to conserve fuel, and IRNA warned that the situation could cause "irreparable damage to the economy."

It now appears that the problems may go far beyond gas supplies. Iranian television has since reported that the country is importing increasing amounts of kerosene and even gasoline in order to cope with the crisis. The predicament is highly unusual, considering that Iran has been the world's third-largest exporter of oil with one of the biggest reserves of natural gas.

But there have been increasing strains in the region's most populous nation, brought on not only by the harsh winter but by economic problems, US sanctions and the falling price of oil.

Much of Iran's gas remains in large deposits below the waters of the Persian Gulf, requiring foreign investment and technology for development. Over one-third of the gas that Iran produces is needed for injection into its aging oilfields, which otherwise lack sufficient pressure to bring the oil out of the ground.

It is estimated that less than half of the gas that Iran now produces is available for domestic use as fuel. As the world price of oil declines, the country is also struggling to increase its production in order to maintain the same level of revenue. Reports suggest that Iran has been unable to boost production so that it can take advantage of the recent hike in OPEC quotas.

According to Iran News, the country now expects to run a budget deficit of 20,000 billion rials, over $6 billion and possibly more than $11 billion, depending on which of the official exchange rates is used. Some 150 government projects may be threatened, the paper says, because of Iran's heavy dependence on the economics of oil.

Clearly, the country needs the $2-billion investment deal by French, Russian and Malaysian companies in its South Pars gas field in the Persian Gulf in order to gain new supplies of gas. But that investment is still the subject of possible US sanctions.

In the meantime, Turkmenistan and Azerbaijan are Iran's closest sources of imported energy. While the new pipeline from the Korpedzhe field is only capable of delivering 2 to 3 billion cubic meters of gas this year, Iran's northern cities need 6 billion cubic meters, Turkmen officials say.

Plans call for eventually raising the pipeline supplies to 8 billion cubic meters. But the increase requires more pumps and compressors which have yet to be installed. Iran's demand, as revealed by its sudden shortage, should accelerate efforts to bring the needed equipment on line.

Iran's northern cities could also be served by an extension of pipelines to Turkmenistan's Dauletabad gas field, which is the planned source of gas for Pakistan, if a line through warring Afghanistan can ever be built. Increased sales of electricity from Turkmenistan are also a possibility, using Turkmen gas to generate power.

Foreign investment may be needed to increase Turkmen exports to Iran. But such investments would not face the legal problems of U.S. sanctions as similar projects in Iran. Tehran may be temporarily hard-pressed to pay if its difficulties increase, but its potential to increase oil exports should open up opportunities for finance.

Turkmenistan may also be in a better position to negotiate transit fees for the eventual deliveries of Turkmen gas to Turkey over a trans-Iranian pipeline because of Tehran's current energy shortfall. Until now, reaching Turkey and Pakistan have been Turkmenistan's biggest goals. But the Iranian market could prove to be equally important, and it is certainly closer to home.

As Turkmenistan struggles to overcome its huge drop in gas exports last year due to disagreements with Russia, it should be concentrating efforts on helping Iran meet its immediate energy needs.