Accessibility links

Breaking News

Turkey: Ankara Restarts Iran Gas Imports, Cuts Prices

Turkey has pledged to restart its gas imports from Iran following negotiations on a price cut and similar concessions by Russia's Gazprom. The agreement may end a quarrel over the quality of Iran's fuel, but the lower prices and profits may also prove discouraging for developers of a giant Caspian gas field in Azerbaijan.

Boston, 11 October 2002 (RFE/RL) -- Turkey has settled a dispute over its stoppage of gas imports from Iran, but the solution may have come too late for other countries deciding on their gas development plans.

On 10 October in Tehran, Turkish and Iranian officials announced an agreement to resume the gas flow, which has been halted since 24 June. Iranian Oil Minister Bijan Namdar-Zanganeh said the two sides signed a memorandum of understanding on restoring the trade.

After returning to Ankara, Energy Minister Zeki Cakan told reporters that Turkey will start accepting gas again in 10 to 15 days, Reuters reported. Documents on the deal must still be approved by the "qualified bodies" of both countries, the official Iranian news agency IRNA said. In September, Turkey blamed the cutoff on unspecified quality problems with Iranian gas. Iran responded by citing Turkey's economic woes and its weak gas demand. Iran threatened to seek penalties under the take-or-pay terms of its 25-year contract with Turkey, which took effect in December after years of delay.

This week, both sides seemed eager to put the matter behind them, but neither was willing to discuss the details. Confirming widespread suspicions, the officials confirmed that they negotiated a reduced price for Iran's gas. In October, Cakan disclosed that Ankara negotiated a 9 percent rate cut with Russia's Gazprom, which has supplied two-thirds of Turkey's gas so far in 2002. It is unclear whether Iran has to match the new Russian price.

Zanganeh said, "It is not supposed yet to announce the price of gas." He added, "Gas does not have an international price, and any deal has its own formula in which there is room for flexibility."

Cakan suggested that Iran's concession might be even greater, saying, "A more attractive price than a 9 percent discount for Russian and Iranian gas has been ensured." Cakan cited Iran's flexibility "both in terms of quality and price."

But even with price cuts, it is unclear how much gas Turkey will accept from Iran. So far in 2002, Turkey has imported only 362 million cubic meters of gas from Iran, less than one-tenth of the amount it was scheduled to buy this year.

Cakan now acknowledges that the main problem is Turkey's economy, which is recovering this year from its steepest decline since World War II. The country has also been operating for years with inflated gas demand forecasts, which led it to sign contracts for more gas than it could possibly use.

This week, state pipeline company Botas dropped its demand forecasts for the fourth time this year, but it seems likely that the figures will have to be lowered even more. The latest revision reflects a decrease of only 2 billion cubic meters in 2003, in line with Gazprom's agreement to reduce planned deliveries from its new Blue Stream project by half. Even with the new estimate of 25.8 billion cubic meters, Botas seems to be predicting that demand will rise by an incredible 50 percent next year if, as expected, growth in 2002 is flat. The problems seem to have gone beyond competitive advantage for any one supplier in a crisis where all competitors are likely to suffer losses.

On 10 October, the Moscow investment bank Troika Dialog wrote in a research note that "the revision of Gazprom's contract sets a negative precedent and jeopardizes final profitability of the $3.3-billion Blue Stream project." Both Gazprom and Italy's ENI oil company have bet heavily on Blue Stream's pipeline across the Black Sea, which is now supposed to open in December after several delays. Troika Dialog cited a Turkish Energy Ministry claim that Gazprom dropped its gas price from the pipeline from $100 to $75 per 1,000 cubic meters, a whopping 25 percent cut. It appears that revisions may also have been going on for some time. A review of Botas figures suggests that Turkey took delivery of only 80 percent of the gas it committed to buy from Russia in 2001.

The news also looks discouraging for Azerbaijan's giant offshore Shah Deniz project in the Caspian Sea. This week, foreign oil companies led by Britain's BP put off a decision on whether to proceed with the $3.2 billion gas development until next year, the Reuters news agency reported, quoting a spokeswoman for BP-Azerbaijan. The project, which includes a pipeline to Turkey, was scheduled to be approved in September and then October. Officials have cited Turkey's gas market and its failure to provide purchase guarantees as the cause.

The price cuts may mean that all assumptions about the investments will have to be revised. Although Turkey's economy is recovering, at least a year of growth in gas consumption appears to be lost. In another possible blow, the "Turkish Daily News" reported on 10 October that an investigation of two former Botas chairmen has been authorized as part of a graft probe into Blue Stream. The men allegedly made "undeserved payment" to Turusgaz, a joint venture between Botas and Gazprom that handled the Turkish side of the Blue Stream project. The company is also a major importer of Russian gas. Officials have previously insisted that the probe has not hurt Blue Stream, but it can hardly have helped.