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Iran Rejects Turkmen Proposal For Gas Shipments To Turkey

Iran’s First Vice President Eshaq Jahangiri (right) met with Armenia's minister for energy infrastructure and natural resources, Ashot Manukian, in Tehran in December 2016.
Iran’s First Vice President Eshaq Jahangiri (right) met with Armenia's minister for energy infrastructure and natural resources, Ashot Manukian, in Tehran in December 2016.

Energy politics around the Caspian Sea breeds complications, as a recent example involving Turkmenistan, Iran, Turkey, Azerbaijan, and Armenia reminds us.

Turkmenistan is in a serious bind. The country has the fourth-largest natural gas reserves in the world but currently has only one customer -- China -- at a time when Turkmenistan's economy appears to be spiraling downward.

Turkmenistan would likely sell gas to anyone at this point, considering its extreme revenue shortages, and needs to start selling to someone, soon.

So, according to reports from October 23-25, Turkmenistan is proposing a gas-swap deal with Iran to get Turkmen gas to Turkey, where it could be pumped into the Trans-Anatolian Natural Gas Pipeline (TANAP) that is currently under construction.

Iranian National Gas Company (INGC) Director Hamid Reza Araki, who is also deputy oil minister, replied that Iran was not "positively disposed" to the idea.

That response is hardly surprising.

Since the late 1990s, Turkmenistan has been shipping gas to northern Iran, an area that is poorly connected to Iran's gas-rich south.

At the end of 2016, Turkmenistan demanded Iran pay somewhere around $2 billion (the figure is not entirely clear) for supplies of Turkmen gas to northern Iran during the winter of 2007-08.

Iran countered that the figure was too high and claimed that Turkmenistan had jacked up the gas price during that particularly bitter winter to $360 per 1,000 cubic meters, about nine times the usual price at the time.

Last-minute negotiations before the new year appeared to end in an agreement, but on January 1 Turkmenistan shut off the gas supplies -- and they have remained off.

Iran says Turkmenistan illegally broke the contract and has periodically threatened to take Turkmenistan to international arbitration.

With that as a backdrop, there is little wonder Araki indicated that Tehran has no enthusiasm for helping Turkmenistan.

But Araki mentioned another reason the Turkmen proposal was never likely to be met with sympathy in Tehran.

"We are against the sale of a rival country's gas to Turkey via swap operations," Araki stated, an indication that even if the debt dispute between Turkmenistan and Iran is resolved, there is little hope Iran will ever cooperate in exporting Turkmen gas to Turkey.

There is no pipeline running the length of northern Iran from the Turkmen to Turkish border, so Ashgabat wants a swap: Turkmenistan exports gas for use in northern Iran, and Iran pumps a like amount into a pipeline (or one day probably pipelines) leading to Turkey.

TANAP is the prize for both Turkmenistan and Iran.

TANAP, a 1,840-kilometer pipeline to bring gas from Azerbaijan's Shah Deniz-2 Caspian Sea field across Turkey to Europe, is currently under construction and is tentatively scheduled to be launched next year.

In its initial stages, TANAP will carry only Azerbaijani gas. But as the pipeline expands capacity on its way to eventually reaching some 60 billion cubic meters (bcm), there will be space for gas from other countries.

Turkmenistan would like to be one of those countries, but Iran -- and potentially Iraq and northeastern Syria -- are better positioned to provide gas to TANAP.

However, Turkmen gas is, and, according to INGC chief Araki, will continue moving to the west, at least as far as Azerbaijan.

Araki said Iran had no objections to a gas swap with Turkmenistan as concerns gas for Azerbaijan.

Azerbaijan is a gas producer, but it purchases Turkmen gas during the summer, when the price is low, to make "maximum use of the commercial potential of storage facilities" of the State Oil Company of Azerbaijan Republic (SOCAR).

Reports did not mention the amount of Turkmen gas Azerbaijan purchases, but it could not be very much.

SOCAR buys Turkmen gas in the summer to "top off" its gas storage facilities, then resells the gas in winter at a profit.

Armenia is hoping for a similar arrangement and has offered to mediate the Turkmen-Iranian debt dispute in an agreement that would see a Turkmen-Iranian gas swap supplying gas to Armenia.

On October 20, Armenia's minister of energy infrastructure and natural resources, Ashot Manukian, claimed that "we have proposed our involvement in settling debt-management issues between Turkmenistan and Iran, and they have accepted our proposal."

Ashgabat certainly has not confirmed this, and it is difficult to see why Turkmenistan would agree to the Armenian proposal.

Manukian's solution would see Iran settle its debt by shipping gas to Armenia; Armenia would then pay off Tehran's debt to Ashgabat, but by barter, not cash.

Barter was exactly the deal Turkmenistan had with Iran before the dispute erupted.

Ashgabat had agreed to accept goods and services as compensation for the first $3 billion worth of gas exported to Iran, though Ashgabat was trying to renegotiate that agreement since Iranian gas imports rarely exceeded $3 billion.

Turkmenistan's government wants cash, not goods, so it is difficult to see how the Armenian deal would suit Ashgabat.

Additionally, Turkmenistan did sell gas to Armenia in the 1990s via Russian pipelines and Armenia was regularly deep in debt for those supplies.

And, in any case, Manukian indicated Turkmenistan would probably be competing even for the small Armenian gas market.

Manukian said Armenia was ready to import more gas from Iran "if Iran offers lower prices."

Manukian noted that Armenia also purchases gas from Russia for $150 per 1,000 cubic meters; meaning that if Iran, and presumably Turkmenistan, could sell their gas for less than that amount, Yerevan would be interested.

So it seems that Turkmenistan's possibilities to export gas westward are, at best, limited.

It is interesting that Turkmenistan made the swap offer to Iran.

After all the acrimony this year in Turkmen-Iranian ties, Turkmen officials must have known the offer would probably get a cold reception in Tehran.

But Ashgabat made the offer all the same, because there are so few options and so little time left for the Turkmen regime to turn the country's economy around.

The views expressed in this blog post do not necessarily reflect those of RFE/RL.

About This Blog

Qishloq Ovozi is a blog by RFE/RL Central Asia specialist Bruce Pannier that aims to look at the events that are shaping Central Asia and its respective countries, connect the dots to shed light on why those processes are occurring, and identify the agents of change.​

The name means "Village Voice" in Uzbek. But don't be fooled, Qishloq Ovozi is about all of Central Asia.


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