Turkey Wants Iran Gas at Lower Price

Turkey Wants Iran Gas at Lower Price
Turkey Wants Iran Gas at Lower Price

Iran will not reduce the price of gas it exports to Turkey unless a new contract is signed between the two neighbors whereby Turkey undertakes to increase the amount of gas it imports from Iran; managing director of the National Iranian Gas Company (NIGC) was quoted by Tasnim news agency as saying.

Iran's gas export to Turkey was "sufficient and steady" last year, Hamidreza Araghi said, adding that Turkey in turn has paid for the gas without any delay.   

Turkish President Recep Tayyip Erdogan was in Tehran on Tuesday to discuss a discount for the gas supplied to Turkey, as well as the prospects of transporting Iranian gas to Europe, Turkey’s Energy and Natural Resources Minister Taner Yildiz said prior to the visit.

Iran, which is selling gas to Turkey from 2001, is the second largest gas supplier to this country after Russia, delivering 10 billion cubic meters of gas annually. The price of Iranian gas is not officially disclosed, but according to media reports, it is 490 dollars per thousand cubic meters, which is higher than the price at which Turkey imports gas from Russia and Azerbaijan.

"We purchase 90-95 percent of Iran’s exported natural gas which is the most expensive gas we buy. Should Iran lower the price, we will definitely increase the amount of gas we import from Iran," Erdogan said at a joint press conference in Iran with his Iranian counterpart, Hassan Rouhani. "We need to get gas at a low cost so that we can provide it to our citizens at a minimal price. The two friendly countries need to show each other solidarity,” he further added.

Turkey’s state-owned oil company Botas appealed to the International Court of Arbitration (ICA) regarding the price and volume of Iranian gas in March 2012, claiming that Iran has reduced the volume of gas exports to Turkey by 25 percent without mutual consent. It also assumed Iran sells gas to Turkey at a higher price compared to that of other countries in the region.

In February, ICA began proceedings regarding Turkey’s claim, asking for a price cut on Iranian gas by 25 percent whose final verdict will be made in May. In its first decision on Iran-Turkey gas dispute, the ICA ruled against Turkey’s complaint that Iran delivers "insufficient" amount of gas to the Eurasian country.

"We are set to negotiate and reach a mutual agreement with Turkey in this regard so as to resolve the matter prior to the court's decision," Araghi said, noting: "However, that required technical assessments which were not feasible to conduct during the Turkish Minister's one-day visit."

The Turkish authorities earlier said they viewed Iran as a possible supply source for the Trans-Anatolian gas pipeline which is a part of the Southern Gas Corridor lobbied by the European Union as an alternative to Europe-bound supplies via Russian gas pipelines.

  8% Y/Y Increase in Exports

Gas exports showed a positive balance in the previous Iranian calendar year (ended March 20), exceeding imports by 2.5 billion cubic meters (bcm). Having had increased one bcm last year, overall gas exports had an eight percent year-on-year rise.

The NIGC plans to supply natural gas to all households across the country over the next three years, Araghi said. It then will focus on expanding gas exports as well as supplying gas to industries.

Industries, petrochemical complexes and other competent energy-intensive industries will be connected to the national Iranian gas Trunkline (IGAT), with a projected increase in gas production to be channeled into the industries.

The NIGC plans to boost gas production from the South Pars gas field in the Persian Gulf by 100 million cubic meters (mcm) this year. Gas production capacity is to reach 1,300 mcm/d in 2018 once the development projects currently in hand are completed. Seven South Pars phases are projected to go on stream by March 2016.

Iran holds 17 percent of the world's proved natural gas reserves, which is the second biggest after Russia. However, it is a relatively minor and strictly regional exporter of natural gas via pipelines to three neighboring countries – namely Turkey, Armenia, and Azerbaijan.

Turkey receives more than 90 percent of Iran’s natural gas exports under a long-term contract. Armenia and Azerbaijan have swap arrangements with Iran that account for 6 percent and 3 percent of Iran’s natural gas exports respectively.

There are plans to expand gas exports to Iraq, Pakistan, and Oman in the near future while in the long run Iran aims to commence gas exports to Europe.  Export of 30-50 million cubic meters of gas per day to Iraq will start in May, generating $4-6 billion in revenues.