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Petrostrategies, a Paris based think tank has analyzed the recent gas dispute between Turkmenistan and Iran in its World Energy Weekly magazine (January 9 issue). According to Petrostrategies, “it is not in Turkmenistan’s interest to lose Iran as a client.”
On January 1, Turkmenistan slashed (the Iranians used the word “halted”) its gas deliveries to Iran. It had been exporting up to 10 bcm/annum to its southern neighbor. It seems that this cut followed a last-minute breakdown in talks, which were aiming at extending the gas agreement between these two countries by five years. According to the National Iranian Gas Company (NIGC), a temporary agreement had been struck, but Turkmenistan reportedly decided not to fulfill its commitments. The latter says it made this supply cut after it had issued several warnings to Iran, which went unheeded. Ashgabad claims that Tehran did not bother to seek a compromise on the subject of its debt. In December, Turkmengaz pointed out that Iran owed it some $1.8 billion in arrears for the gas delivered during the winter of 2007-8 (which had been particularly harsh in the region). Tehran had contested this figure and the talks between the two parties became increasingly strained towards the end of the year, with Iran saying it was prepared to launch an arbitration procedure on this question.
Iran says this situation is not completely unprecedented, as Turkmengaz had halted its gas deliveries in 2007 (during the abovementioned problematic winter), demanding that its sale price be raised nine-fold (i.e. $360 instead of $40/1,000 cu.m, according to Iran). Although it is a big producer, Iran has been importing Turkmen gas since 1997, in order to ensure an optimal supply of its northern provinces, notably in the winter (the main Iranian fields are located in the south of the country), as well as to serve isolated regions in the North. Between April 2015 and March 2016 (Iranian year), Iran imported at least 9 bcm of Turkmen gas, i.e. twice as much as in the previous year. These imports have risen sharply in recent years and this pattern is expected to continue (a range of between 8 and 17 bcm/annum was up for consideration, and could still be, if ever an agreement is struck). The current combined capacity of the two Turkmen lines is 12 bcm/annum.
It is not impossible that this dispute will be resolved over the next few days or weeks. On the one hand, because it would probably not be in Turkmenistan’s interests to lose Iran as a client. Ashgabat now depends almost entirely on China for its gas exports, since Russia has stopped buying its gas. And in order to have some impact in its talks with the Chinese (which benefitted from preferential prices that stood at $185/1,000 cu.m in January-September 2016), Turkmenistan will no doubt need to demonstrate that it has other potential clients, too. Furthermore, the country’s economic situation has gone from bad to worse, making it weaker and increasing its dependence on gas exports. Another factor that is conducive towards an agreement with Iran is that the two countries’ positions might not turn out to be so different after all. Last year, Iran’s Deputy Minister of Petroleum for International Affairs and Trading, Amir Hossein Zamaninia, had acknowledged that his country owed money to Turkmenistan, but not $1.8 billion. He had said that the debt was within a range of between $600 million and $1.5 billion.
Having said that, it seems that Iran has not been left completely empty-handed in this affair. According to its Petroleum Minister, domestic gas demand has now hit 700 million cu.m/d, and the gas that was previously imported from Turkmenistan accounted for only a fraction of domestic consumption. According to NIGC, “Iran’s gas output has risen so much in the past 3 years that no more imports of the item would be needed”, and the lack of supplies during the winter could be compensated by a better use of the gas in power plants, industries and the household sector.
Whatever the case may be, this rekindling of gas tensions between Iran and Turkmenistan could also be due to the heightened competition between these two countries, on the international market. Turkmenistan is looking to export gas to Europe (among others), in order to diversify its client base. For this scenario to come into effect, the Turkmen gas will have to be transited via Iran (it could run through the Caspian Sea, where the problems of territorial status have not been settled). For its part, Iran would like to export gas to Asia, notably China and Pakistan, which does nothing to improve matters for Turkmenistan: the more potential suppliers China has, the more it wants to influence the negotiations, which are already very much going its way. As for Pakistan, it is dragging its heels in fulfilling its Iranian gas import contract, while negotiating with Ashgabat for the import of Turkmen gas via Afghanistan (the TAPI gasline project).