Turkey launches arbitration process for Iran gas dispute

“But we had to push the button for the arbitration process to avoid major delays.” Guler said he did not know if there would be an agreement before Turkey and Iran actually go to international arbitration. “They are not acting as fast as they should,” he said. “They are selling us gas at expensive prices and we are determined to correct this.” Energy officials have said Turkey could also halt purchases of natural gas from Iran if talks to lower prices fail to yield a deal.

Iran began pumping an annual 4 bn cm of natural gas to Turkey in 2001 under a 25-year contract, but purchases have become sporadic following Turkish quality complaints. Imports are to reach 10bn cm by 2007. “We have two problems with the Iranian gas,” said one Turkish natural gas official. “We are buying the most expensive gas from Iran. And separately, the gas we are receiving has quality problems. It is not in line with the contract. If the problems persists and they reach a point damage becomes maximal, we would have no alternative than stopping imports.”

In March, Iran turned down a Turkish proposal for a price cut. “The Turkish officials’ proposal on the natural gas price is in breach of the contract, and we have rejected this proposal,” said Ruknoddin Javadi, head of Iran’s National Gas Export Co.

Turkey is due to import 6bn cm of natural gas from Iran in 2004. At the same time it is due to buy 18bn cm from Russia, its largest supplier, this year. One problem is that the domestic consumption for the year is seen at 23.2bn cm. Some analysts say the recent lapses in Turkey’s gas purchases may be prompted by a glut in supply. But others accuse Iran, which has the world’s second largest natural gas reserves, of selling Turkey gas it has purchased cheaply from Turkmenistan.

“Turkey must prove there is something wrong in the quality of the gas it buys from Iran if it wants to legally cut off purchased,” said one Ankara-based analyst. There are indications that Turkey would be justified if it went ahead with arbitration.” Iran has proposed supplying an additional 40-50bn cm of gas to European markets via Turkey. Turkey in turn wants discounted prices on natural gas for domestic consumption. “For Iran, the most logical road to European markets passes through Turkey,” said one Turkish pipeline official. “Turkey is also more feasible because it is a market to which Iran can sell gas.”

Turkey, which imports almost all of its energy needs, is seeking to construct gas pipelines to Europe, including one link with Greece and Italy, as well as Balkan states and Austria. It also wants to pay for some portion of its gas purchases through the exchange of goods.

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