Mohammad-Reza Jolaei, head of Dispatching Directorate at National Iranian Gas Company (NIGC), said Iran’s gas exports to Turkey would continue based on commitments by both sides.

On March 31, 2020, when Iran was in the final days of Persian New Year holidays, Turkish news agencies reported a blast in the pipeline on the Turkish territory. The blast was later reported to have struck part of the pipeline, 105 kilometers from Iran’s Bazargan border post.

Turkish officials refused to provide any specific explanation about the explosion; however, separatist groups like Kurdish PKK have already been behind similar acts of sabotage on the pipeline. PKK has so far attacked the Iran-Turkey gas pipeline 11 times.

PKK claimed responsibility for attacking the pipeline, saying one of its fighters, a woman, had conducted an act of suicide blast there.

As the blast occurred on the Turkish section of the pipeline, Turkey was legally responsible for its repair.

Well familiar with such incidents, Iranian gas officials said from the very beginning that the gas flow to Turkey would resume within days. NIGC notified Turkey’s Botas officials that its engineers could repair the damage to the pipeline within eight days.

The Iran-Turkey gas pipeline stretching from Tabriz in northwestern Iran to Ankara in Turkey is 2,577 kilometers long. Iran agreed in 2001 to pump 8.5 bcm a year of gas to Turkey. In the gas contracts where supply and demand security is a key element, there is a “take-or-pay” provision, written into a contract, whereby one party has the obligation of either taking delivery of goods or paying a specified amount. Take or pay provisions benefit both the buyer and the seller by sharing risk, and can benefit society by facilitating trade and reducing transactions costs.

Line Repair Easy Task

Minister of Petroleum Bijan Zangeneh said on state radio in late May that the damaged pipeline had not been repaired while it could have been done within days.

“Iran expressed its readiness to repair the gas pipeline, but Turkey did not welcome Iran’s offer,” he said.

Meantime, Mehdi Jamshidi Dana, former director of dispatching at NIGC, said: “The coronavirus outbreak and ensuing oil price slump made the problem worse and the pipeline blast added to challenges.”

Turkey had reportedly invoked “force majeure” following the blast, which is often invoked during natural disasters. However, Iran dismissed the force majeure clause and demanded permission for visiting the damaged pipeline. The logic behind resorting to force majeure for Turkey was not to pay for the period the gas flow had been stopped.

The Turkish party had reportedly told NIGC that the Covid-19 outbreak had delayed the delivery of equipment ordered from Italy.

Interactive Approach

NIGC insisted on an “interactive approach”, saying the halt in Iran’s gas flow to Turkey did not mean deprivation from the benefits of the contract. NIGC also expressed its willingness to renew the contract after its expiry in 2026.

NIGC and Petroleum Ministry, in addition to direct correspondence with Botas, followed up on the issue through Iran’s Ministry of Foreign Affairs and Presidential Office.

The issue was discussed during Iranian Foreign Minister Mohammad Javad Zarif’s June visit to Turkey where he met with his Turkish counterpart Mevlut Cavusoglu. In the meeting, Zarif said it was “necessary” to resume gas flow to Turkey.

Covid-19 and Gas Price

Crude oil prices always provide an index for gas pricing in normal contracts. After the coronavirus outbreak and the ensuing sharp decline in energy consumption, oil prices dropped sharply. The West Texas Intermediate (WTI) oil price even fell into the negative territory.The oil price developments are expected to affect gas prices sooner or later.

Iran and Turkey are looking to expand and strengthen the level of their trade ties. During Zarif-Cavusoglu meeting, it was announced that Turkish President Recep Tayyip Erdogan would soon visit Iran to discuss economic agreements.

Talks have already started with a view to renewing the Iran-Turkey gas contract whose term ends in 2026. However, Iranian officials say the talks have been slow due to Covid-19 outbreak.

The International Energy Agency (IEA) recognizes Turkey as the biggest buyer of Iran’s gas. Iran supplies 90% of Turkish gas imports. Russia and Azerbaijan are the other two suppliers of gas to Turkey. Turkish Energy Ministry data show that Turkey’s gas imports from Russia had seen a decline since 2017. Instead, Turkey has increased its liquefied natural gas (LNG) imports from the United States.

Turkey’s gas consumption reached 50 bcm in 2019, which is estimated to reach 70 bcm by 2030.

Iran, Reliable Gas Supplier to Turkey

NIGChas already said Iran would remain a “reliable gas supplier” to Turkey. During President Hassan Rouhani’s first state visit to Turkey in 2014, joint cooperation in the energy sector was one of the first topics the two nations discussed.

Iran and Turkey are determined to boost their trade ties. Turkey hopes to bring its trade figures with Iran from the current $10 billion to $30 billion. However, White House threats of sanctions remain a major stumbling block on the way of Iran-Turkey trade exchanges.

One sector to have been affected is Turkey’s crude oil imports from Iran. Following the 2015 Iran nuclear deal, Iran sharply increased its crude oil exports to Turkey, which reached 180,000 b/d in some months. But as soon as the US pulled out of the deal and re-imposed oil sanctions on Iran as part of its maximum pressure policy, Turkey had to halt its oil purchase from Iran.

The Oxford Institute for Energy Studies said in a report that Turkish officials would have to become assured of sustained energy supply in order to meet growing energy needs in the country.

Iran is said to be sitting atop the world’s second largest gas reserves. It is currently producing 674 mcm/d of gas. Iran is also determined to increase production from the giant offshore South Pars gas field shared with neighboring Qatar.

Gas exports constitute a key policy in Iran. CEO of NIGC Hassan Montazer Torbati said recently that Iran’s gas exports last calendar year grew 26% year-on-year.

Courtesy of Iran Petroelum

by Nada Saboori