Iran cuts gas supply to Turkey

Istanbul (Platts)--12Dec2006

Iran has cut the volume of gas it is sending to Turkey from 27 million
cubic meters/day to around 5 million cu m/d, a spokesman for Turkish gas
importer Botas told Platts Tuesday, adding that the volumes had been cut early
last week.
"Iran hasn't given us any clear indication as to why they have done this,
but they have promised that they can increase the volume they are sending us
to 18 million cu m/d within a few days," he said. He added that generally
relations between Botas and its Iranian counterpart were good but that
recently there had been problems with the quality of gas being supplied.
"In October we had to cut the volumes we were taking as the gas arriving
was too wet," he said, adding that Turkey was allowed to do this under the
terms of its contract. Iran had subsequently invested in new equipment aimed
at improving the gas quality but had been unable to solve the problem, he
said.
The spokesman also confirmed that the cut was made shortly after a visit
to Tehran by the Turkish prime minister Tayip Erdogan and energy minister
Hilmi Guler and that no advance warning of the cut had been given.
A spokesman for Turkey's energy ministry confirmed to Platts that the
visit had been made with the aim of negotiating concessions in the price
Turkey pays for its gas and the volume ramp up of supply under its 10 billion
cu m/year contract with Iran.
However, he declined to comment on reports in the Turkish media that the
concessions were being demanded in return for allowing Iran the right to
export gas to Europe via Turkey.
"Negotiations are proceeding," he said.
A new gas pipeline from Azerbaijan is expected to begin operations early
next year, while current high gas prices have forced Turkey to change policy
in favor of using cheaper domestic resources for power generation. Fears have
been voiced that Turkey is about to face a problem with its take-or-pay
commitments, and as a result has been seeking concessions from its suppliers
on both the price it pays for its gas and on the minimum take-or-pay volumes
agreed.
The Botas spokesman explained to Platts that the company was currently
experiencing no problems in meeting demand due to the unseasonally warm
weather Turkey was experiencing. However, he said the expected arrival of
normal winter weather could create a problem.
With Turkey's gas import pipeline from Azerbaijan not expected to be
operational until early next year at the earliest Turkey would be looking to
Russia for extra gas supplies, and was already increasing imports of LNG in
order to avoid a shortfall, he said.
Turkey experienced a similar problem in January this year when Iran cut
the volume of gas it was sending by a similar degree citing "bad weather" as
the cause. Botas was subsequently forced to cut gas supplies to industrial
consumers, but was able to increase imports from Russia via the Blue Stream
pipeline to meet residential demand, until normal supplies from Iran were
restored after two weeks.
Turkey imports gas from Iran under a take-or-pay, 25-year agreement
signed in 1996 with supply beginning in late 2001. Last year Turkey imported
6.7 Bcm from Iran. Official predictions indicate that this year it would take
8.6 Bcm, with supply reaching the full plateau volume of 9.6 Bcm in 2007. Over
the first nine months of this year Turkey took 4.94 Bcm of Iranian gas.

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