Repairs still not complete after March 31 explosion
Ankara looking for lower prices, favor with US
US LNG imports in 2020 almost double whole of 2019
Turkey is delaying the completion of repairs to the Iran-Turkey gas pipeline, which was blown up at the end of March, in an apparent attempt both to curry favor with Washington and to pressure Tehran to reduce its prices, according to industry sources.
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Flows through the pipeline were halted early on March 31 following an explosion. Despite the blast being reported by Turkey’s state media, no official explanation was given and Turkish officials have yet to comment on when the line is expected to re-open.
The pro-Kurdish Rudaw Internet site reported on April 1 that responsibility for the attack had been claimed by the Kurdish separatist Kurdistan Workers Party (PKK).
The PKK has attacked the pipeline on numerous occasions since it was commissioned in 2001, and repairs have in the past usually been completed swiftly.
Mehdi Jamshididana, director of dispatching at the National Iranian Gas Company (NIGC), told oil ministry news site Shana on March 31 that repairs following such attacks usually took between three days to a week. But on April 19 Jamshididana told Shana that Ankara had only just started making repairs to the damaged line and had informed Tehran that they would take several weeks.
Subsequent reports by Iran’s Fars news agency and Press TV claimed that Turkey was delaying repairs, suggesting that Ankara was bowing to pressure from Washington to end imports of Iranian gas and to replace it with imports of LNG, including from the US.
The US has become an increasingly important supplier to the Turkish market. According to data from S&P Global Platts Analytics, Turkey has taken 23 cargoes of US LNG already in 2020, compared with 13 for the whole of 2019 and just four in 2018.
Ankara has so far declined to comment on the issue, with Botas deferring comment to the energy ministry, and energy ministry officials not responding to questions from S&P Global Platts as to when the line is expected to re-open.
One private sector official told Platts that Ankara has been using the coronavirus pandemic as an excuse to delay repairs to the line, citing the need to maintain “social distancing.”
Another private sector official with knowledge of the issue suggested to Platts that Ankara would be using the delay to pressure Tehran to reduce the price of the gas it sells to Turkey.
Although the price is indexed to crude oil, it is on a six-month lag, with the current low prices not expected to filter through to contracted volumes imports until October.
In the meantime, it makes sense for Turkey to import cheap LNG in place of the Iranian gas, the source said.
Turkey imported 7.7 Bcm of gas from Iran in 2019, or some 17% of its total gas imports, under a long-term contract that allows Ankara to buy 9.6 Bcm/year.
Although neither side has published details of the supply contract, Iranian gas has long been reported in the Turkish media as the most expensive of Turkey’s three pipeline suppliers — after Russia and Azerbaijan.
Ankara has made frequent attempts in the past to secure discounts, most recently through the international arbitration courts which in 2016 awarded Botas a 13.3% discount on the price it pays Tehran.
Further, Iran’s supply contract with Botas runs only until July 2026, and with little prospect of LNG markets tightening appreciably before then, Tehran will be aware that Ankara is not without other gas supply options, should it decide not to renew the existing contract.
Iran has little cause for surprise. Turkey’s deputy energy minister Alparslan Bayraktar told a conference in Istanbul in February that Turkey planned to use the availability of cheap spot LNG to persuade its long-term gas suppliers to lower their prices in contract renewal talks.
LNG imports last year accounted for 28.1% of Turkish gas imports, of which over half (15.5%) was spot LNG.
Adding to the strength of Turkey’s position is the fact that its gas consumption has been falling. Last year it fell 9% to 44.9 Bcm, due largely to a 38% drop in demand for power burn.
Heading into summer, when domestic gas demand is minimal, the need for Iranian gas is hardly pressing.
Pressuring Iran, both in the short term with the cutting of gas imports, and over the longer term with the possible non-renewal of the existing import contract, also offers other benefits.
Turkey’s relations with the US have been at a historic low for the past two years over a range of issues. But recently both sides have appeared keen to build bridges.
The countries’ presidents Recep Tayyip Erdogan and Donald Trump are reported to have spoken by telephone on at least three occasions this year.
And last month, Erdogan sent a letter to Trump calling for closer collaboration and promising that Turkey would “continue to be a powerful and reliable partner” for the US, an offer that the continuing closure of the Iran gas pipeline, coupled with Turkish imports of US spot LNG cargoes, could only serve to underline.
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