NIGC, Turkey’s Botas Explore Future of 2001 Gas Contract

EghtesadOnline: The National Iranian Gas Company (NIGC) has started negotiations with Botas, Turkey's state oil and gas company, to renew a natural gas contract that expires in 2026, the deputy oil minister for international affairs said.

News ID: ۷۸۶۰۰۸

15 February 2021

“Securing a long-term deal will not be as easy as the one signed in 2001 because now Ankara has a larger range of suppliers to choose from. Turkey is emerging as a more adept gas consumer and negotiator,” Amirhossein Zamaninia was quoted as saying by IRNA.

The two companies were supposed to start talks on the new contract in 2020, but that was postponed due to the Covid-19 pandemic.

Given the nature of long-term international agreements, such talks normally are interconnected with foreign policy issues and geopolitical considerations, he said.

Economic experts and analysts have said energy diplomacy and a coherent foreign policy should be at the forefront of Tehran’s gas export strategy.

Grappling with financial problems and lack of advanced technology, it is crucial for Iran to adopt a balanced approach to its gas strategy that includes geopolitical considerations and market realities.

As per a 25-year deal, the NIGC started selling gas to Turkey in 2001 and is the second largest gas supplier to the neighbor after Russia.

“Cordial political relations with neighbors, reducing the bloated bureaucracy, putting in place a functioning regulatory body and a responsive legal framework can help Iran promote its exports, like natural gas.”

Major Obstacles

Referring to obstacles that could hamper the two-way talks, Zamaninia said in addition to high domestic consumption that restricts exports, the rising gas production in Qatar, US and Russia can impact the new agreement with the Turks.

Natural gas makes up 70% of the energy mix in Iran. The residential sector is the largest consumer followed by power plants, petrochemical companies and industrial units.

With a population of 82 million, Iran consumes more than 140 billion cubic meters of gas annually, not far from China, the world’s second-largest economy and the most populous country in the world.

Of the total 850 mcm of gas produced daily, 650 mcm is used by households in winter. Last winter consumption reached 730 mcm per day.

Iraq, the official recalled, has embarked on flare gas recovery projects from its oil and gas fields.

“The more associated petroleum gases they (Iraq) collect, the less bargaining power NIGC will have as the Arab neighbor is likely to emerge as a strong competitor.”

The US under Donald Trump was opposed to Turkey's energy imports from Iran, it wanted to increase its own share of the Turkish energy market and reduce the share of Russia and Iran by increasing LNG exports to Turkey. Besides Russia, Azerbaijan and Iran, the US, Qatar, Nigeria and Algeria export LNG to Turkey).

Showing Flexibility

Despite the challenges, the deputy oil minister expressed hope that the ongoing talks would be productive because importing gas from Iran is economically viable compared to other routes, namely the Trans-Anatolian Natural Gas Pipeline and TurkStream Pipeline that transfer gas to Turkey from Azerbaijan and Russia.

“In addition to expanding infrastructure, gas export prices have been modified and Turkish officials have expressed satisfaction.”

Turkey apparently wants to continue buying Iranian gas because if it does not, it will not be able to meet its winter energy demand, mainly in the southern regions.

Not denying the fact that finding new sources of energy has always led to changes in energy geopolitics, he said Turkey’s discovery of 320 billion cubic meters of natural gas reserves in the Black Sea will not affect the terms of new contract because it will be difficult for Turkey to explore gas from the new field and supply it to the domestic market in the short term.

“It will need billions of dollars and ten years to complete such projects.”

NIGC uses IGAT-9 stretching over 2,000 km to transfer gas from Asalouyeh, Bushehr Province, to Bazargan district in the northwestern province of West Azarbaijan, which extends into Turkish territory.

IGAT is a series of nine large diameter pipelines built to supply gas from refineries in the south (Khuzestan and Bushehr provinces).