Tehran, Ankara to discuss gas price compensation

A high-ranking economic and political delegation of Turkish officials arrived in Tehran on Friday to negotiate the amount of compensation Iran has to pay Turkey under a court ruling over their enduring gas dispute.
On February 3, International Court of Arbitration ruled that Iran supplied gas to Turkey at a higher price compared to other producers in the region and cut its gas export price to Turkey by approximately 15%.

The verdict is yet to be finalized, but Iran will likely have to pay Turkey around $1 billion, or 15% of the gas export price as compensation, according to Hamidreza Araqi, managing director of National Iranian Gas Company.

The Turkish mission, headed by the country’s Prime Minister Ahmet Davutoglu, is also expected to negotiate a discount on Iran’s gas price with Bijan Namdar Zanganeh, Iran’s senior oil official, Mehr News Agency reported.

“Based on the ICA ruling, the two sides have been given a three-month period, during which they can hold negotiations about new prices and come to a conclusion. Otherwise, ICA will issue a final verdict,” Berat Albayrak, Turkey’s minister of energy and natural resources was quoted as saying.
“We are determined to settle the issue as soon as possible through negotiations before ICA finalizes its verdict.”

Iran signed a contract in 1996 to export 10 billion cubic meters of gas per year to Turkey for 25 years. Turkey’s state-owned oil company Botas appealed to ICA regarding the price and volume of Iranian gas in March 2012.

Turkey receives more than 90% of Iran’s natural gas exports under a long-term contract, which amount to 30 million cubic meters per day and about 10 billion cubic meters per annum.

*** Serious Challenge

Concurrent with Iran-Turkey gas talks to modify prices, the Persian Gulf country faces a formidable challenge to sign gas contracts with new customers, namely Iraq, Pakistan and Oman.

Along with the drastic fall in oil prices, natural gas prices have suffered a 44% decline, falling from 45 cents per cubic meters to 25 cents, according to the Energy Ministry’s Office for Developing Export of Technical and Engineering Services.

Natural gas prices hit historic lows in many locations last week, including the Henry Hub spot where natural gas was traded at $2.
Energy market analyst, Ahmad Jazayeri, believes that low gas prices have raised the alarm for Iran as its potential customers will definitely take advantage of the situation and ask for maximum discount rates.

The situation takes a turn for the worse when Qatar plays out an underselling scenario by further developing its North Dome Gas-Condensate Field, which is attached to Iran’s South Pars Gas Field, while the world’s biggest gas exporter Russia is pursuing a similar policy.

As Iran’s rival in gas extraction from the shared South Pars Gas Field, Qatar’s second strategy is diversifying its gas export markets. Qatar has recently signed a gas contract with Pakistan based on which each million British thermal unit of gas will be sold to Pakistan at $5.
Moreover, Qatar targets new markets such as South America, the Middle East and the Caribbean Sea’s countries.

To put it simply, the tiny Persian Gulf state has resorted to extreme alternatives to have an upper hand in the global gas market, a situation that calls for taking emergency precautionary measures by Iranian energy officials to be able to have a say in international markets.

By Financial Tribune