Not more than a week ago, the mass media reported on the last contract signed between Turkey and Iran on import of 30 billion cubic meters of natural gas from Iran and Turkmenistan to Turkey. Under the contract, the Turkish company TPAO has the right to operate without bidding three gas fields in the Southern Pars province in Iran. It’s planned that the company would invest 3.5 billion dollars in operation of these fields.

Provided agreement is mutually beneficial. For Iran it is a great opportunity to get out of the international exclusion caused by the development of its own nuclear program. Through the joint development of oil fields, Iran will again be able to enter the international arena. Gas, which will be produced by TPAO, therefore planned to export to Europe, thereby Iran may seek to modify the treatment from the European countries.

It’s confirmed with the fact that Iran has also signed a contract about cooperation with the OMV an Austrian gas company, one of the contractors of the Nabucco pipeline through which gas from Central Asia and Iran is planned to export to the Europe.

Regarding Turkey, it will be an additional source of gas, which would help it address multiple objectives. First, to reduce dependence on Russian gas, which now account for a large portion of the gas in the country. The second reason, the dire need for energy supply in the country due to rising energy consumption. Recently, it became clear that the gas supply from Egypt may be delayed for a couple of years because of delays in building the necessary infrastructure to import gas from that country. Finally, in case of re-export of gas to Europe, Turkey will be better chances for EU accession, the country tranziter energy to the EU.

However, along with the benefits of the initiative are a number of issues that still need to find a solution. Otherwise, the project could forever remain on paper and will never be implemented. In the first place, the question arises as to why the contract was not signed by the heads of State of Turkey and Iran. It is not a secret that such kind of contracts is always signed by the first persons of the states. Moreover, during the election campaign in Turkey, it could yield additional dividends to the ruling party in Turkey.

Another question related with Turkish company TPAO which has to get capital to finance such a large project. Usually companies never used own capitals in investment such kind of major projects, and prefers loans from financial corporations. In this case, international banks may refuse to finance projects in Iran because of international sanctions and prevention measures from the United States, for possible investment in Iran. USA has pledged to impose sanctions against companies that decided to invest in the economy of Iran.

Another question, under the contract, TPAO must sell all gas produced by this company to Iran, and only then Turkey will be able to purchase gas for their own need from this country. What will be the price of Iranian gas to Turkey? Is Iran really will sell gas to Turkey, in view of its own needs?

Can TPAO do alone such a large project, given the lack of experience? Indeed, TPAO has never been oneself in such large projects. And experience elsewhere in the company is not so large and mainly based on joint projects with other companies.

It’s should be not forgotten that Iran has stopped the supply of natural gas to Turkey this winter because of the need in gas for own economy. Right now there is an economic crisis that began this year in Iran, where citizens may use of fuel in limited amount.

According to the contract, Turkey will be supplied to gas from Turkmenistan. However, during the signing of the agreement Turkmenistan was not present. How the parties plan to guarantee the supply of gas from Turkmenistan, given that the country is in the major responsibility for the supply of gas to Russia and China.

The next question, what will be the response of the United States and Russia signed to a contract. Turkey may weaken relations with the United States, which opposes any joint projects with Iran. As for Russia, the country hardly would be happy for interaction of a major competitor such as Iran, whose gas reserves are second only to Russia seats.

Not picturesque important issue is how the gas will be supplied from Iran to Turkey. Existing pipeline is far from the South Pars, which is scheduled to operate. That is why the construction and pipeline, or to connect with the existing, or new. What requires a separate contract, and therefore additional funding. These issues require serious doubts feasibility of the project. It should be noted some shortage of time, during which this treaty was implemented.

But all these steps between the parties can be explained only if both parties have strong support from interested side. In this case the EU may be that side which is keenly interested in acquiring additional gas from alternative sources. This may confirm the fact that the EU pursues the interests of NABUCCO pipeline, through which it plans to deliver Central Asian and the Iranian gas. And perhaps in this case Turkey play role is an EU representative.

This may be answering many questions about financing. But the most realistic answer to a determined effort by Turkey in this project is probably other reasons. Turkey, which plans to become transit States in the transport of energy, but that plan is in jeopardy. Russia, which agreed with Bulgaria and Greece to build a pipeline Burgaz-Aleksandropolus, endangered Samsun-Ceyhan draft.

Indeed, Turkey was hoping through this pipeline to transport Russian oil to bypass the Turkish straits. The Russian draft would leave the pipeline without oil. Second planned by the Russia project is the construction of the Southern Stream, the gas pipeline on the bottom of the Black Sea. Through this pipeline Russia plans to export gas to bypass Turkey.

This situation has forced Turkey to seek new sources for the transit through its territory. This recent events forced Turkey to look for alternatives, one of which is Iran. How events will unfold remains to be seen.

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This commentary is from USAK’s Energy Review Newsletter
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