Turkey-Russia gas pipeline deal stalls amid fight over gas prices

By ERCAN ERSOY, ELENA MAZNEVA and ILYA ARKHIPOV
Bloomberg

Russia’s plan to build a new $15 billion pipeline to Turkey is at risk of delay because of a fight over gas prices, according to people with knowledge of the matter.

State-run OAO Gazprom and its Turkish counterpart Botas had a six-month period to agree on prices for gas supplies between the two countries, which expired on Monday. The Ankara-based company now has the right to take the matter to international arbitration, three of the people said, asking not to be named because the information is private.

The dispute over prices means there’s no immediate prospect of signing a binding pact for the new pipeline, the second between Russia and Turkey. An agreement could now be delayed until at least October, two more people said, also asking not to be identified.

The delay is a blow to President Vladimir Putin’s plan to use the new link to ship gas to Turkey and onto Europe, bypassing existing pipelines in Ukraine. He proposed the project last year after the European Union, which gets about 30% of its gas from Russia, blocked a similar link through Bulgaria.

Gazprom doesn’t plan to extend a gas-transit contract with Ukraine after 2019 and the EU would have to accept the new route, Russian Energy Minister Alexander Novak said in April.

Things changed last week, however, suggesting uncertainty about the Turkey pipeline. Gazprom CEO Alexey Miller said Putin ordered the company to discuss transit with Ukraine before the contract expires.

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Gazprom’s press office and Turkey’s Energy Ministry declined to comment.

Turkey is Russia’s second largest gas-export market with about $10 billion in revenue last year and two-thirds of volumes are bought by state-run Botas.

The deal also stalled because the ruling party in Ankara lost its parliamentary majority in a June 7 election, one of the people said. Officials from Gazprom and Turkey had previously said they had agreed on pricing.

If a price accord is reached, a binding deal on the pipeline is possible later this year, two people said.

Gazprom declines to comment on the possible cost of the link. The sub-sea section of the scrapped South Stream pipeline under the Black Sea was estimated at 13 billion euros ($14.5 billion) to 14 billion euros.

Five years ago, the Moscow-based gas exporter faced massive claims from EU clients that its prices were too high after gas demand collapsed amid the global economic crisis. Now Germany’s EON, one of Gazprom’s key clients, and Poland’s dominant natural-gas distributor are also seeking price cuts through international arbitration.

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