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Gazprom signs five-year deal to import 5.5 Bcm/year of Turkmen gas

  • Commodity
  • Natural Gas

London — Russia's Gazprom said Wednesday it has agreed to buy 5.5 Bcm/year of gas from Turkmenistan under a new five-year deal starting July 1, having resumed purchases on a short-term basis in April.

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Russia was a key market for Turkmen gas until January 2016 when Gazprom ceased purchases altogether, saying they were no longer profitable.

But in a sign of improving relations between the two countries, Gazprom agreed in April to resume imports, signing a short-term contract from April 15 to June 30.

Total deliveries in that period were 1.2 Bcm, Gazprom said, in line with the volumes anticipated under the 10-week deal.

Gazprom said it had entered into a contract on Monday for the purchase of gas from Turkmengaz for a period of five years through June 30, 2024.

"In accordance with the contract, the volume of gas supplies from Turkmenistan to Gazprom's portfolio will amount to 5.5 Bcm/year," it said.

The long-term commitment to imports of Turkmen gas could be driven by Gazprom's desire to supplement its own production as it boosts exports to Europe and Turkey.

But equally it could a bid by Russia to hamper plans to build a trans-Caspian pipeline designed for Turkmen gas to reach Europe via the Southern Gas Corridor.

Turkmen gas was traditionally the marginal source of Russian gas procurement, needed to top up Russia's domestic output. Exports ran at around 10-11 Bcm/year from 2010-14.

Relations between Turkmengaz and Gazprom worsened over 2014 and 2015 when the two became embroiled in a dispute over payments and supply volumes.

Gazprom moved the dispute to the Stockholm arbitration court in June 2015, but said the following year the case had been put on hold "with a view to finding a mutually acceptable solution on further cooperation outside the framework of the arbitration."

Trans-Caspian pipeline

It remains to be seen whether Gazprom's rationale for resuming Turkmen imports is to supplement its own supplies -- domestic and exports to Europe -- or to try to derail the trans-Caspian pipeline.

Turkmenistan has long been seen as a possible source of gas to help fill the Southern Gas Corridor bringing Caspian region gas via Turkey to Europe.

Last August, the concept of a trans-Caspian gas pipeline from Turkmenistan to Azerbaijan received a boost when the five nations with borders on the Caspian Sea agreed legal terms for sharing access after 20 years of negotiation.

In the meantime, a resumption of Russian supplies gives Turkmenistan its second main export market back.

Turkmenistan's only significant customer is China, with exports running at around 33 Bcm/year.

Some small volumes of gas have reached Azerbaijan in recent years as swaps via Iran.