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Gazprom ceased Turkmen gas imports in 2016

New contract sign of improved relations

London — Russia's Gazprom has agreed to resume imports of gas from Turkmenistan -- having suspended purchases in January 2016 -- in a sign of improved relations between Moscow and Ashgabat.

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Russia was a key market for Turkmen gas until 2016 when Gazprom ceased purchases altogether, saying they were no longer profitable. In a statement Tuesday, Gazprom said that a trading subsidiary -- Gazprom Schweiz -- had agreed a new gas purchase contract with state-owned Turkmengaz on Monday.

"According to this contract, up to 1.155 Bcm gas from Turkmenistan is to be purchased through June 30, 2019," it said.

The 10-week contract duration is short, but should the contract be extended, the volumes in the current contract suggest an annual volume of 6 Bcm, according to S&P Global Platts calculations.

The resumption of imports of Turkmen gas could be driven by Gazprom's desire to supplement its own production as it boosts exports to Europe.

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 in 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.

In August last year, 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 on the legal terms for how to share access after 20 years of negotiation.

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

Ashgabat's only significant customer is China with exports running at around 30 Bcm/year.

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

--Stuart Elliott, Stuart.Elliott@spglobal.com

--Edited by Jonathan Dart, newsdesk@spglobal.com