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London — Russia's Gazprom plans to resume imports of gas from Turkmenistan at the start of 2019, CEO Alexei Miller said this week, having suspended purchases in January 2016 on poor economics.

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Speaking to Turkmen state television during a visit to Ashgabat, Miller said that Gazprom's gas supply contract with Turkmenistan was valid until the end of 2018, and that a new agreement would be reached "very soon."

The likely resumption of imports of Turkmen gas from next year 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 put paid to plans to build a trans-Caspian pipeline designed for Turkmen gas to reach Europe via the Southern Gas Corridor.

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

"Turkmenistan is our traditional partner in the energy sphere," Miller said, according to a transcript of the interview posted on the Turkmen government website.

"The intergovernmental agreement between Russia and Turkmenistan on cooperation in the gas sphere is valid until the end of 2018. It was paused for commercial reasons and will be renewed by the end of 2018," Miller said.

"In this regard, we discussed the resumption of the procurement of Turkmen gas by Gazprom, which will start in January 2019," he added.

Miller said that talks on the volumes of gas supplies and other issues would be carried out at the technical level. "We expect this agreement will be achieved very soon," he said.

GAZPROM RATIONALE

Turkmen gas was traditionally the marginal source of Russian gas procurement, needed to top up Russia's domestic output, but at a price.

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 derail the trans-Caspian pipeline.

"Extra gas in winter might help [Gazprom], and could go through Ukraine, which is the only spare pipeline capacity available," leading gas analyst James Henderson from the Oxford Institute for Energy Studies told S&P Global Platts Thursday.

"The Turkmens would need to be very flexible about when they do and don't sell gas though," Henderson said.

Whether Gazprom finalizes a deal also remains to be seen. "Unless the price is right, I doubt if Gazprom will be a buyer," Henderson said.

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, 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.

Henderson said there could well be a political element to Gazprom's move. "Gazprom may want to discourage further talk of exports to Europe following the Caspian Sea resolution," he said.

TURKMENISTAN EXPORTS

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

Assuming that exports resume at the 10-11 Bcm/year level secured from 2010 to 2014, it would be a boost to Ashgabat whose only significant customer is China -- with exports running at around 30 Bcm/year.

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

Turkmenistan also ceased all exports to Iran, which had previously run at around 6-8 Bcm/year, at the start of 2017 and remains embroiled in a dispute over $1.8 billion it says that Iran owes for previous deliveries.

The result of the loss of markets in both Russia and Iran was a decline in Turkmen gas production, which dipped to 62 Bcm in 2017, according to the latest BP Statistical Review of World Energy.

Tightened financial conditions inside Turkmenistan prompted the government to increase prices for gas domestically, so domestic consumption has also fallen.

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."

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

--John Roberts, newsdesk@spglobal.com

--Edited by Alisdair Bowles, alisdair.bowles@spglobal.com

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