Ankara is nearing a deal with Baku on gas transit through Turkey to Europe, Energy Minister Taner Yildiz said, adding there had been much progress since Azerbaijan said it might explore alternative routes.

Failure to agree terms for Azerbaijan's gas to cross Turkey could pose problems supplying the planned Nabucco pipeline, backed by the European Union, which aims to reduce Europe's reliance on gas imports from or via Russia.

Yildiz also said in an interview with Reuters on Wednesday that Turkey supported a seventh partner in the Nabucco pipeline project and that France's GDF Suez was a good candidate. Turkey had previously opposed French involvement.

Azerbaijan said earlier in the month that transit terms to Turkey were unacceptable and that it was looking at other routes for gas from its Shakh Deniz gas field when production starts on the next phase between 2013 and 2016.

Russia's South Stream pipeline, which could tighten Moscow's grip on European markets, is seen as a main rival to Nabucco

Russian energy company Gazprom has secured a deal to import a modest 500 million cubic metres of Azeri gas from next year but says it intends to increase volumes.

"We think there are not a lot of issues holding up an agreement with Azerbaijan," said Yildiz, adding that the two countries had been speaking on prices and that talks have 'come a long way.'

Among potential hurdles in the talks on gas, Turkey's relations with Azerbaijan have been tense since Turkey and Armenia signed protocols earlier this month to normalise ties.

The Turkish border with Armenia had been closed since 1993 when Turkey shut it in solidarity with its traditional Muslim ally Azerbaijan, which was fighting a losing battle against Armenian separatists in Nagorno Karabakh.

Seventh partner

Turkey previously rejected French participation in the 7.9 billion euro ($11.83 billion) Nabucco project due to a dispute over a French bill that would have made it a crime to deny that the 1915 mass killings of Armenians was a genocide.

A source told Reuters earlier in the month that French President Nicolas Sarkozy had expressed hope in a meeting with Turkish President Abdullah Gul in Paris that GDF Suez would soon be able to take part in the Nabucco Pipeline.

Nabucco's current shareholders include Austria's OMV, Hungary's MOL, Romania's Transgaz, Bulgaria's Bulgargaz, Turkey's Botas and Germany's RWE.

"As a partner we think that GDF has become an increasingly important company," said Yildiz. "We'll be looking carefully at any offer that comes from GDF Suez," he said.

A spokesman for the Nabucco gas pipeline consortium said in Paris on Wednesday it remained open to a seventh partner but was not in talks with any potential new entrant, including GDF Suez.

Yildiz also said that Turkey planned to carry out its $3.5 billion natural gas development plans in Iran and that the issue would be discussed during Prime Minister Tayyip Erdogan's upcoming trip to Tehran.

Iran has given state oil company Turkish Petroleum a one-month deadline to finalise the deal to develop part of the world's largest gas field in Iran, an industry source said on Monday.

The Turkish and Iranian governments agreed in July 2007 that Turkish Petroleum would produce an annual 20.4 billion cubic metres (bcm) of natural gas from three development phases of Iran's South Pars gas field.

The deal has been delayed. Turkey's ally the United States opposes new energy deals in Iran as part of efforts to isolate Tehran over its nuclear programme. – Reuters