TURKEY AND IRAN GAS, BOSPORUS BYPASS, AND BTC

C O N F I D E N T I A L SECTION 01 OF 02 ANKARA 004443

SIPDIS

STATE ALSO FOR EB/CBED AND EUR/SE

E.O. 12958: DECL: 08/05/2014
TAGS: ENRG EPET ETRD IR GA UK TU
SUBJECT: TURKEY AND IRAN GAS, BOSPORUS BYPASS, AND BTC
PIPELINE CHALLENGES

REF: ANKARA 4421

Classified By: CDA Robert Deutsch, E.O. 12958, reasons 1.4 (b) and (d)


1. (C) Summary: In a August 5 meeting with Charge, MFA
Deputy U/S for Economic Relations Alev Kilic expressed
general support for U.S. goals for regional energy
development - with one exception. While Kilic stressed that
Turkey,s priority for natural gas was for realizing transit
from the Caspian, he noted that long-term Turkey would be the
natural egress for Iran,s substantial reserves of gas to
reach Europe. As reported in the press and reftel, PM
Erdogan was unable to reach agreement with Iran on any
changes to the current gas deal with Iran. Kilic emphasized
that GOT and the U.S. were on the same wavelength on assuring
timely completion of the Baku-Tblisi-Ceyhan (BTC) oil
pipeline and assured Charge that PM Erdogan would deliver a
strong message to the Georgia President on his visit August

11. Kilic would welcome feedback from President
Saakashvili,s visit to Washington. Kilic expressed
frustration about more indications that reversal of the
Odessa-Brody oil pipeline in the Ukraine may occur, further
aggravating oil tanker congestion in the Bosporus. He noted
that the GOT would take a more active role in facilitating
Bosporus bypass options, but emphasized that there would be
no state guarantees for any projects. Kilic agreed that
there needed to be movement in the permitting process. End
summary.

Iran Natural Gas
--------------


2. (C) In a August 5 meeting with Charge, MFA Deputy U/S for
Economic Relations Alev Kilic spoke about PM Erdogan,s
recent trip to Teheran. As reported in the press and
reftel, PM Erdogan was unable to reach agreement with Iran on
any changes to the current natural gas deal. According to
Kilic, Turkey was focused on gaining a reduction in price
and/or a reduction in take-or-pay commitments. Iran was
focused all-or-nothing on gaining a significant (Kilic told
us 25-year - and 15 billion cubic meter p. a.) commitment for
transmission of gas to Europe via Turkey. Kilic noted that
GOT would continue to pursue its claims regarding price of
natural gas from Iran in international arbitration and
meanwhile the contract would be suspended.


3. (C) While Kilic stressed that the GOT,s priority and
commitment was to facilitate egress of gas from the Caspian,
he noted that Iran has huge reserves of natural gas and
Turkey would be the natural and best outlet. He stated that
Turkey would not oppose or put up obstacles for Iran,s
ultimate desire to export gas to Europe via Turkey. He
stressed that this would happen only long-term; in the
short-term Turkey,s capacity is geared only to facilitate
Caspian sourced gas. Timing and modalities for adding
capacity for Iran sourced gas are all undecided, he said.
Kilic stated that negotiations would continue with Iran, but
timing is as yet undetermined. According to Kilic, the Shah
Deniz gas pipeline was proceeding on schedule for end of 2006
construction completion and 2007 gas flowing.


4. (C) Econoff,s separate discussions with contacts at the
Energy Ministry*and earlier Poloff discussions with other
MFA officials--dove-tailed with these comments on lack of
success in the gas negotiations with Iran. They described
Iran as an intense &bargainer8. However, Poloff's reftel
reporting of MFA views on increasing importing gas from Iran
were much more negative and couched as not in Turkey's
interests. Energy contacts added that Turkey sought to
discuss ways to reduce its trade deficit with Iran, but
Teheran considered natural gas as a special resource, rather
than just a tradable product. The current deal for natural
gas with Iran provides for gradual ramping up to 10 billion
cubic meters p.a.

Keeping BTC on Track in Georgia
--------------


5. (C) Kilic emphasized that GOT and the U.S. were on the
same wavelength on assuring timely completion of the
Baku-Tblisi-Ceyhan (BTC) pipeline and assured Charge that PM
Erdogan would deliver a strong message to the Georgia
President on his visit August 11. Kilic noted that he would
be accompanying the PM on his trip. Kilic fully endorsed
Charge,s expression of the strategic importance of bringing
the pipeline to completion, and sought continued
collaboration and discussions on progress and strategy.
Moreover, he said he would appreciate any feedback on
President Saakashvili,s visit to Washington. He applauded
the strong messages delivered by U.S. officials in Georgia.
Like us, Kilic had heard of some positive results in terms of
permission to restart digging and welding with additional
work on security at the surface; however, he express concern
that GOG would still have a 28-day option to reassess. He
referred to GOG actions as &extortion8, but noted that an
incremental 5 million usd &community development8 funds may
resolve the problem.

Getting More Serious on Bosporus Bypass Options
-------------- --


6. (C) Charge delivered a strong message on the need for the
GOT to move forward on permitting Bosporus bypass projects
for oil. He stated that we were still looking at the
&Voluntary Principles8. Charge stressed that project
sponsors needed assurances in order to gain financing and
commitments and to allow the marketplace to make a
determination on viability of projects. Kilic accepted
Charge,s (and Amb Mann,s previous) observation that the
permitting process had stalled and the onus was on the GOT to
push it forward. He stated emphatically that it was not GOT
policy to stall bypass projects. Moreover, he stated that
current GOT thinking accepted that the BTC project was
&irreversible8. While Kilic noted that this change in
official policy had not yet been &put on paper8, GOT was
now clearly in position to support bypass solutions. He
stressed that bypass projects would be private and without
state guarantees. Kilic reiterated that there was no policy
obstacle, but accepted that there was lamentably a
&stagnation of immobility8, so the GOT could no longer be
aloof and needed to be active. Despite the clear recognition
that the GOT would not provide a state guarantee, Kilic noted
that some officials might still be inappropriately focused on
throughput commitments/guarantees. (In a separate meeting at
the Energy Minstry, Econoff was told that permitting
required: 1. commitments on source and amounts, 2.
intergovernmental agreements, 3. acceptable commercial terms,
and 4. technical competence and experience. According to
these contacts, existing permit applications have been
&thin8 on experience and substance. Embassy will continue
to work on clearing up this disconnect.)

Odessa-Brody Blues
--------------


7. (C) Charge and Kilic were in complete agreement that
movements toward reversing the Odessa-Brody pipeline in
Ukraine were very troubling; therefore, both governments
needed to continue pressure on the GOU to not reverse the
pipeline, which would add to Bosporus congestion. Both Kilic
and Energy Ministry contacts expressed particular concern
about BP,s involvement in the Odessa-Brody reversal proposal
(through TNK-BP) at the same time that it shared proprietary
information as BTC lead partner.



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