TURKISH STRAITS BYPASS - SLOW BUT SURE

UNCLAS SECTION 01 OF 02 ANKARA 005298

SIPDIS

STATE FOR EUR/SE, EB/CBA, AND EB/ESP
USDOC FOR 4212/ITA/MAC/CPD/CRUSNAK
DOE FOR CHARLES WASHINGTON

SENSITIVE

EUR ALSO FOR DAS BRYZA

E.O. 12958: N/A
TAGS: EPET ENRG EINV TU
SUBJECT: TURKISH STRAITS BYPASS - SLOW BUT SURE
MOVEMENT

REF: ANKARA 5080

Sensitive But Unclassified.
Please Handle Accordingly.


1. (SBU) SUMMARY: While Turkish government officials
continue to assert that Samsun-Ceyhan is the best route
for a "Bosphorus bypass" pipeline, regional energy
company reps say a commercial consensus is forming
around Burgos-Alexandropolos, with Samsun-Ceyhan a
possible second bypass, particularly if oil is found in
ongoing Black Sea exploration. Although neither route
has emerged as a clear-cut "winner", government and
industry officials have differing views on the role
governments could play in overcoming commercial
rivalries and creating a consensus. Meanwhile, MFA
officials say they seek "strategic" cooperation on gas
projects, including Trans-Caspian and a "North-South
corridor" linking the Middle East, Turkey, Russia and
Europe. End Summary.

GOT still set on Samsun-Ceyhan
--------------


2. (SBU) In a September 2 meeting with Econ/C and
Energy Officer, GOT MFA DDG Energy Mithat Rende
reiterated Turkey's long-standing preference for Samsun-
Ceyhan as the Bosphorus bypass of choice to alleviate
tanker pressure on the Turkish Straits. He cited
environment, existing port facility and capacity at
Ceyhan, and potential oil discoveries in the Black Sea
as major reasons for this preference. Rende asserted
that the GOT must play a facilitating role, and asked
for advice from the USG on how to proceed effectively.
He repeated the potential list of sponsors and
participants (who have at least looked seriously at the
deal): oil majors, including Total, ENI, Chevron, and
TNK-BP; Calik Enerji; BOTAS; and the Russians. Note:
we understand some sort of feasibility study has been
completed, but not detailed engineering. End Note.

Companies Have Other Ideas
--------------


3. (SBU) Meanwhile, Chevron reps told Charge
September 6 that serious progress had been made on
bringing a Bosphorus bypass to realization. The
Chevron officials, however, believed that Burgos-
Alexandropolos was the project of choice from the
standpoint of economics and work already done; but
worried about the potential negative reaction of the
GOT (which they suggested could manifest itself in more
restrictive management of Straits traffic). They said
Chevron was working closely with TNK-BP, and had been
in touch with Transneft and other Russian companies to
coordinate getting all players on board. Given the
volumes of Russian and growing Caspian crude (even with
expansion of CPC and BTC),the Chevron officials said
they were giving more and more credence to the need for
two Bosphorus Bypass projects. Therefore, they
speculated, perhaps a case could be made for Samsun-
Ceyhan first, then Burgos-Alexandropolos. The Chevron
reps noted that potential oil discovery in the eastern
Black Sea (still high risk) would definitely argue for
Samsun-Ceyhan. Note: Chevron has stepped into Unocal's
25% share of the BP-led eastern Black Sea deep water
exploration work. End Note.


4. (SBU) The Chevron reps stressed that a critical
mass of companies was gelling to make bypass project(s)
work on a commercial basis, mitigating the free rider -
first mover risk. Even though there would remain some
companies that would not play a helpful role, this
would obviate the need, they thought, for a government
role in fostering an industry consensus on the best
route -- as proposed both by Rende and Energy Ministry
Undersecretary Demirbilek in his August 26 meeting with
State/EUR DAS Bryza (ref). This view was corroborated
in a separate meeting with BP Turkey country director
Tahir Uysal, who told the Charge that there was strong
interest in a bypass project.

Gas Projects
--------------


5. (SBU) Rende also emphasized to EconOffs his belief
that governments had a strategic role to play in making
other big, international deals happen, particularly in
the gas sector. He cited:
a) GOT need to consolidate and encourage gas transit;
the Turkey-Greece connector being a good start.
b) The proposal discussed by Energy Minister Guler
during August 7 meetings in Jerusalem for a gas
export pipeline from Ceyhan to Israel.
c) Other transit deals such as Nabucco to Austria and
Egyptian gas through Jordan and Syria to Turkey.
d) The need for governments to encourage the Turkmen
to move forward and the Azeri's to be flexible to
realize trans-Caspian gas.
In addition, he noted that a deal had not yet been
reached on adding Kazakh oil volumes to BTC.


6. (SBU) Comment: Thrace Development Company's
(American interest) proposed trans-Thrace bypass
project is not dead, but appears well back in the
ranks.

McEldowney