TURKEY: GAS AND THE GREAT RACE TO EUROPE

C O N F I D E N T I A L SECTION 01 OF 04 ANKARA 002044

SIPDIS

SIPDIS

USDOC FOR 4212/ITA/MAC/CPD/CRUSNAK
DOE FOR CHARLES WASHINGTON
EUR ALSO FOR MATT BRYZA
SCA FOR STEVE MANN

E.O. 12958: DECL: 04/30/2016
TAGS: EPET ENRG PREL TU AZ GG RU IZ IR
SUBJECT: TURKEY: GAS AND THE GREAT RACE TO EUROPE

REF: A. ANKARA 1527


B. ANKARA 1010

Classified By: AMBASSADOR ROSS WILSON FOR REASONS 1.4 (B,D)


1. (C) SUMMARY: In April 4-6 meetings in Ankara, senior
Turkish officials agreed
with EUR DAS Bryza on the need for rapid cooperation to
facilitate export
of Azerbaijani gas to Greece and Italy via a "Southern
Corridor" stretching
from the Caspian Sea through the South Caucasus and Turkey.
All interlocutors
concurred that such an effort would help Europe diversify its
gas supplies,
thereby bolstering the strategic importance of Turkey and
Azerbaijan, and
helping to channel Gazprom (over time) toward more
market-based behavior.
Energy Minister Guler expressed fear of upsetting Gazprom,
but called for
a regional meeting of government and company representatives
to explore
investment in a "Southern Corridor." End Summary.

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U.S. Message: Brief Window of Opportunity for Azeri Gas -
Russians at the Door
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2. (C) In a series of April 4-5 meetings, GOT
Officials agreed with EUR DAS Matt Bryza on the need to work
together to
facilitate near-term exports of natural gas from Azerbaijan
into
the Turkey-Greece-Italy (TGI)inter-connector for the
following reasons:

-Diversify European gas supplies;

-Elevate Turkey's strategic importance as a key energy
transit country; and

-Bolster commercial competition for European energy
markets, thereby
channeling Gazprom (over time) toward more market-based and
less monopolistic behavior,
relying on market forces.


3. (C) Bryza emphasized that the window of opportunity to
secure throughput for
the TGI pipeline seemed to be closing. Based on his recent
conversations in Athens
and Rome, Greece and Italy seemed to be under intense
pressure to
sign long-term contracts with Gazprom to secure throughput
for TGI for gas shipped
from Russia to Turkey via an expanded Blue Stream pipeline
(under the Black Sea).
Senior Italian and Greek officials had recounted how Gazprom
had told them that
no gas would be available in Azerbaijan for TGI any time in
the next decade.
In reality, senior Azerbaijani officials and the private
companies operating the
Shah Deniz consortium believed Shah Deniz production could
double by 2012, providing
sufficient gas to finance the TGI pipeline. Securing
Azerbaijani gas in this way
would then clear the way for later shipments of gas from
Kazakhstan and/or Turkmenistan
via a trans-Caspian gas pipeline. But, to secure market
share for Azerbaijani gas
now would result in Gazprom securing potentially exclusive
rights to ship gas to Greece
and Italy via the TGI pipeline, thereby shutting in
Azerbaijani gas for years to come,
and denying a key export option for gas from Turkmenistan,

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Kazakhstan, and (eventually)
Iraq. Bryza noted that an Italian Deputy Foreign Minister
suggested convening a conference
of government and company representatives to explore next
steps on realizing this proposed
"Southern Corridor" of gas exports from the Caspian region to
Southern Europe. Bryza
emphasized that U.S. policy was not anti-Russia; rather, it
was pro-competition and
pro-diversification. Bryza said the current gas market was
broken: Gazprom bought Central Asian gas for $65 per thousand
cubic meters (tcm)
and sold it to Turkey and Europe for $230-270 per tcm. This
generated enormous rents, which were
distributed non-transparently, feeding organized crime and
undercutting energy sector reform.
Bryza recounted the views of Italian interlocutors, who
warned that such rents enabled Gazprom
to pursue a corporate strategy that aimed to stifle
competition through acquisition of strategic
energy infrastructure, rather than to maximize profits and
bolster its competitiveness under market
conditions. Bryza stressed that by increasing competition
for European gas markets through
development of a "Southern Corridor," Gazprom would lose
access to cheap Central Asian gas,
and eventually have to reform itself to attract foreign
investors required to develop domestic
Russian gas fields. This would help Gazprom emerge as a more
reliable commercial partner,
which was important to the U.S. as well as Europe, given U.S.
plans to purchase LNG from
Gazprom.


4. (C) Foreign Minister Gul told Bryza that the United
States and Turkey shared the same strategic vision for
increasing diversification of energy supply from the
Caspian region and lessening monopolistic behavior by
Gazprom. He said that the GOT had also sought support from
the President of Turkmenistan to re-launch the Trans-Caspian
Pipeline (TCP). (Septel)


6. (C) MFA DDG Energy Mithat Rende agreed that the United
States and Turkey needed to work with European partners to
promote alternatives to Russian gas. He said
Russia should join the Energy Charter Treaty and provide
third-party
access to its pipelines. Rende said that Turkey seeks to
be an energy hub, but not just for Russian gas. He
asserted that Europe should promote Russia joining these
objectives at the G-8. Rende lamented that at the recent
Turkey Black and Caspian Sea energy conference in Ankara,
the Russian rep had said: "Not over our dead body. No to
gas pipelines across the Caspian." Bryza noted that this
was an unfortunate attitude, but it was not up to Russia to
decide whether other
states could cooperate on a trans-Caspian pipeline. He said
the USG and European
Commission were both considering feasibility studies for
trans-Caspian gas
pipelines from Kazakhstan and Turkmenistan.


7. (C) Officials of BOTAS, Turkey,s state pipeline
company, also told Bryza they
supported a "Southern Corridor" for Caspian gas exports to
Europe. They noted that
BOTAS is a founding partner in Nabucco, a proposed gas
pipeline stretching from
Turkey through Bulgaria, Romania, Hungary, and Austria. They
noted that Shah Deniz
would not be sufficient to support Nabucco, so work was
needed to develop other
gas sources like Egypt, Iraq, Turkmenistan, Kazakhstan, and
Qatar.

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Minister of Energy Fears the Russians and Seeks to Bargain
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8. (C) Energy Minister Hilmi Guler's position was less
clear.
Guler expressed fear of angering the Russians, given
Turkey's 65% reliance on Russian gas. Guler worried about a
repeat of last
winter,s gas cut-off during the Russia-Ukraine dispute.
Still, he expressed strong
interest in increasing production and export of Azerbaijani
gas, which he hoped would
help soften Gazprom,s hardball tactics. He blamed the U.S.
for failing to prevent the
Blue Stream pipeline from being realized in the late 1990,s,
and (astonishingly) asked
for the U.S. to take the lead in blunting Gazprom,s pressure
to double Blue Stream,s
capacity. Bryza countered that the decision to build Blue
Stream was taken by the
sovereign government of Turkey, not by the U.S. This
remained the case today, with
respect to Blue Stream,s expansion. Guler nevertheless
pressed on with his quest for
U.S. political cover to oppose Gazprom,s pressure, asking
that the U.S. be in the
forefront in promoting the "Southern Corridor," but offering
Turkey's support
behind the scenes.


9. (C) Guler then tried to bargain for U.S. support on the
GOT,s preferred
Samsum-Ceyhan oil pipeline in exchange for Turkish support
for the "Southern Corridor."
Guler asked why the United States was not supporting
Samsun-Ceyhan, arguing that
this was the best option to alleviate congestion in the
Turkish Straits. Guler said ENI
and Total were Interested in Samsun-Ceyhan, and suggested the
U.S. had an obligation
to help Turkey realize Samsun-Ceyhan before the
Burgas-Alexandropolis pipeline was
realized. Bryza recognized the need to reduce growing
traffic in the
Straits, and noted U.S. support for multiple pipelines whose
commercial viability is
determined by the market. But Bryza said the U.S. did not
favor
one Bosporus bypass pipeline over another, particularly in
the case of Samsun-Ceyhan
(favored by Turkey) and Burgas-Alexandropolis (favored by
fellow NATO Ally, Greece).
The U.S. had already offered strong support to
Baku-Tbilisi-Ceyhan, acceding to Turkey,s
strong requests, at a time when Burgas-Alexandropolis was
just emerging. More
fundamentally, Bryza rejected the linkage of the "Southern
Corridor" with Samsun-Ceyhan.
The U.S. favored a partnership with Turkey to advance our
shared vision of helping Europe
diversify its gas supplies via a "Southern Corridor."
Washington needed to know whether
Turkey also sought such a partnership, or whether Ankara
instead wished to bargain
over support for various energy projects.


10. (C) Guler backed off, stressing Turkey,s desire for a
genuine partnership
with the U.S. on energy. He called for greater U.S.-Turkish
cooperation to incrase
gas deliveries to Southern and Central Europe via Turkey,
including via a resurrected
trans-Caspian gas pipeline from Turkmenistan, the Nabucco
Pipeline to Bulgaria, Romania,
Hungary, and Austria, as well as potential gas shipments to
Turkey from Egypt and Iraq.
Guler suggested that the U.S. and Turkey cooperate on a
possible gas pipeline running
parallel to the existing oil pipeline from Iraq to Ceyhan.
Bryza agreed. Guler asked
Bryza what the U.S. thought of the proposal to extend the
Blue Stream pipeline across

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Anatolia to Ceyhan, then onward to Israel. Bryza said that
the U.S. wished to enhance
Israel,s energy security, but that extending Blue Stream was
a decision for the GOT to
ake. Bryza advised that in taking such a decision, the GOT
weigh the relative benefits
to Turkey and Israel of this project against the impact it
would have on bolstering
Gazprom's monopoly power. But, Bryza repeated, this would
ultimately be Turkey's
sovereign decision.


11. (C) Minister Guler pressed for more visible U.S. support
for these projects.
Bryza replied that at this stage, the U.S. was exploring the
viability of these
projects through quiet diplomacy.

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Way Forward - Practical Steps
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12. (C) After several exchanges regarding Bryza,s recent
meetings in Rome and Athens
on gas supplies (SEPTELS),Guler eventually recognized the
need for Azerbaijan to move
quickly to secure market share in Greece and Italy via the
TGI pipeline. Guler proposed
a regional conference among government and company
representatives operating in Azerbaijan,
Turkey, Greece, and Italy. Bryza agreed, noting that an
Italian Deputy Foreign Minister
made a similar proposal. Bryza also suggested a
U.S.-Turkey-Iraq working group to promote oil and gas
development and transit. Guler agreed.
Guler also expressed interest in a working group to look at
the issue of
congestion in the Turkish Straits.


13. (U) DAS Bryza has cleared this message.

Visit Ankara's Classified Web Site at
http://www.state.sgov.gov/p/eur/ankara/
WILSON