STATOIL TARGETS TURKEY FOR A SOUTHERN GAS CORRIDOR

UNCLAS SECTION 01 OF 02 ANKARA 002583

SIPDIS

USDOE FOR CHARLES WASHINGTON
USDOC FOR 4212/ITA/MAC/CPD/CRUSNAK

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ENRG EPET EINV BEXP TU AZ
SUBJECT: STATOIL TARGETS TURKEY FOR A SOUTHERN GAS CORRIDOR

REF: A) ANKARA 2277

B) ANKARA 2044
C) ANKARA 2042

Sensitive But Unclassified. Please handle accordingly.


1. (SBU) SUMMARY: In a May 3 meeting with the Ambassador,
Statoil Country Manager Per Myrvang said that Statoil was
seriously looking at the Turkish market for commercializing
Shah Deniz Phase II gas volumes when Azerbaijan's Shah Deniz
Phase II begins producing in 2011-12. While there are a
number of obstacles to arranging the commercialization of
this potential gas in Turkey and Europe, Statoil, as a key
South Caucasus Pipeline-Shah Deniz partner, is optimistic.
Statoil's interest comes at a time when there is a sense of
urgency to assure delivery of Azerbaijani gas to southern
Europe. End Summary.

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Turkey as Southern East-West Energy Corridor
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2. (SBU) Myrvang said the Shah Deniz partners (BP is
technical operator) had agreed to move ahead on a test drill
aimed at identifying the amounts of gas available at that
field, which would in turn determine how far beyond
Azerbaijan and Turkey the gas might be sent. Myrvang said
Turkey currently faced an over-supply of take or pay natural
gas, but based on growing demand and expiring contracts, it
could be a good market fit for 2011-2012 when the Shah Deniz
group would be aiming to market 12-20 BCM pa of incremental
gas. Depending on supply, the Statoil rep thought Turkey
could be a conduit for gas to Greece/Italy, Central Europe
via Nabucco, and/or even a LNG processing facility at Ceyhan
- targeting Europe or the U.S. (and perhaps also
commercializing gas from Iraq on the Kirkuk-Ceyhan
corridor). He noted that the favorable economics of Caspian
gas pipelines decline relative to other sources the longer
the transit distance. Myrvang said Statoil would build off
existing commercial arrangements and contacts in Europe to
discuss Caspian gas when it is feasible to do so.


3. (SBU) The Statoil rep cited a number of challenges to
doing business in Turkey. He said that Turkey needed
natural gas storage to handle peaking in demand, which is
now imperfectly managed using LNG storage and old gas
reservoirs. Myrvang said the GOT was finally undertaking a
large, appropriate storage facility under the Salt Lake near
Ankara, with World Bank assistance. Myrvang said there were
ambiguities for marketing the natural gas into Europe
because the new EU Natural Gas Directive prohibits joint
sale of gas in the EU (i.e., blocking sale by consortium).
Moreover, he said Turkish current law would have to be
changed to allow an incremental Turkish contract with
Azerbaijan. Myrvang concluded that delivering gas to Turkey
could still be commercially very attractive for the Shah
Deniz consortium, but there were still issues to iron out
between the partners.

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BOTAS lacks leadership
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4. (SBU) Building on a theme we hear increasingly, Myrvang
said the status and capacity of Turkish state pipeline
company BOTAS was uncertain. He noted that the company
lacks leadership because the GOT has allowed successive
(relatively weak) acting Director Generals to hold the top
position, and seemed unableor unwilling to replace the last
DG who retird 1.5 years ago. Mryvang blamed BOTAS'
problems completing BTC on weak sub-contractors (not always
chosen based on competence and capacity). The Statoil rep
pointed out that the pending transfer of BOTAS gas import
contracts required under current law made it unclear who
would be the buyer on behalf of Turkey for future gas
volumes.

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Urgency on Azerbaijani Gas
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5. (SBU) The Ambassador described how the Secretary in her
recent visit and DAS Byrza in an earlier visit stressed the

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urgency of moving forward with Azerbaijani gas to preempt
Gazprom filling new inter-connectors to southern or central
Europe. He said an Italy-Greece-Turkey-Azerbaijan
conference had been proposed to build confidence; Italy had
expressed interest in hosting such a conference, but no
clear timing had been established (refs). The Statoil rep
said a conference could be useful, particularly for Turkey
and Azerbaijan. He said Statoil has done a lot of business
with Italy and the rest of Europe, so new deals would be
done on a commercial basis and would not require IGA's.
Myrvang also said that Gazprom made deals on a commercial
basis and viewed Turkey as an important market where it
would seek to extend its existing contracts.

WILSON