TURKISH ENERGY MINISTER PROMISES ACTION ON

C O N F I D E N T I A L ANKARA 005332

SIPDIS

SIPDIS

DEPT ALSO FOR EUR MATT BRYZA AND STEVE HELLMAN

E.O. 12958: DECL: 09/12/2016
TAGS: ENRG EPET PREL TU GR AZ IR RU
SUBJECT: TURKISH ENERGY MINISTER PROMISES ACTION ON
SOUTHERN GAS CORRIDOR

REF: ANKARA 4935

Classified By: ECONOMIC COUNSELOR THOMAS GOLDBERGER FOR REASONS 1.5 (B
AND D)


1. (C) Summary: In a September 10 meeting, DAS Matt Bryza
and Energy Minister Hilmi Guler agreed to the following
action steps to advance the southern gas corridor across
Turkey to Europe:

- Guler committed to quickly seek a bilateral meeting with
Azeri Minister of Finance Samir Sharifov to dispel
uncertainty on Shah Deniz I, build confidence on Shah Deniz
II, and start the process of concluding a transit agreement
for Azeri gas volumes across Turkey to Greece.

- Bryza will press IEA Deputy Director William Ramsay to
accelerate plans to convene multilateral meetings including
companies and customer countries for the southern
Mediterranean corridor and Nabucco for parties to lay out
their plans. Guler said he was eager to participate in
multilateral meetings.

- Bryza committed to supporting Turkey in getting its fair
share in commercially viable transit arrangements which
address Turkey's specific concerns on Iran and assure that
Turkey would not pay a higher price than "downstream"
customers' less transit.

- Bryza will reiterate his recommendation to Azerbaijan that
they form an internal GOA working group to implement
President Aliyev's commitment to accelerate development and
export of Shah Deniz II throughout the hesitant bureaucracy.

- Bryza agreed to continue working on a Trans-Caspian
Pipeline from Kazakhstan and Turkmenistan.

- Bryza committed to recommend formation of a
U.S.-Turkey-Iraq working group to develop natural gas in
northern Iraq for egress to Turkey at Ceyhan for processing.

Bryza and Guler also agreed that when President Bush and
Prime Minister Erdogan meet in Washington on October 2, they
should touch on agreement to work together on gas from
Azerbaijan, Iraq, and elsewhere in support of the southern
gas corridor to Europe. End Summary.

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Investors need assurances on Azeri Gas
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2. (C) Underscoring the centrality of Turkey to a viable
southern gas corridor, Bryza stressed that he wanted to
insure that Turkey would obtain satisfactory commercial
benefits in a transit regime. Focusing on the importance of
Azerbaijan as a gas supplier to Europe, he emphasized that
the huge upstream investments needed to develop Shah Deniz
future phases would require firm agreements between consumers
and producers. This meant that Turkey had to be "open for
business" in a transparent and not overly onerous or
obstructive way. Bryza noted that BP/Statoil's newest
projections show Shah Deniz Phase II yielding 15 BCM p.a. in
2012 and 40-50 BCM p.a. in 2016-2020, more than enough to
fuel the southern Mediterranean route to Italy and a serious
start for Nabucco. Despite assurances to him from President
Aliyev, Bryza said the Azeri "bureaucracy" was still
resisting designation of Shah Deniz Phase II gas for export
and waiting for clearer signals from Turkey on a commercially
viable gas transit regime. Moreover, Bryza stressed that
there were preliminary Azerbaijan-Turkey issues that needed
to be cleared up before a broader multi-party gathering that
would include end users as well as companies. Bryza said he
would go in two days to Paris where he would discuss the IEA
as a convener of such a gathering. He also said that Alieyev
agreed to set up a working group within the Azeri bureaucracy
to move forward on development of Shah Deniz II for export to
Europe.

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Obsession with Iran
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3. (C) As he has in past meetings, Minister Guler responded
with a tour d'horizon of other actors and possible sources of
gas. He asserted that Azerbaijan was not the problem, and
that Turkey - as "big brother" - and Azerbaijan would support
each others' interests. Guler stressed that the problems lay
with Russia -- which is pressing Turkey on Blue Stream and
seeking to tie up more low-priced Central Asian gas to sell
at a huge margin to Turkey and Europe -- and Iran. He
complained that Iran is openly flirting with Europe, and that
Austrian OMV was going too far in negotiating directly with
Iran. Guler asserted that Iran was not reliable with respect
to quantity or quality. He said Nabucco partners must get
together to make a decision on source of gas for the project.
Guler stressed that in no way could Turkey condone paying a
higher price for gas from Iran than European customers at the
other end of the pipeline through Turkey. Therefore, Turkey
advocated establishing a joint stock company for developing
the project or marketing the product so Turkey would have
both a share in the revenues and information on contract
prices and conditions. Noting that recent negotiations with
Iran were unsuccessful, Guler said that Turkey sought
"reciprocity" with Iran: Turkey would be prepared to consider
offering transit of Iranian gas if Iran offered transit of
Turkmen gas. Iran refused.


4. (C) Bryza said the U.S. position on energy investments in
and agreements with Iran was very clear. We cannot support
Iranian gas to Europe and we cannot support Turkmen gas via
Iran, which the Turks have been pushing for in meetings with
Iran. We remain firmly opposed to doing energy business with
Iran while we accelerate our efforts to isolate Iran on its
nuclear enrichment program. Guler responded that the U.S.
and Turkey would "agree to disagree" on Iran and Turkey would
seek help from the Europeans to push Turkey's quest for
Turkmen gas via Iran.

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Please do more on Trans-Caspian and Iraq
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5. (C) Guler asked for more support from the U.S. on a
Trans-Caspian Pipeline (TCP) and in working together to
develop natural gas in northern Iraq. Asserting that the
U.S. was overly fixated on Azerbaijan, he asked to hear more
from the U.S. on TCP. Guler also called for U.S. support on
using the Kirkuk-Ceyhan right of way for egress of natural
gas from northern Iraq. He said he had great interest in
developing LNG processing at Ceyhan to reach a variety of
world markets, including the U.S. Guler said that he and
Erdogan had just visited Ceyhan the week before to inspect
potential sites for an LNG facility and a refinery. He
asserted that development of Iraqi gas would "solve our
problems" with Iran and Russia and give us a "reshuffled hand
of cards".


6. (C) In response, Bryza agreed to recommend forming a
U.S.-Turkey-Iraq working group to move forward on development
of gas in northern Iraq for egress to Turkey, either for LNG
processing or for pipeline transit to Europe. He suggested
that the U.S. could support Blue Stream volumes going south
to Ceyhan for processing as a solution meeting everyone's
needs, but not shutting in Caspian production, which would in
turn travel west to Europe across Turkey.


7. (C) On TCP, Bryza said that Vice President Cheney and
other officials had been publicly and privately pressing
Kazakhstan on both gas and oil links to Baku. He said that
one reason for focusing on Azerbaijan first was to get
critical infrastructure in place first to help Kazakhstan vis
a vis the Russians by providing a commercially viable option
for Kazakh gas to reach European markets. Bryza also
mentioned the USTDA pre-feasibility study on TCP from
Kazakhstan. With respect to Turkmenistan, Bryza asked Turkey
to put pressure on President Niyazov, noting that our efforts
had not been highly successful.

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"Billiard" Approach
--------------


8. (C) Guler offered a "billiard" approach. He said he
would have no expectations for U.S. support on Iran, but
would press the Europeans on a joint approach to Iran and
support for Turkey's "reciprocity" of transit access. He
promised to meet quickly with Azerbaijan. He welcomed U.S.
help with Nabucco partners and would welcome an IEA convened
multilateral meeting. Guler repeated that progress on Iraq
gas development and TCP would catalyze gas transit to Europe.
When Bryza reiterated the importance of Azerbaijan as a key,
attainable first step to seed transit to Europe, Guler said
that Bryza could tell the Azeri President and other high
officials that Minister Guler was ready to meet Finance
Minister Samir Sharifov and that he sought the most
advantageous commercial terms possible for Turkey's "brothers
in Azerbaijan." Guler insisted that Turkey sought only a
"fair" deal on transit and sales of Azeri gas, and understood
that it should not overplay its commercial hand. Bryza said
he understood Guler's concern ("I do not want Iran to follow
the same path") that a special Azeri transit arrangement
would not be available to Iran. They agreed that a southern
gas corridor from Azerbaijan, Iraq, and elsewhere should be
briefed as a topic for discussion when President Bush and PM
Erdogan meet on October 2, but Guler insisted that this
should be put in the context of a long-standing discussion
rather than a new initiative.

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Comment
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9. (C) Guler stressed his candor to Bryza, often asking his
note-taker to stop writing. He expressed a particular
personal commitment to the vision of development of Ceyhan as
an energy hub with Azerbaijan playing a key role. Because
this Sunday afternoon encounter in casual dress had followed
a series of meetings over time, the discussions were warm and
friendly. Guler acted more decisive than in previous
meetings and stressed that he was not "horse-trading"
(although he does horse-trade with Russia and Iran). Guler
believes that he has struck a strategic bargain on an action
plan with his key partner and ally the U.S. Only progress on
agreed action steps will indicate if the jello has really
started moving across the table. Bryza separately briefed
Turkish MFA officials who promised to support the action
steps.

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

WILSON