TURKEY, IRAQ, AND PUSHING SOUTHERN GAS CORRIDOR

C O N F I D E N T I A L SECTION 01 OF 02 ANKARA 005896

SIPDIS

SIPDIS

DEPT ALSO FOR EUR MATT BRYZA AND STEVE HELLMAN

E.O. 12958: DECL: 10/11/2016
TAGS: ENRG EPET PREL TU AJ RS IZ
SUBJECT: TURKEY, IRAQ, AND PUSHING SOUTHERN GAS CORRIDOR

REF: A. ANKARA 5844

B. ANKARA 5786

C. ANKARA 5699

D. ANKARA 5611

E. ANKARA 5332

Classified By: AMBASSADOR ROSS WILSON FOR REASONS 1.5 (B AND D)


1. (U) This is an action request - see paragraph 5.


2. (C) SUMMARY: In an October 10 meeting with Ambassador and
visiting NIO Europe Richard Kauzlarich, Energy Minister Hilmi
Guler prioritized gas development in Iraq and expressed
delight for our intention to pursue a U.S.-Turkey-Iraq
working group on developing gas in Iraq. We recommend that
the Department and Embassy Baghdad consider using the
November 8-9 meeting of the Turkey-Iraq Joint Economic
Commission in Ankara as an opportunity to include technical
experts and launch the working group. Guler confirmed that
he had invited Azeri MOF Sharifov to Ankara for a bilateral
on southern gas corridor issues and said he had no objection
to U.S. involvement if that would help accelerate the
process. Guler pushed the Samsun-Ceyhan Bosphorus bypass oil
pipeline and emphasized the need for urgency on implementing
the southern gas corridor in the face of pressure from
Russia. Guler supported arranging a briefing from a USG
analyst on Caspian hydrocarbon potential, which was
subsequently set for October 20 in Ankara. End Summary.

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Concerns about Russian Pressure
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3. (C) Minister Guler started the meeting by lamenting
increased Russian pressure on all potential southern gas
corridor countries, particularly significant at the start of
winter and at the moment that the Southern Caucasus Pipeline
is almost ready. Alarmingly, Russia had told Azerbaijan it
would reduce volumes and increase prices if it shipped to
Georgia and Turkey. Guler stressed that Turkey (and he
personally) were strong allies of the U.S. and committed to
improving U.S.-Turkey relations, including making the
southern gas corridor a reality as an alternative to Russia.
He observed that Russia was "acting clearly" and time was on
its side as few countries could individually withstand its
divide and conquer approach. Therefore we have to act
faster. "If we don't see U.S. action", Guler said the U.S.
might not be happy with the outcome, noting Turkey's 65%
reliance on Russia for natural gas. He was indicating that
it would be difficult for Turkey to refuse transit to Russian
gas via an expanded Blue Stream if presented with European
purchase commitments. Guler and MFA contacts have told us
that Russians hold regular discussions with Turkey on Blue
Stream and Turkey has been able to say no to date. They
point out that Russia is suspicious and skeptical of Turkey's
goal to serve as a regional energy hub, as well as more and
more aggressive in using energy as a political tool. While
emphasizing the need for haste, Guler refused to set a
specific timeframe for decisions on a southern gas corridor
or Blue Stream.

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Prioritize Iraq - Create Working Group on Gas
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4. (C) As alternatives to Russia, Guler cited three
"instruments": first, trans-Caspian pipeline - TCP, "but I am
tired of talking about that"; second, Iran (he criticized
Europe's flirtation with Iran); and third, sending Iraq gas
to Europe. Citing the need for critical support from the
USG, Guler repeated his call (Ref E) for a U.S.-Turkey-Iraq
working group on developing gas in Iraq, noting the easy
egress to Turkey and possibly on to Europe via pipeline or to
other markets as LNG from Ceyhan. Ambassador responded that
the U.S. was committed and ready to launch the working group,
even in advance of essential work on the new hydrocarbon law.


5. (SBU) Embassy proposes that the Department and Embassy

ANKARA 00005896 002 OF 002


Baghdad consider launching the U.S.-Turkey-Iraq working group
on developing gas in Iraq as part of the Iraq-Turkey Joint
Economic Commission scheduled for November 8-9 in Ankara (Ref
A),including appropriate technical experts.


6. (C) In a separate meeting, MF Energy Coordinator Mithat
Balkan also emphaszed significant gas reserves in Iraq, in
particular in the north. He noted that both Iraq nd
Azerbaijan could fill gaps in launching larger longer-term
projects - like TCP and Nabucco - to help meet European
demand. Balkan also called for greater visible U.S. support,
noting that BTC success was just the first step. Clarifying
his role, Balkan said he served as "energy coordinator", but
the Minister of Energy was the chief negotiator for Turkey.
In another separate meeting, former Energy U/S Yurdakul
Yigitguden dismissed potential development of Iraqi gas and
LNG processing at Ceyhan as "wishful thinking", questioning
the economics and the extent of the reserves.

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Where are the Europeans?
--------------


7. (C) In a number of energy meetings, Kauzlarich heard
Turkish interlocutors question why aren't the Europeans more
active in arranging purchase of southern corridor gas, giving
value to diversification of supply as an alternative to
Russia. Guler regreted that Germany, Hungary, and other
European countries wanted to buy more Russian gas. MFA DDG
Mithat Rende said that he now perceived the European
Commission as more active, citing statements from a recent
French delegation. He gave us credit for organizing an EU
energy luncheon to demarche the EC rep on these issues (Ref
D). Guler repeated his concerns about direct negotiations
between Europeans and Iran.


8. (C) Guler repeated Turkey's commitment to developing the
Samsun-Ceyhan Bosphorus bypass oil pipeline, stating that
they were seeking Russian and U.S. support. He said Turkey
was determined to build this with or without Russian oil.

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Next Steps
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9. (C) Ambassador and Guler agreed on next steps. Guler
confirmed that he had invited Azeri MOF Sharifov for a
bilateral to dispel uncertainty on Shah Deniz Phase I and lay
the foundation for agreement on Phase II transit. He would
be open to U.S. participation, perhaps by EUR DAS Bryza, if
that would advance the process. Analyst Bud Coote will give
a briefing on Caspian potential to the Minister (later
arranged for October 20) (Ref C). November 16/17 has been
identified for a broader IEA-convened southern gas corridor
working group. The Ambassador said that Bryza had been in
touch with Petronas about connecting western offshore Turkmen
fields to provide egress via Azerbaijan (a so-called stealth
TCP). Guler thought this was a good idea, but noted that TCP
remained difficult given the personalities involved.


10. (C) COMMENT: Guler repeated oft-heard themes, and noted
that he had spoken on these topics many times with EUR DAS
Bryza and the Ambassador. He indicated frustration that the
U.S. had not delivered more progress and support, yet he
still has not implemented his key first action step of a
bilateral with Azerbaijan (status is invitation delivered to
MOF Sharifov). He placed greater emphasis on concern about
and the need to counter Russian pressure, emphasizing that
time was in Gazprom's favor, as well as on hopes for Iraq gas
potential. He pulled back somewhat on previous emphasis on
trans-Caspian potential compared to earlier meetings,
although he did not exclude its long-term importance.

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

WILSON