Identifier
Created
Classification
Origin
06ANKARA6079
2006-10-23 11:23:00
CONFIDENTIAL
Embassy Ankara
Cable title:  

TURKEY VIEWS ON GAS POTENTIAL FROM CASPIAN

Tags:  EPET ENRG EINV PREL TU GG AZ 
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VZCZCXRO7180
RR RUEHDBU RUEHFL RUEHKW RUEHLA RUEHROV RUEHSR
DE RUEHAK #6079/01 2961123
ZNY CCCCC ZZH
R 231123Z OCT 06
FM AMEMBASSY ANKARA
TO RUEHC/SECSTATE WASHDC 9569
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEHKB/AMEMBASSY BAKU 1416
RUEHSI/AMEMBASSY TBILISI 3067
RUEHAH/AMEMBASSY ASHGABAT 1914
RUEHBS/USEU BRUSSELS
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC
RHEHAAA/NSC WASHDC
RHMFISS/HQ USEUCOM VAIHINGEN GE
C O N F I D E N T I A L SECTION 01 OF 03 ANKARA 006079 

SIPDIS

SIPDIS

USDOC FOR 4212/ITA/MAC/CPD/CRUSNAK
DOE FOR CHARLES WASHINGTON
EUR ALSO FOR MATT BRYZA
S/P FOR STEVE HELLMAN

E.O. 12958: DECL: 10/23/2016
TAGS: EPET ENRG EINV PREL TU GG AZ
SUBJECT: TURKEY VIEWS ON GAS POTENTIAL FROM CASPIAN


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

C O N F I D E N T I A L SECTION 01 OF 03 ANKARA 006079

SIPDIS

SIPDIS

USDOC FOR 4212/ITA/MAC/CPD/CRUSNAK
DOE FOR CHARLES WASHINGTON
EUR ALSO FOR MATT BRYZA
S/P FOR STEVE HELLMAN

E.O. 12958: DECL: 10/23/2016
TAGS: EPET ENRG EINV PREL TU GG AZ
SUBJECT: TURKEY VIEWS ON GAS POTENTIAL FROM CASPIAN


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


1. (C) Summary: Using the opportunity of Senior Energy
Analyst Bud Coote's briefing to Energy Minister Hilmi Guler
on Caspian oil and gas potential, Ambassador and S/P Energy
Advisor Steve Hellman advanced southern gas corridor
diplomacy. The Minister thanked Coote for clarifying what
quantities of Azerbaijan and Caspian hydrocarbons may be
potentially available for export to Europe via Turkey.
Hellman - again - urged Turkey and Azerbaijan to meet ASAP to
reduce uncertainty in the face of Russian pressure to stifle
Azerbaijan's contractual export of cheap Shah Deniz I volumes
to Georgia and Turkey. In addition, he urged the two
countries and Georgia to meet soon to work together on
meeting short-term winter needs and to reach a common
approach for Shah Deniz I until Azerbaijan reaches gas
independence and a reduction in Russian leverage. With
respect to Turkey's long sought multi-lateral southern
corridor meeting for all actors to lay out their plans,
Hellman said the IEA convened meeting would be postponed to
January to allow appropriate preparations for a successful
meeting. Turkey is well aware of Moscow's pressure on
Azerbaijan and Georgia. In a side conversation with
Ambassador, Guler said Turkey is very worried about Russian
behavior and its short- and long-term implications. He
appealed for U.S. leadership and help. End Summary.

-------------- --------------
Azerbaijan's Gas Potential - Catalyzing the Corridor
-------------- --------------


2. (C) Senior Energy Analyst Bud Coote gave two separate
briefings on Azerbaijan and Caspian hydrocarbon potential:
one for the Minister and senior staff and another for a
larger inter-agency group of fifteen officials, including
state pipeline company BOTAS and state oil company TPAO.
TPAO Azerbaijan Projects Manager Tayfun Uzucu protested that

Coote's (upside case) numbers for Azerbaijan reserves and
production were overly optimistic. Hellman urged Turkey and
TPAO to be more active in upstream oil and gas development,
including Iraq and Turkmenistan, where Turkey would have
greater linkages.


3. (C) The Minister noted many obstacles to realization of
the southern gas corridor: Gazprom's close relationship with
Germany and Hungary; Gazprom's divide and conquer strategy
with other Europeans, who lack common approach and
initiative; European dalliance with Iran; and Italy's links
with Blue Stream, to name a few. However, he noted that
Coote's presentation was effective in lessening one
previously identified obstacle: doubts about Azerbaijan's
potential as a source of supply. Coote observed that Shah
Deniz Phase II potential would be clearer with completion and
analysis of the exploratory-appraisal SDX4 well, currently
underway.

--------------
Turkey is Open for Business - Next Steps
--------------


4. (C) The Minister called for the USG to be more visibly
"present" and supportive of both a Bosphorus bypass and the
southern gas corridor; i.e., active, not just an observer.
He asked for a written proposal from the USG depicting an
effective transit regime for Turkey. Hellman promised to
provide this and called for Turkey to show that it is "open
for business." One way to do this is for Turkey and
Azerbaijan to meet soon to reach agreement short term on
approach on Shah Deniz Phase I and longer term to establish
an IGA for transit of Shah Deniz Phase II gas volumes,
ultimately allowing Azerbaijan to strike a direct deal with
Greece. Hellman stressed that this would show a clear signal
to producers, consumers, and investors that Turkey was
serious and not seeking to obstruct the corridor by buying
and re-selling gas. Moreover, he stated that the market
needed to Turkey to act as a leader in advancing the southern
corridor.


5. (C) The Minister and Energy U/S Demirbilek were quite

ANKARA 00006079 002 OF 003


clear that Turkey does not seek to act like Gazprom; it wants
knowledge of price of transited volumes and it wants a stake
in the business. Stressing that Turkey was not greedy, they
argued that Turkey could not just be the chauffeur; it needed
some of the tangible and intangible benefits. Demirbilek
gave the example of BTC where Turkey had a 6.5% share through
TPAO. Hellman repeated the USG offer to join bilateral or
trilateral meetings if that would be helpful. He told the
Minister that Azerbaijan had been slow in responding to
Turkey's invitation to MOF Sharifov, because it is not sure
what it wants to say.

-------------- --------------
IEA Convened Multi-lateral Working Group - and Iraq
-------------- --------------


6. (C) Hellman informed the Minister that the IEA convened
multi-lateral southern corridor working group would be
postponed to January to allow time to adequately prepare and
to assure a successful outcome. He again urged that Turkey
and Azerbaijan meet in advance of this meeting.


7. (C) We informed the Minister that we were working on
creating a U.S.-Turkey-Iraq gas working group. The early
November Turkey-Iraq Joint Economic Commission did not seem
to be the appropriate venue, so we would work on a
stand-alone meeting of experts, perhaps in Istanbul, and
perhaps including U.S. energy experts based in Baghdad.
Given the positive reaction to the Coote briefing, another
idea would be bringing an energy analyst to give a briefing
on Iraq oil and gas potential.

--------------
TDA Projects Advancing the Corridor
--------------


8. (C) Hellman said TDA had approved the Henry Hub,
Louisiana study tour (as a "good" energy hub example) for six
GOT officials (and one from the Embassy) at a time to be
determined this year. U/S Demirbilek suggested three Energy
Ministry officials, two from BOTAS, and one rom TPAO as
participants. Hellman stated that TDA could provide
technical assistance on stablishing an IGA for an effective
transit rgime. He admitted that open third party access
could be problematic with respect to Iran, so he advocated an
IGA and a joint stock company approach, perhaps including a
"netback" pricing arrangement, to satisfy Turkey's desire for
a stake in the business and information on price. Finally,
Hellman reminded the Minister that in 2007 TDA would complete
a pre-feasibility study for a trans-Caspian Pipeline (TCP)
for oil and/or gas focused first on Kazakhstan, with later
potential linkage to Turkmenistan. TDA would be seeking
assistance from the GOT and others for participants for a
technical advisory group.

--------------
Samsun-Ceyhan Bosphorus Bypass
--------------


9. (C) The Minister repeated calls for support for Turkey's
preferred Bosphorus bypass project - Samsun-Ceyhan, arguing
that tanker traffic in the Turkish Straits was at capacity
and at risk for a significant accident. Hellman urged the
Minister to promote the project in a more commercial way,
noting that it was twice the distance of
Burgos-Alexandropolos and was not now economic without oil
throughput commitments. He also reminded the Minister of the
classic "free rider" dilemma that made the economics even
more difficult. The Minister also asked the USG to share all
the information it had about Caspian and Iraqi reserves, as
well as information on Turkey's domestic oil and gas
potential.

--------------
Other Meetings on Gas and Georgia
--------------


10. (C) In a separate meeting, BP Country Manager Djan
Suphi insisted that Turkey is not ready to accept South

ANKARA 00006079 003 OF 003


Caucasus Pipeline gas, countering BOTAS' claims that it is
ready or imminently ready. The BP official told us that the
metering station, block valves, and significant sections of
the pipeline were still construction zones. He admitted that
Shah Deniz was not ready to deliver volumes. BP and BOTAS
separately told us that they were negotiating a flexible
"run-in" period through the balance of this year for the
transition to operation.


11. (C) Joining us after participating in a separate
meeting of the Turkish and Georgian Energy Ministers, Turkish
officials related the Georgian's fears that Russia planned to
sabotage Georgia's winter energy security - even to the point
of aiming to change the government. BOTAS Dep DG Sakir
Arikan said Turkish leaders had committed to help Georgia,
but Turkey politically cannot sell its share of Shah Deniz
gas at less than the price of its most expensive gas, about
$270. Hellman emphasized that Turkey, Azerbaijan, and
Georgia should meet as soon as possible to seek a united
front for addressing the coming winter. He said the
discussion should focus more on volumes, rather than price,
assuming that the Georgians would ultimately pay what they
have to pay. Both Azerbaijan and Georgia may need
contingency plans such as power plant conversion to fuel oil.
Hellman also encouraged them to address a strategy for the
three countries to work together over the next two years
until Azerbaijan can reduce its dependence on Russian gas,
thereby reducing Russian leverage.

--------------
Guler's Grave Concern about Russian Behavior
--------------


12. (C) In a separate one-on-one meeting with Ambassador,
Guler expressed grave concern about Russian behavior. He
lamented that the combined gas needs of Turkey, Georgia and
Azerbaijan vastly exceed supply, and he worried about what
would happen this coming winter. He said Turkey is very
uncertain how to proceed and appealed for U.S. leadership.
Ambassador identified the various actions underway (as
described above),urged Turkish leadership in the region
toward ensuring that short-term decisions did not unduly
undermine longer term objectives, and made clear that the USG
is seized of the broader issues. He highlighted Hellman's
involvement as reflecting our intention to be more engaged.

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

WILSON