TURKEY READY FOR 3-WAY MEETING ON AZERI GAS

1. (C) SUMMARY: Turkish Energy Minister Guler agreed with
Ambassador that Turkey, Azerbaijan, and Georgia should meet
as soon as possible to begin working out short term solutions
to ensure natural gas supplies for this winter in the face of
strong Russian pressure on all of them. Guler stressed that
while Turkey can play a leading role in crafting a solution,
it cannot be expected to bear all the financial costs. He
said, however, that he would consider agreeing to postpone
Turkey's receipt of some contracted gas for 2007 to future
years. The minister stressed the importance of U.S.
leadership. Guler is eager to arrange a working group on
Iraqi gas, starting with a meeting of experts from
Washington, Baghdad, and Ankara (time and place TBD). He
touched briefly on Samsun-Ceyhan. End Summary.



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Threats and Uncertainties about Gas


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2. (C) In a November 9 meeting, Energy Minister Hilmi Guler
told Ambassador that the situation for natural gas from
Azerbaijan looked perilous, given Russian threats to both
Azerbaijan and Georgia to reduce or cut off their gas supply.
He said the Georgian Energy Minister had suggested his
government might even fall over this issue. The Minister
confirmed that Azeri DPM Abid Sharifov had met with him the
previous week and had proposed that Turkey and Georgia each
receive only 750 MCM in 2007 out of Turkey's Shah Deniz
commitment of 2.8 BCM at $110 ptcf. He said this proposal
had also been conveyed by official letters: Georgian PM to
his Turkish counterpart and Azeri DPM to Minister Guler.



3. (C) Guler emphasized that Turkey had been counting on
receiving its contracted amount and it was particularly
concerned about peak need in the winter. He had not
discussed details of the proposal with PM Erdogan, but he
would be prepared to consider recommending that Turkey
transfer some of its rights under the contract to future
years. However, Guler also expressed great discomfort over
the costs and liabilities Turkey could have to shoulder and
made clear his country could not do so alone. He noted that
the contract counterpart was the Shah Deniz consortium, not
the sovereign government of Azerbaijan. Guler cautioned that
BOTAS was under financial pressure from government policy to
keep consumer prices low to encourage extension of gas in
Turkey, so it would be difficult for BOTAS to deal with more
expensive wholesale natural gas.



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Short and Long Term Solutions


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4. (C) Ambassador stressed the need for the three countries
to meet as soon as possible to reconcile conflicting
information on volumes, parameters, and alternatives, and
move forward on solutions. He identified our mutual
strategic goals: 1) long term - make the southern gas
corridor work to ensure that Russia cannot succeed in
bottling up Caspian gas flows to Europe via Turkey; and 2)
short term - ensure that Georgia and Azerbaijan make it
through this and the next few winters. As we had urged
before, Turkey must play a leadership role, even as it also
worked with others to ensure that costs and benefits are
equitably shared.



5. (C) Ambassador stressed the importance of developing
varied options. For example, Georgia may have a variety of
ways to solve its problems with different associated costs;
switching to heavy fuel oil is one example. Guler noted that
he had offered to provide coal to Georgia for this winter,

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but Georgia was not interested. Both agreed that Georgia was
very nervous - perhaps overly nervous - as it watched
Russia-Azerbaijan and Russia-Turkey gas negotiations for 2007
unfold. Ambassador suggested that the three countries should
eschew simplistic proposals, develop an overarching approach
that makes sense, and then work out the commercial details.



6. (C) Guler emphasized that there were three separate
issues: gas volumes, money, and time, stressing that time is
being lost without concrete actions. Repeating a regular
theme, the Minister called for the USG to be more visible in
helping the region counter the Russian threat. He noted that
a sensitive election year was approaching for Turkey and the
pressure of gas shortages this winter could not be
compensated by words alone. Guler said he was investigating
alternative gas sources such as LNG via a newly commissioned
facility at Izmir, but the spot market for LNG is extremely
expensive.



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Trilateral Working Group on Iraqi Gas


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7. (C) Passing to alternative supply sources like
Turkmenistan and Iraq, the Minister noted that he had
discussed his proposal for a trilateral working group on
Iraqi gas with EUR DAS Bryza. Ambassador said that everyone
now seemed agreed to this meeting. Guler agreed to the
suggestion that staffs work urgently to schedule the
U.S.-Turkey-Iraq gas trilateral late this year or early in


2007. He deferred judgment on which Iraqis should
participate to us. Guler said he did not know if the coming
visit of PM Maliki would include the Oil Minister; it was not
clear if this would be an opportunity to "preview" at a
senior level, before launching the group later with experts
from Baghdad, Ankara, and Washington.



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Plug for Samsun-Ceyhan


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8. (C) Guler raised oft-repeated arguments about
Samsun-Ceyhan as the best Bosphorus bypass option, lamented
the lack of USG support for this project, and hinted of
linkages to gas projects (e.g., more gas coming from Russia).
Guler criticized Chevron for playing back and forth (with
respect to Samsun-Ceyhan and Burgas-Alexandropolos).
Ambassador repeated the USG position on neutrality with
respect to a particular bypass project. He also cautioned
Guler on Russian tactics. Moscow may use Samsun-Ceyhan to
get an advantageous gas deal that would kill the southern gas
corridor and then abandon it.



9. (C) Ending with alternative metaphors, Guler said that
negotiating with the Russians was like biting each others'
fingers and seeing who gives up first. He said that his
finger was hurting. Ambassador referred to a recent Harlem
Globetrotters game he and Guler enjoyed recently: the
Russians will keep winning unless there is competition.
Qualifying his response, Guler said, "in the long term, I
agree with your vision; short term, my finger hurts."
However, he said he sought to work with the U.S. to solve the
problems and take joint action "without suspicion".



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Consortium Comment - First Politics - Then Commercial


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10. (C) In a separate meeting with the economic section,
Statoil rep Per Myrvang, representing the Shah Deniz
consortium and referring to this winter's woes, said that
there needed to be a clear separation between an initial
political meeting between the countries to gain a political
solution and a separate step to work out the commercial
arrangements. He was concerned that politicians were

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meddling too much in the commercial aspects, particularly in
Baku. Myrvang said that the consortium and BOTAS had still
not reached agreement on the "run-in" period for South
Caucasus Pipeline start-up. He admitted that both the Shah
Deniz field and the Turkish spur were not ready due to delays
and technical problems. He estimated that there could be a
January 2007 start, but the Georgian problem had overwhelmed
the start-up negotiations.


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

MCELDOWNEY