TURKEY WORRIES ABOUT RELIANCE ON RUSSIA NATURAL

UNCLAS SECTION 01 OF 02 ANKARA 000065

SIPDIS

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

SENSITIVE
SIPDIS

EUR ALSO FOR DAS BRYZA

E.O. 12958: N/A
TAGS: EPET ENRG ETRD TU RU
SUBJECT: TURKEY WORRIES ABOUT RELIANCE ON RUSSIA NATURAL
GAS

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Sensitive But Unclassified. Please Handle Accordingly.


1. (SBU) Summary. Turkey did not experience any recent
reduction in supplies from Russia via Ukraine, but
relying on Russia for 65% of its natural gas -- more than
most EU countries -- Turkey watched the Russia-Ukraine
gas face-off with great concern. According to Turkey's
pipeline company BOTAS, the Russia-Ukraine skirmish
underlined the risk of significant dependence on a single
supplier -- particularly Russia. Moreover, it will push
Turkey to pursue diversification of energy type and
source (Iraq, Egypt, Azerbaijan),and will also feed
irresistible pressure to engage in gas trade with Iran
(including transit of Iranian gas through Turkey to
Europe). End Summary.


2. (SBU) In a January 4 meeting, a senior BOTAS official
told us that the one-day New Year's turndown of Russian
natural gas shipped via the Ukraine did not affect
supplies to Turkey. Two-thirds of Turkey's gas from
Russia transits the Ukraine; the (growing) balance is
shipped via the newer Blue Stream pipeline under the
Black Sea.


3. (SBU) On the same subject, Energy Minister Guler made
the following points in a January 3 statement to the
press:

-- Turkey had received assurances from Russia and
Ukraine that its supplied would not be interrupted.
Turkey pays market price to Russia. (Note: Russia
has been a reliable supplier to Turkey and they have
had recent high-level discussions on oil, gas, and
other projects.)

-- Turkey will accelerate development of its natural gas
storage capacity. The World Bank is assisting
construction of a 3 BCM facility under the Salt Lake
near Ankara and Turkey is completing a 1 BCM storage
project in a depleted field near the Sea of Marmara.

-- Turkey will pursue diversification of energy sources,
such as nuclear power plants.

-- Turkey will seek diversification of energy and gas
sources (for its own use and transit to Europe),such
as Azerbaijan Shah Deniz (end of 2006) and potential
from other neighboring countries, including Iran.

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Transit to Europe - Nabucco
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4. (SBU) Focusing on transit potential of natural gas
to Europe, the BOTAS official stressed the potential for
Turkey to develop projects sourcing gas from Egypt, Iraq,
Azerbaijan, Kazakhstan, Turkmenistan, and -- inevitably -
- Iran. He described the Turkey-Greece inter-connector
(underway with Greek state firm DEPA) with a link to
Italy (private Edison Electric) under negotiation. The
official thought the five-country Nabucco project to
Austria would gain momentum from the recent crisis, which
seriously put in question Russia's reliability. The
Nabucco project, he believed, would depend on European
companies developing supply contracts with source
countries and that the project was in effect in
competition with the Baltic pipeline (to Germany,
supported by Gazprom and Ruhrgaz).


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Iraq Potential
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5. (SBU) The BOTAS official was optimistic about
natural gas potential in northern Iraq. He cited pre-
1990 work done by Turkish firms BOTAS, TPAO, and TEKFEN,
working with Shell, Gaz de France, and ENI, to develop a
significant non-associated field near Kirkuk. The
companies abandoned the project after the embargo on
Iraq, but are all interested in rejuvenating the project
when conditions are right. The BOTAS official claimed
that 11 BCM of Iraqi (associated) natural gas is flared
each year, and added that Iraq's reserves generally
consisted of high quality natural gas.

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Iran - Giant Reserves, but Difficult Partner
--------------


6. (SBU) With respect to Iran, the BOTAS official said
that Iran's sizeable gas reserves presented a compelling
opportunity and challenge, emphasizing that Iran was an
extremely difficult partner and bargainer. He noted that
Turkey's existing pipeline and contract with Iran (6 BCM)
faced difficulties over price, quality, and arbitrary cut-
off. In fact, the issue is now in international
arbitration. The official said Iran is focused all-or-
nothing on gaining transit through Turkey to Europe, and
it has been hard for Turkey to resist reciprocal pressure
from Europe. He noted that Iran was one of several
sources for the Nabucco project. Echoing comments from
other GOT officials over the years, he said Turkey would
prefer to work with other countries, but Iran's
prodigious supply -- and Europe's demand and interest --
would in the long term be irresistible. The official
added that the Iran state oil company was a partner in
Shah Deniz and was contributing to slowing down decision
making on phase 2.


7. (SBU) Comment: In the dangerous game of chicken
between Russia and the Ukraine, Ukraine appears to have
decided to make its point on the lines feeding central
Europe, and the crisis did not have an impact on the
separate lines feeding Turkey and the southern Balkans.
Russia has been a reliable source for Turkey (showing
some flexibility on helping Turkey manage its surplus of
take-or-pay gas contracts),but - like for Europe - the
message of the risk of over-reliance on Russia is clear.
Turkey has reached out to the U.S. for help in fostering
alternative sources for gas to Europe, such as Iraq and
Central Asia, to counter the inevitability of Iran
seeking outlet of its huge reserves.
MCELDOWNEY